Session one Visions of IP telephony: technical aspects
Internet Protocol (IP)-based networks are increasingly being used in addition to traditional circuit-switched networks for carrying voice traffic. In fact while this is a sign of choice between competing technologies, it also suggests future trends towards convergence. In order to understand the implications of IP telephony, it is essential to grasp its main technical characteristics. This session will examine IP-based networks and the use of the Internet Protocol in other networks, operations and performance aspects, application development and transition strategies.
First roundtable Making it happen: country experiences
The regulatory treatment of IP telephony varies significantly from country to country. Some regulators have banned its use, either explicitly or implicitly, some permit or even encourage it, but the majority of regulators have yet to formally address the issue. This session will set the stage for the Policy Issues roundtable, and serve as a forum for countries to share their experiences and discuss various regulatory approaches.
Session two Economic issues and market dynamics
This session will address the main economic issues raised by IP telephony. The growth of IP-based networks around the globe has profound and broad implications for societies, including consumers, industry, and national administrations. In part, this is because telecommunications infrastructure is increasingly viewed as a fundamental element of national competitiveness. For enterprises and consumers, IP telephony offers low cost long-distance and international telephone calling as well as advanced, integrated services. For public telecommunication operators (PTO), IP telephony presents opportunities and challenges. While IP telephony can help national administrations advance national policy objectives designed to improve the performance of their telecommunication networks and the cost and range of services these networks offer, incumbent PTOs have existing revenue streams and technologies that may be affected if customers shift to other services or companies. This session will provide an assessment of the state of IP telephony, the market opportunities that it is creating and its impact on business models.
Second roundtable Policy issues for IP telephony
The Forum aims to assist Member States in adapting to the changes in the telecommunication environment brought about by the emergence of IP telephony. The Regulators roundtable will consider the main policy issues raised by IP telephony, including economic and regulatory aspects. In so doing, the panelists will examine the role for government in meeting consumer interests and facilitating infrastructure investment during service and network transition. The issues to be discussed will include the status of IP telephony under existing or newly created frameworks, the challenges it poses for universal service schemes, the economic impact on public telecommunication operators (particularly in developing countries), cross-border concerns, convergence, and human resources development. The roundtable will consist of regulators from countries at different stages of market liberalization.
The increasing use of IP networks for communication services, including applications such as telephony, has become a pivotal issue for the telecommunications industry worldwide. The possibility of transmitting voice over IP-based networks, with all its challenges and associated opportunities, such as voice and data integration, constitutes a milestone in the convergence of the communications sector. It also reflects a convergence between two technologies that have emerged under very different policy and regulatory circumstances:
- the public switched telephone network (PSTN)**, based on circuit-switched technology, which has been fairly extensively regulated by most countries (until recently);
- the Internet, which is based on packet-switched technology, and which has evolved as a data network subject to few,
if any, controls.
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*This is a series of short articles extracted from the Secretary-General's report to the third World Telecommunication Policy Forum (Geneva, 7-9 March 2001). **The term PSTN is used in these articles as a synonym for traditional circuit-switched telephone networks offered by public telecommunication operators (PTO), as well as integrated services digital networks (ISDN), and public land mobile networks (PLMN). |
The term "IP telephony" can mean different things to an engineer or policy-maker and there is no consensus at this point on its exact definition. However, for purposes of discussion in the Forum, it is necessary to provide some delineation of the various forms that IP telephony can take. Accordingly, IP telephony is used here as a generic term for the different ways of transmitting voice, fax and related services over packet-switched IP-based networks.
The transmission of voice over IP-based networks can be subdivided into two major subsets: VoIP (Voice over IP) and Internet telephony. The difference lies in the nature of the underlying IP network. VoIP utilizes managed, private IP-based networks, while Internet telephony primarily uses the public Internet. Since IP telephony is a broad term, an effort has been made, throughout this series of articles to clearly identify the specific type of network or service that is being described and discussed.
