GENBAND Talks Financials to Accelerate PSTN Conversation

By nearly all accounts, the world's telecommunications providers aren't in any major hurry to switch over from the existing PSTN to an all-IP multiservice infrastructure due to the expense and time involved. GENBAND (News - Alert) believes it has a financial model to change all that.

Who pays for the switch to the all-IP network appears to be a big problem. Carriers such as Verizon (News - Alert) appear to have adopted an "abandon in place" strategy, letting existing facilities and equipment degrade until and if customers switch to fiber-based options. Or, worse yet as in the case of Hurricane Sandy on Fire Island, N.Y., failing to replace damaged central office facilities and forcing a migration to wireless.  

GENBAND Chairman and CEO David Walsh presented a "PSTN Sunset & Sustainability" model during his keynote speech at TIA (News - Alert) 2013 this week.  The PSTN's true cost these days is power, resulting in carbon emissions. Meanwhile, the cost of building Layers 1-7 have gone down considerable in the last decade, while "Layer 0" -- mechanical and electrical costs -- have substantially increased.   Over the next decade, power costs will continue to increase.

The solution, Walsh says, is to swap out all existing legacy as soon as possible. It consumes a whopping 12 billion kilowatt hours every year. Replacing everything with new gear should result in a 70-percent reduction -- 8.4 billion kilowatt hours annually -- and works out to a $1.3 billion power bill savings annually.

Dropping in an all-IP, multiservices network provides a number of advantages. A new IP-based network provides increased flexibility and capability to add new services, especially with businesses continuing to value voice and multimedia usage increasing. There are also benefits with a much lower real estate footprint as well.

But the ticking clock is with equipment that, in some cases, is 25 to 35 years old with an expected lifespan of 25 years. Network maintenance costs are increasing and most "grey beards" who understand all the deployed legacy gear has retired from the service provider world -- and the younger guys out of college understand IP. 

The telecom retired worker issue is similar to the demand for COBOL programmers as the year 2000 and Y2K bugs loomed. GENBAND has stocked up on personnel who understand legacy PSTN gear, while that knowledge is vanishing out of the traditional telecom world.  That loss of knowledge translates to increase risk. For carriers, an ultimate transition to IP and turning off the PSTN is a no-brainer, but the problem is finding the capital financing to convert central offices from legacy gear to IP.

GENBAND has teamed up with TelEfficient LLC, a finance company, to structure an upgrade deal funded out of future operational expense (OPEX (News - Alert)) energy cost savings to fund deployment of energy efficient hardware today. TelEfficient provides the cash upfront for converting COs from PSTN to all-IP and gets paid back over time from the electricity savings -- after all, we're talking about a 70-percent reduction in the power bill, so there should be enough money to go around for both service provider and finance company. GENBAND gets to sell more gear faster and provides its established expertise in migrating companies from PSTN to IP. The service provider gets new gear and reduces its carbon footprint, so it's a win-win all around.

Walsh cited a case study in his keynote that encompassed 86 central offices with 104 switches, transitioning infrastructure to one switch and 39 gateways. Estimated as a 10-year project, the entire network was migrated in three years, with the capital expense -- yes, just like the car commercials, no money down -- financed via operational expense. The $60 million project saved 54 percent power across the network with about 160,000 metric tons of CO2 emissions reduced per year. Total savings of $80 million on the power bill was expected over the term of the project.

GENBAND is in discussion with a number of service providers with some close to signing, Walsh told me. What he didn't say was deals would establish a larger GENBAND footprint within carriers, enabling the company to offer follow-through products and services to be deployed via software.

I'm interested to see how soon and how fast carriers sign up. In certain areas of the world, such as Europe and California, there are regulatory and utility incentives to migrate to more power-efficient equipment. It also takes a while for service providers to analyze and embrace a new business model, so it might take a couple of years before GENBAND has a ramp and pipeline of CAPX/OPEX style deals.


Edited by Rachel Ramsey