At first glance, Telus Corp.’s decision to overhaul its current circuit-switched network and instead employ packet switching might appear a precocious move, but industry analysts say the Vancouver-based phone company is simply on the forefront of a growing trend.

Telus announced earlier this summer a bold plan to swap out its old-fashioned network elements in favour of packet-switching technology. The company will migrate towards the new infrastructure throughout 2002 and expects to complete the transformation by early 2003, said Dr. Girish Pathak, Telus’ chief technology officer in Vancouver.

“As an operator and provider of service to both consumers and businesses, we are looking for a…platform capable of delivering these services at a reduced cost and with better effectiveness.”

IP benefits Telus in three ways, he said. The technology brings “a higher level of integration than exists today; capital and operational efficiency; and the ability to deliver and support the service more effectively.”

The network transformation profits not only Telus, but also its enterprise customers, Pathak said. IP lets Telus put voice, video and data on the same network, thus paving the way for similar integration at the client’s level.

He provided an example, an insurance agent visiting a customer. During the meeting the customer asks about mortality rates. The insurance agent doesn’t know the answer, but he does have access to the company’s experts on the matter. Using his portable computer the agent connects with corporate headquarters, contacts the expert and brings him into the meeting over high-speed video. The customer asks the expert her questions and gets answers in real time.

“Today, in order to do that, you would have to have a separate video channel,” Pathak explained. “You would have to have a data channel bringing the presentation…and the voice line that lets you connect to the office. That’s three completely separate networks. The opportunity for us, which I would call a differential in the marketplace, is the power to change the economic model, the industry model of how you operate.”

According to Jon Arnold, program leader, voice over packet (VoP) equipment with Frost & Sullivan Canada in Toronto, Telus is in the lead with its network evolution. But he notes that others will soon follow the company’s blazing trail.

“I wouldn’t say they’re on the bleeding edge,” Arnold said. “Telus is definitely dedicated to going in this direction, and they’re really ahead of the pack. But we really only have two carriers in Canada. Whatever Telus is doing, I can tell you Bell (Canada) is just as far along.”

Mark Quigley, an analyst with The Yankee Group Canada in Ottawa, agreed with Arnold, calling the changeover “the next, natural step in the network’s evolutionary path. From that point of view, it makes perfect sense to see these kinds of announcements begin to happen. And we’ve seen it happen in other places as well. Sprint (a U.S. telco) made a big IP voice announcement this past winter.”

Quigley said it’s important to note that Telus is taking baby steps towards all-IP infrastructure.

“First it’s just going to be all their long-haul, inter-exchange stuff. They’re going to leave the core metro networks alone for now. It’s not like everybody’s going to be told, ‘Your IP phone is in the mail. Get ready to join us in the 22 nd century.'”

Pathak said Telus would eliminate the ATM layer in its network, taking care to ensure ATM users are ported onto IP without problems.

“The migration will be seamless,” he said, adding that the new infrastructure will support legacy equipment at the customers’ premises such as installed PBXs. “They (customers) can migrate from the PBX depending on when the capital is sufficient to move to an IP PBX. They control the timing.”

SONET technology will be enhanced with dense wave division multiplexing (DWDM) for improved efficiency. SONET, although robust, is known as a resource hog.

All these changes should translate into improved service and new products for customers, Pathak said. And just as important, the new network spells cost savings that Telus might decide to pass down the line, said Quigley.

“What it may mean for the enterprise, because you are increasing operator efficiency from the carrier point of view, the ability to pass some cost savings on to customers. So potentially for Telus it does perhaps represent a modicum of competitive advantage that they will be able to leverage.”

Pathak said customers would see cost savings through media integration.

“Today enterprise customers have three sets of outlets at the premises.…The customer could choose to migrate from the set of three and the devices that operate on them, to the IP infrastructure. The capital efficiency available for the service provider on the core and access side becomes available for the enterprise.”

Beyond the technology and its effect on customers, Telus’s switchover had an effect on workers, too. The company had to overhaul its employee mix to prepare for the coming IP age.

Pathak said the company smoothed the traditional political rift between “Bellheads” and “Netheads” by combining the best of both worlds. From the Bellheads – people with voice network know-how – Telus sought expertise to make sure the new infrastructure operates at least as well as the circuit-switched platform did. Employees with data network experience, the Netheads, were called upon to suggest efficiency improvements.

Asked if the workforce changes came during Telus’s last payroll purge (the company cut 6,000 employees in July), Pathak said that’s “part of it. In making the cuts, we were making the cuts where we didn’t need them at the current capacity. We’ll be embellishing the workforce where we do need people going forward.”

Arnold said Telus’s network overhaul might serve the company well as it goes head-to-head with Bell in central Canada.

“If they’re going to attack Bell in their own backyard, they’d better have something that Bell doesn’t. It’s got to be IP.”

Pathak agreed that this IP evolution might give Telus an advantage over Bell, but, he cautioned, it’s likely a short-term advantage.

“I think it offers us perhaps a little bit of lead time in a differentiated value proposition to the customers. At some time Bell will implement similar capability.… It provides a step up in the value proposition as well as cost positioning, which is compelling enough that anyone should follow our lead.”

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