Several major international PTOs have announced that they will migrate all their international traffic onto IP platforms and have committed substantial investment sums to make that transition. One reason for this transition is the apparently lower cost of moving traffic over IP-based networks. For example, one company estimates that this technology will allow it to carry traffic at a quarter of the cost of doing so over a conventional, circuit-switched network. Liberalization of markets is also contributing to this migration to IP-based networks. Towards the end of the year 2000, more than three-quarters of all international traffic originated in countries in which the provision of IP telephony is liberalized.
While there are a range of views as to the pace at which IP telephony will grow in the coming years, it is commonly believed that it will increase fairly rapidly. Worldwide, the volume of traffic on IP-based networks already far exceeds the voice traffic that travels over the PSTN. Consequently, few countries can ignore IP telephony. Nonetheless, the PSTN will remain robust for the foreseeable future, and an important issue for policy-makers will be the need to oversee the co-existence of the two network technologies and, increasingly, combinations of both.
For consumers, IP telephony offers potentially much cheaper long-distance and international telephone calls compared with the alternative of using a circuit-switched, fixed-line or mobile network. These cost savings may, at least partially, offset the possible loss of quality. IP telephony also offers consumers advanced services, integrating voice and data, such as merged World Wide Web and voice services (for example, "click-to-talk") or integrated messaging. Adding voice to traffic on IP-based networks further raises issues of substitution for circuit-switched services and strategies for network transition.
The regulatory approach to IP telephony varies significantly among ITU Member States and reflects the different interests involved. In some countries, governments have defined IP telephony services in such a way as to permit the delivery of this service to the public, despite the existence of market exclusivity of the incumbent over basic voice telephony. In others, the service is prohibited or licensed and promoted.
Given that IP telephony calls are mainly carried outside of the PSTN — and hence outside the regulatory and
financial structures which have grown up around the PSTN — it is the view of some that, for incumbent PTOs in
developing countries, IP telephony may undermine not only current revenue streams but also existing universal service
programmes aimed at extending networks and services in unserved or underserved areas. In other countries, IP telephony,
and particularly the roll-out of IP networks, is viewed as a means to offer and encourage new and cheaper services, and
thus to exert downward pressure on the price of circuit-switched telephony.
Technical and operational aspects of IP networksA fundamental paradigm shift has been under way in the telecommunications industry — a shift that is
arguably as important as that from the telegraph to the telephone or from the mainframe to the personal
computer. That change is a shift from traditional circuit-switched voice networks to packet-switched data
networks, using IP technology. The largest (and most well known) IP network in the world is "the
Internet"; referred to by many as the "public Internet". There are many definitions for the
Internet but simply put, it is a globally connected set of computer networks, using the Internet Protocol,
sharing a common IP address space. Computers connected to the Internet use software that "serves"
or provides interchange of information using widely available standard applications (e.g., e-mail, file
transfer). The popularity of the Internet grew tremendously in the 1990s with the deployment of World Wide
Web technology — allowing users easy access to hyper-linked information around the globe.
