BT's new trick: 21CN

Embracing change, welcoming competition - that can't be BT can it? With a new network planned and a mass migration to VoIP it seems BT is embracing the future. But not everyone's happy about it, says Stewart Baines.

It's not supposed to work this way. IP networks are the realm of start-ups and not lumbering relics.

Well, tell that to BT. It's planning the most radical shake-up of its nationwide network in the 25 years since the first digital switches were introduced. Within five years, all calls on the BT metro and core networks will be transformed into voice over IP (VoIP). The new system will save £1bn a year in costs of maintaining a nationwide network and promises a seat at the top table for the fixed-mobile convergence shakedown.

The plan, known as 21CN, was announced in June 2004 and surprisingly for such a large-scale engineering project is still on schedule. A brand new converged network, it will initially replace 16 different network environments, each with their own billing systems, operating systems and even companies operating them.

Competition is responsible for 21CN. Prices continue to fall in every element of telecoms activity - voice, data and multimedia - and new carriers with new business models continue to emerge. But while prices of services are falling, costs are not. And the UK's public switched telephone network (PSTN) is expensive to maintain.

Sandra O'Boyle, senior analyst at Current Analysis, says: "BT has had to move to this all-IP network. The cost of copper will be increasingly expensive to maintain."

It won't be the first time BT has offered VoIP services. Indeed, BT has a range of corporate VoIP products from IP Centrex to converged voice and data IP/VPNs that are winning multi-million pound contracts. Even home users can get BT internet telephony. But this is the first time a PSTN (public switched telephone network) has been ported to IP. Nowhere else in the world has this been done at such a scale. Every home, business, pub and village hall will be migrated to VoIP.

Daryl Dunbar, head of 21CN customer solutions at BT Wholesale, admits it will cost up to £10bn to overhaul the current disparate networks and the VoIP element is targeted for completion by 2010. That's a bigger annual investment than is spent on UK's motorways and trunk roads. "A voice over IP core will be a much cheaper way of managing voice," Dunbar says. "And hopefully it will be a foundation for reversing the decline in fixed voice revenues."

One of the more significant building blocks of the new network will be the deployment of an all-singing, all-dancing box in local exchanges that will replace the work of much specialised equipment. The Multi Service Access Network (MSAN) will be able to bring voice, IP, Ethernet, ATM, SDH, ISDN and just about any other fixed telecom technology into the same bit stream. Over 5,000 of these MSANs will be deployed nationwide, replacing over 100,000 separate units.

Initially calls will remain switched from the premises to the exchange. The phone will remain the same, shuffling over the copper to the exchange in the same way it has for years. In the exchange it will be converted to VoIP and converged with broadband traffic. This alone will massively reduce the amount of physical plant needed in the network.

The next step is to integrate voice with data in the home. BT's plans are to develop an 8Mbps home DSL service and a modem that acts as a home media server. A VoIP phone will plug into it as well as a PC, games platform and eventually other consumer devices.

The rollout plans are ambitious. Already 1,000 homes are on VoIP and next year mass migration beings. The two benchmarks are 2008, when BT hopes 50 per cent of homes and businesses are converted to IP, and 2010 when that figure should jump to 100 per cent.

But that will not be end of 21CN. The next step is to replace the creaking copper. The endgame is fibre to the premises or home, sometimes known as 'deep fibre'. Trials of this are already underway in Milton Keynes, Ipswich and South East London. Voice and data will be converged from the home all the way to the core of the network.

BT Wholesale's Dunbar says: "If the economics work, we'll look at putting fibre into all new homes. Our initial view is that passive optical networks (PONs) are cheaper to maintain than copper but we need to wait to see the results of the trial before making any commitments."

Not everyone is happy with BT's plans. Most of those are BT's competitors. Some don't want 21CN built at all, as it will put their late 1990's IP core networks to shame. Others are demanding equal access.

Current Analysis' O'Boyle says: "Competitors are asking, what does it mean to them? They're scared about it to some extent. They've invested a lot in their own IP networks and they certainly don't want to see BT on a par."

Maybe BT will not be so intransigent in future about open, equal access to its plant. Last week in response to Ofcom's review of UK telecommunications, the company admitted it would go to almost any lengths rather than let Ofcom break up BT into a network company and a separate service provider.

BT's response took many analysts by surprise. The telecoms giant says it was prepared to set up a transparent "access division" that will look after the local loop and maintain equivalent access to it. Equivalent access means BT Retail will not receive preferential treatment over competitive operators for broadband and fixed telecom services, a demand that competitive operators have been calling for some time. Rivals and even Ofcom could join the board of the access company.

Tony Lavender, director of telecoms research at consultancy Ovum, says: "Equivalence runs through BT's response [to Ofcom's strategic review of the UK telecoms market]. As a package the response appears to go a long way to address concerns Ofcom and industry have raised. But, as always, the devil will be in the detail of how BT's proposals will be implemented."

Current Analysis' O'Boyle says: "The promise of an access division is a sweetener for Ofcom. It's all a bit cat and mouse. BT hopes it will be left alone to do what it wants with 21CN." Understandably, BT is reluctant to grant unfettered access to its new crown jewels. At £10bn, 21CN will cost almost twice what mobile operators have had to pay for 3G licences and network build.

To assuage the regulator, BT has invited other operators in to the design team of the new network, 21CN. The idea is that not only will the network be more wholesale-friendly but Ofcom will take a 'softly softly' approach to regulation.

Yet negotiations may not go so smoothly. Unless BT gets some concessions from Ofcom, it is threatening to postpone indefinitely its plans to modernise the PSTN. "BT will play hardball over this. It is telling Ofcom that if you stifle us with regulation, we won't bother building 21CN. There will be no point," says O'Boyle. "I think it's difficult for Ofcom to gets its head around what it all means."

"The Ofcom review is holding 21CN back a bit but I think, in the end, Ofcom and the City [BT's shareholders] want us to progress with it. But those shareholders will want to see a return on their £10bn investment," says BT's Dunbar.