Demystifying Voice & Data -- Part 6
In the sixth in an ongoing series of posts, I take a closer look at VoIP and packet switching.
As an IT/telecom professional, you are likely to have a good understanding about the theory and principles of voice and data. However, even if you are an expert, at some point in time, you will need to discuss or explain voice, data and wireless principles to your nontechnical, line-of-business colleagues. The intent of this, and the other posts in this series, is to help you demystify technical concepts for nontechnical colleagues, customers, clients, and so on.
Each article covers a couple of topics, and tries to explain these in nontechnical terms. While the examples and analogies may not always be 100% applicable, they should provide some perspective -- i.e., highlight the differences and advantages.
For my previous posts in my "Demystifying Voice & Data" series, see:
- Part 1: Analog, Switching, Multiplexing
- Part 2: The Digital Advantage
- Part 3: Packet Switching
- Part 4: Data Communications
- Part 5: IP (Internet Protocol)
In this article, I will demystify the topic of VoIP.VoIP & Packet Switching: Forerunners to the Sharing Economy?
Airbnb is a great company to look at as an example of the sharing economy. You have a resource that has excess or underutilized capacity; in the case of Airbnb, you have a home or apartment with spare bedrooms. As the homeowner or renter, you are looking to gain more revenue by renting out this excess capacity. You successfully rent your spare space to another party, who benefits by paying a lower rate than "renting" a dedicated resource like a hotel room.
Now imagine you are an IT/telecom carrier that has a resource such as a dedicated circuit from point A to point B. In the traditional voice world, you rent out the circuit to a single dedicated user for a period of time (i.e. 3-minute call). After that single user, you rent out the dedicated circuit to another user. Upon careful analysis, you realize the voice call only utilizes a fraction of the available space on that dedicated circuit.
As the carrier, you realize that you can make a lot more money by adopting the sharing economy model. Instead of renting out a dedicated circuit to one user, you rent out the circuit to a large number of users, via IP technology. In a hotel room analogy, this would be the equivalent of changing your hotel room into a hostel. Instead of one bed to a room, you replace the single bed with two bunk beds, increasing the utility of the room by four.Follow the Money
Let's look at IP/packet switching from a carrier's bottom line perspective. You can sell a commodity -- voice calls at a certain amount ($.10/minute) -- using traditional voice technology. However, by using IP and packet switching, you can increase the number of calls over your facilities by a factor of 100 (or more). Thus, you could lower your prices from $.10 to $.05, or even $.01, and still increase your profitability. But how can you increase supply?
We have all heard of fiber optics, where signals are transmitted as light. What happens when you add a prism to white light? It breaks out the light into a spectrum of colors from red, orange, yellow, green, blue, and violet. Each color represents a certain frequency (lanes) of white light. Now by using color "lanes," you have increased capacity from one to six. But you then realize that you can go even finer in colors. Instead of the broad categories of red, orange, yellow, etc., you are able to create distinctive lanes between colors. Thus new lanes of red/orange, orange/yellow, yellow/green , etc., are created. You just increased the amount of bandwidth to 12 times. And you go even further and create even more "lanes" such as red/red/orange, red/orange/orange, and so on.
After separating out more distinctive colors, you end up with 256 color lanes (frequency), each of which can carry its own level of traffic. Thus, by this one technological advancement, dense wave division multiplexing , you have increased supply by over 250, with minimal additional cost.
So while you dropped the price of voice calls 50 to 90% ($.10 to $.05 to $.01 per minute), the cost of carrying dropped by a factor of 100. Your actual cost is a small fraction of a penny (e.g. $.001). From a business perspective, the cost of providing voice calls is no more than a few dollars, even for the heaviest users. Voila, the cost of carrying calls have dropped dramatically, and you can offer free long distance dialing as a feature of your service.
As a consumer, many of us still value unlimited long distance from a historical perspective (i.e. worth $20/month or more). Thus, we think we are getting a great deal with unlimited long distance. From the vendor's perspective, offering unlimited LD costs a dollar or two and helps prop up a higher monthly service charge.Problems
While everyone generally benefited from the migration to VoIP technology, there are still some major issues. In particular, voice call quality has dropped dramatically. In my next No Jitter article, I will look at the causes of poorer voice quality of VoIP.
"SCTC Perspectives" is written by members of the Society of Communications Technology Consultants, an international organization of independent information and communication technology professionals serving clients in all business sectors and government worldwide.