Of course, most telephones are, and will continue to be, for several years to come, connected to traditional circuit-switched telephone networks. IP telephony services must be able, therefore, to accept calls originating on the PSTN, to terminate calls on the PSTN, and to do it all seamlessly. Technical standardization for IP telephony is under way in many industry and regional entities, as well as in standardization bodies such as the ITU Telecommunication Standardization Sector (ITU-T), the ITU Radiocommunication Sector (ITU-R), the European Telecommunications Standards Institute (ETSI) and the Internet Engineering Task Force (IETF). One example of ITU standardization is the H.323 series of Recommendations from ITU-T Study Group 16. The scope of the H.323 series is very broad and supports both audio and video multimedia conferencing, call setup and control, bandwidth management, as well as interfaces between different network architectures. Also notable is IETF's Session Initiation Protocol (SIP), a protocol for conferencing, telephony, presence detection, events notification and instant messaging. In some circumstances, the IETF and ITU-T have cooperated directly on IP telephony standardization — producing the joint protocol called H.248 (ITU-T name) and Megaco (IETF name). H.248 or Megaco defines a master/slave protocol to control media gateways that can pass voice, video, facsimile and data traffic between PSTN and IP-based networks. Quality of service (QoS) and capacityQuality of service and its related topic, network capacity, is at the core of voice telephony and, as such, is often the focal point of the IP telephony debate, especially in determining regulatory classifications. There are many aspects to quality, including reliability, throughput and security. However, it is the perceived poor transmission quality of voice delivered over the public Internet that explains why Internet telephony is often not considered as a carrier-grade service. There are, in general, two ways in which this quality can be improved: implementing quality of service support and increasing available capacity. The latter may be easier to achieve because it does not require coordinated action across Internet service providers.| |
Numbering and addressingOne of the technical challenges raised by the ever-closer integration between circuit-switched and packet-switched networks is how to address calls that pass from one network service to another. Generally, it is assumed to be desirable that an integrated global subscriber access plan exists. For example, the same ITU-T E.164 telephone number would reach a subscriber regardless of whether IP-based or PSTN network technologies are used. ITU-T Study Group 2 is currently studying a number of possible options whereby users in IP address-based networks can be accessed from and to PSTN users. One option is the assignment of E.164 numbering resources to IP devices. Another approach is to use the ENUM protocol. ENUM defines a Domain Name System (DNS)-based architecture and protocol for mapping an E.164 telephone number to what are known as Uniform Resource Identifiers (URIs). URIs are strings of characters that identify resources such as documents, images, files, databases, and e-mail addresses. For example, http://www.itu.int/infocom/enum/ is the URI for the ITU website providing an overview of ENUM activities. During 2000, Study Group 2 and IETF held discussions and undertook collaborative activities related to the deployment of ENUM services. Since E.164 numbers may be synchronized with the DNS, the ENUM protocol would appear to have important implications for national administrations responsible for numbering policies under "country codes". The view of Study Group 2 is that administrative entities, including DNS administrators, should adhere to the applicable tenets of relevant ITU-T Recommendations (E.164, E. 164.1, E.190 and E. 195) with regard to the inclusion of E.164 resource information in the DNS. Specifically, in a recent liaison statement to IETF, Study Group 2 has noted that since most E.164 resources are utilized nationally, ENUM service and administrative decisions are primarily national issues within the purview of ITU Member States. National regulatory authorities may wish to consider, their appropriate level of involvement in ENUM-related activities in Study Group 2. One way would be by providing contributions to this study group in developing Recommendations that recognize and/or safeguard current national approaches and standards. Another issue of interest to administrations is the appropriate international management of the root of the ENUM DNS structure, on which administrations would be dependent for services. |
Projections vary widely as to the economic market opportunity that IP telephony creates. TeleGeography estimates that some 3.7 billion minutes of international traffic were carried over IP-based networks in 2000, or just over 3 per cent of the global total, but the market is growing fast. Market analysts forecast that, by 2004, IP telephony will account for between 25 per cent (Analysys) and 40 per cent (Tarifica) of the global total of international voice traffic. Most studies show that the main use of IP telephony at present is for international traffic rather than for domestic long-distance or local traffic. The United States is currently the main source of IP telephony traffic. TeleGeography estimates that all of the top 20 IP telephony routes worldwide by traffic volume are between the United States and other countries (though some of this traffic is perhaps simply being switched via that country). In the longer term, there is a market opportunity for IP telephony also in long-distance and local networks, especially if the transition of prices towards costs is delayed.
The IP telephony market-place, its products and players, differs considerably from the traditional PSTN telephony market which, even today, is dominated by incumbent national operators. Although the majority of IP telephony service providers (IPTSP) are US-owned, the main focus of their operations is global rather than national, and they often work in partnership with incumbent PTOs, bringing training and expertise as well as revenue-generating opportunities. The market can be segmented into several different types of applications, including (in the approximate order in which they have appeared): PC-to-PC; PC-to-phone; phone-to-phone and value-added services.
