  There have been a small number of cost studies of Voice over IP (VoIP) in the
academic literature. Generally, they have been for abstract networks, have not
been focused on the public switched telephone network, or they have not
included the operating costs. This paper presents the operating cost portion of
our ongoing research project comparing circuit-switched and IP network costs
for an existing local exchange carrier.
  We have found that (1) The operating cost differential between IP and circuit
switching for this LEC will be small; and (2) A substantial majority of a
telco's operating cost lies in customer service and outside plant maintenance,
which will be incurred equally in both networks in a pure substitution
scenario. Thus, the operating cost difference lies in the actual cost
differences of the switching technologies. This appears to be less than 10%-15%
of the total operating cost of the network. Thus, even if the cost differences
for substitute services were large, the overall impact on the telco's financial
performance would be small. But IP has some hidden benefits on the operations
side. Most notably, data and voice services could be managed with the same
systems infrastructure, meaning that the incremental operations cost of rolling
out new services would likely be much lower, since it would all be IP.
