The Smart Network Prevents HD Voice

At the HD Communications Summit in New York yesterday, a wide variety of conflicts were clarified, but the starkest of those conflicts is that between the business model of the cablecos and telcos and new technologies like HD Voice.

The technology

HD Voice samples a greater amount of spectrum, at least twice as much of it as a regular phone call does, to make calls easier to hear. Early adopters might be first responders, financial companies, medical institutions, and anyone else for whom a small misunderstanding could involve a significant risk.

But in the long term, the technology is likely to succeed or fail depending on whether or not consumers like it. The benefits, such as intimacy, clarity, and simply not having to repeat yourself during a call, will not be immediately obvious to anyone who buys the service because it only delivers clear benefits if the network and both phones are using HD Voice.

In some cases, only the person who has not purchased the technology benefits from it. If your phone if HD and the phone at the other end is not, you may hear static and other artifacts and those at the other end might hear a clear call.

So the technology will be difficult to sell to consumers until there's widespread adoption, and one company is taking the lead: Orange, the mobile wing of France Telecom.

Why it will be deployed in cellular networks first

HD Voice does not disrupt the business model of the cellular network. Because the cellco controls the network and the devices on it, HD Voice is easier to roll out there. Ironically, Moldova is the first nation to get HD Voice, as of September 13, 2009. The rollout by Orange currently has only one HD handset, from Nokia, but more are expected, perhaps when Orange rolls out the service in the UK, France, and Belgium.

"I believe that when Orange rolls out HD voice service in the UK, France, and Belgium, that will be the tipping point," said Brough Turner, Dialogic Chief Strategy Officer.

While HD voice is coming to mobile networks, cablecos and wireline telcos are reluctant to sell it.

The problem is not technology -- it's all about business models. At the conference, every attendee received a Gigaset HD-ready phone (which I have not yet tried but will write about soon).

Disruption by hardware

The key question from the audience was this: "How will a company pay for a Gigaset-like handset when that handset allows the user to route around the provider's voice service?"

Gigaset's device, when connected to a network, automatically obtains a SIP number. That's not all you need to make a voice call, but many consumers have the necessary software, such as Skype, to make HD calls. They don't need a cable or phone service to do it -- in fact, if the call routes over cable or phone lines, it will be degraded to standard definition. That's because the old networks are only built to handle SD voice transmissions.

So a phone or cable company that sold HD Voice handsets to its customers would, in effect, be encouraging them to route their calls over the internet.

Skype does not compete as a primary phone line provider, noted Michael Jablon, Time Warner vice president of digital phone strategy.

But Skype could lower the value of the services provided by phone and cable companies, noted Julian Spittka, Skype product manager and senior engineer. He said that the old networks have failed to adapt to two key disruptions of the past two decades: the change from circuit-switched to packet-switched voice and the substition of software for hardware.

Spittka noted that Skype performs, in free software on the desktop, many functions that required big iron in the past. He added that free software downloads will always have a greater reach than hardware, which must be purchased.

Dialogic's Turner pointed to a third major change in the past decade: the sale of several billion SIM cards worldwide.

As the mobile network adopts new technology, in part because it is closed, software available for free on the internet will disrupt the business model of cablecos and telcos that provide internet service but still rely on voice services for the bulk of their revenue.

"70 percent of telco revenues come from voice," said Dan Berninger.

With HD, those revenues are threatened -- and, for the first time, VoIP with HD will be able to provide a higher quality call than wireline in SD.

These are interesting times.