The market can also be segmented between wholesale and retail operations; or between those IPTSPs that offer priced services and those which offer applications which are free-of-charge to the end-user, funded by advertising revenue. It is also useful to distinguish between the ways in which IP is used to carry voice, for instance: in the networks of incumbent carriers migrating to IP; in the networks of newer PTOs without direct connection to customers; in managed IP-based networks offering multimedia services; or via ISPs which interconnect the public Internet with the PSTN. The mainstay of the business, for the moment at least, is price arbitrage, but this is evolving over time as value-added services — such as integrated messaging, presence management ("find me, follow me") and click-to-talk website functions — provide an increasing share of revenue.
At present, consumers must generally make a trade-off between price and quality. Willingness to make that trade-off will generally depend on price sensitivity. Consumers in low-income countries, or in low-income families in developed countries, will be more inclined than other less-price-sensitive consumers to choose IP telephony, where it is available. Residential consumers may be more inclined to use IP telephony than business users, for whom transmission quality and reliability are more important.
The precise nature of the cost advantage to PTOs offered by IP networks is the subject of much debate. It will depend, for instance, on:
- Whether a particular investment in IP is as a newly-built network, or as an upgrade or overlay to an existing network. The incentive to choose IP will be greater for new, or substantially new, networks. In Senegal, where existing networks serve only just over 1 per cent of the population, SONATEL plans to migrate its existing core network to an IP backbone by 2004 and to offer both voice and data services over the same integrated IP network.
- Whether a particular carrier is an incumbent or a new market entrant. New market entrants, with no legacy network to defend, are likely to be the first to move towards IP telephony. In China, for instance, China Netcom, a new market entrant set out to build a voice over IP network across 15 cities, covering some 9600 km of fibre-optic cable, by year-end 2000. For Hungary, the initial pressure to offer IP telephony came from mobile service providers that saw the opportunity to bypass MATÁV's monopoly on carrying international calls, although MATÁV itself is now an IPTSP.
- The extent to which value-added services are being offered. In economies such as the Special Administrative Region (SAR) of Hong Kong and Singapore, where local call charges are free (bundled into the access charge), new market entrants are offering value-added services that allow voice users to retrieve their e-mail (T2mail.com) or the provision of voicemail and fax communication services (2Bsure.com) over an IP platform.
Countries where prices for international traffic are high
The main opportunity for IP telephony will be for price arbitrage of simple voice transmission. In many of these countries, however, outgoing IP telephony is banned. Thus, the main form of IP telephony is for incoming traffic. Even though the use of IP telephony for incoming traffic may be no more legal than for outgoing traffic, it is harder to detect and block.
Countries where prices for international traffic are falling
For both retail (consumer) and wholesale (settlement) rates — IP telephony traffic may already be playing a role in promoting price competition (as in Hungary or Thailand) or in providing an alternative to the services of the fixed-line incumbent (as in Colombia). However, a critical factor is how easy it is for subscribers to use the service. In Peru, for example, the success of IP telephony was partly based on the availability of a telephone-like device (APLIO) that could use either IP-based networks or the PSTN for establishing calls (see Peru country case study on page 21).
Countries where prices for international traffic are already low
Due to the effects of competition, IP telephony is likely to be important for reasons other than price arbitrage. The market opportunity for IP telephony is likely to lie in the prospects of value-added integrated services for users and in cost reductions for PTOs. As an example of the former, in the United Kingdom, yac.com offers a service for personalised numbers and automated call forwarding via the Internet. As an example of the latter, the BT/AT&T joint venture, Concert, is building a new managed IP-based global network to deliver services, such as electronic commerce and global call centres, to link some 90 cities worldwide. Even though the required investment is of the order of USD1 billion per year, an integrated IP network is considered to offer the most cost-effective solution for handling multiple traffic streams.
IP-based networks arguably represent the future for the telecommunications industry. Therefore, investment in IP-based networks may be regarded as an investment in the future, irrespective of the level of economic development of a particular Member State. The business case for investment in IP would rarely be based on the potential of IP telephony alone, but rather on the wider potential of IP-based networks to carry data, text and video traffic as well as voice.
Future mobile networks, like fixed-line networks, are likely to be based on IP technology. Thus, those Member States that choose to ban the use of IP technology for carrying voice may be blocking the technological migration path of national operators and new entrants.
Some Member States have chosen to promote the Internet for text and data services, but not for voice. Their objective may be to protect the incumbent operators from potential competition. The risk in such an approach however, lies in the fact that those operators may be ill-prepared for operating in the future global environment. The PTO of the future may "own" the customer, in terms of providing billing and customer care support, and may "own" the local network, in terms of providing origination and termination of calls. However, it is unlikely to be able to own or control the types of application that the customer chooses, as IP telephony might be better viewed as an application rather than a service.
Operators have traditionally used profitable long-distance and international services to cross-subsidise the functions of network access and local calling. In increasingly competitive markets, such hidden cross-subsidies can no longer be sustained. In the future, operators will need, instead, to address new challenges that may require substantial tariff rebalancing and a greater reliance on locally generated revenues.
While IP telephony may bypass certain parts of an operator's network, it will not take away the need for local networks. Indeed, insofar as IP telephony is a new "killer application" and makes access to the Internet even more popular, it will actually increase the volume of local calls and the demand for second lines. Already, in some Member States, as much as a third of all local calls are to the Internet and around 15 per cent of all local lines are used primarily for Internet access. Furthermore, dial-up Internet access is on a steeply rising curve while international traffic growth is slowing down. Competition will drive prices closer to costs and, where IP telephony offers the lowest cost alternative, it will be the preferred solution.
For Sector Members that are equipment vendors, the development of new IP-based product lines is likely to be
essential to future growth and profitability. In developed country markets, demand for circuit-switched network
technology has declined steeply and although demand in developing countries remains strong, this cannot be expected to
continue indefinitely. Third generation (3G) mobile networks (IMT-2000), which are also IP-based networks, give vendors
additional opportunities to offer new products.
Policy and regulatory issues for IP telephonyIP telephony is treated in a range of different ways within ITU Member States. Some allow it or do not regulate it. Others prohibit it, while some apply a range of controls and restrictions, either through licensing or other regulatory tools. Tables 1, 2 and 3 classify the approach to IP telephony taken by certain ITU Member States, based on their responses to a recent ITU regulatory questionnaire. However, the tables do not include all Member States, because many of them simply do not have specific IP telephony policies or have not responded to the ITU survey. Member States are invited to provide additional data or clarifications so that the tables can be kept up-to-date. It should be noted as well that IP telephony arises within the context of a period when many Member States are lightening their regulatory regimes for telecommunications and moving to a greater reliance on competition policy to ensure a level playing field in telecommunication markets, as opposed to sector-specific regulation. Within these broad policy frameworks, IP telephony raises a number of specific questions for policy-makers and regulators that require a careful and informed balancing of different and sometimes competing interests. Where does IP telephony "fit" within telecommunication regulatory regimes, if at all? How should the rights and obligations of IPTSPs compare with those of traditional telephony providers, many of whom are subjected to common carriage regulations and universal service commitments? Should Internet telephony, VoIP, and PSTN voice-traffic be treated in the same way, or differently? Should IPTSPs be required to hold a licence as most traditional voice telephony carriers do? Or should IP telephony be viewed as an emerging technology offering new services and applications that could best develop with minimal or no governmental regulation? Policy objectivesAs a threshold matter, it is useful to set forth possible government policy objectives for IP telephony that could or should form the basis for any regulatory approach that is adopted. These objectives would include: - Universal service/Universal access - Affordable telecommunication services - Tariff re-balancing - Ensuring a level-playing field for competitors and new entrants - Promotion of new technologies and services - Stimulating investment in network buildout and new services - Impact on revenue streams of incumbent operators - Technology transfer - Human resource development - Economic growth as a whole and in particular in the communications sector. |
Technology analysts have been suggesting for several years that all forms of communications will eventually merge onto one platform, and in recent years IP appears to have emerged as the unifying platform. With PTOs and broadcasters entering each other's markets in many countries, and mobile operators shifting to IP platforms as they develop 3G systems, regulatory structures the world over are being pressured to adapt. At the same time that the regulatory framework for telecommunications is being streamlined and lightened, convergence raises the issue of whether existing or new paradigms should be applied to new telecommunication platforms and the continued suitability of sector-specific regulation.
One of the key issues in telecommunication markets that have been opened to competition has been the terms for interconnection among all local service providers. It is conceivable that some IPTSPs may seek the benefits of licensed local provider status, such as interconnection rights, numbering resources, and access to essential facilities, for example directory listings. This is already the case in the United Kingdom. IP telephony rides on top of the PSTN, in the sense that calls are sometimes originated and almost always terminated on the PSTN, but are not fully integrated with it. The question of whether the public interest requires that ISPs (and IPTSPs) interconnect with each other may also arise in the near future. In Chile, IPTSPs are required to offer interconnection. It is to be noted that the WTO Agreement on basic telecommunications and the Reference Paper on telecommunications only place the obligation for interconnection upon "major suppliers".
Another approach to this issue is to apply domestic competition laws, and relevant doctrines developed under such laws concerning essential facilities, as part of a procompetitive policy designed to establish a level playing field.
An important aspect of this issue is access to unbundled elements of the "local loop". In many ways, local
competition has proven to be the most complex regulatory undertaking in liberalized telecommunication markets. The
integration of Internet and IP-based services with incumbent and new entrant circuit-switched networks will make the
local environment even more complex. The inherently international nature of the Internet, in turn, will make
international cooperation on such matters essential.
Cross-border issuesThe treatment of phone-to-phone IP telephony may have implications for the international telephony market. IP telephony may serve the public interest in the originating country by placing significant downward pressure on international settlement rates and consumer prices. In the terminating country, it may serve to introduce an alternative calling option, even though policy-makers have otherwise decided to restrict or prohibit competition. In addition, IPTSPs may benefit from a lighter regulatory approach than that imposed on incumbent PSTN operators. Where a liberalized approach in the originating country conflicts with clear and restrictive policies in foreign markets in which the services are terminated, it might be useful to have a means to address such difficulties, while respecting the sovereign rights of Member States. Different approaches to the concept of technological neutrality and its implementation may create uncertainties among investors as to the regulatory climate and can impede the global expansion of IP-based networks and IP telephony. More generally, an assessment could be made as to the extent, if any, to which some forms of IP telephony are or should be subject to international agreements and procedures, such as the numbering plan or conventions on routing traffic and settling accounts, that apply to traditional international telephony. |
Of those developing countries that have adopted a specific policy towards IP telephony, many have chosen either to ban it outright, or to restrict its provision to the incumbent PTO. Relatively few developing countries that have monopolistic telecommunication structures have taken a liberal approach to IP telephony, though China is a major exception. In China, after a period during which IPTSPs were blocked, IP telephony has now been adopted by each of the major licensed international operators and they have been permitted to provide nationwide and international IP telephony services. In China, IP telephony has permitted the earlier introduction of competition than might otherwise have occurred and this has prompted a significant reduction in prices for international calls.
The position of those developing countries that ban or limit the provision of IP telephony may benefit from a period of reassessment, if it is concluded that IP telephony promises to bring lower call prices and make services more accessible, both of which are goals in the battle to narrow the digital divide. While most developing country governments have been supportive of IP-based networks in general, and the Internet in particular, they have often been hostile to IP telephony.
Consequently, ISPs in these countries have been deprived of a potentially valuable revenue source, and this may slow Internet development. In some cases, ISPs have been requested to block access to specific websites, based in foreign countries, which offer free-of-charge IP telephony calls. As more websites integrate voice applications, such bans will become more difficult to enforce and the result may be that application service providers and website developers in developing countries are less able to compete with those in countries where IP telephony is liberalized.
Over the last two decades, PTOs around the world have shifted from analogue to digital networks. This has required the development of a new set of skills among their staff. ITU Member States and Sector Members have frequently worked together to facilitate the transfer of technology, human resources development and network maintenance, to the benefit of developing countries. The shift from circuit-switched to IP-based networks is equally as fundamental as the shift from analogue to digital and requires similar cooperative arrangements among ITU Members. Considering that the change coincides with the advent of more competitive markets, and because IP skills are frequently in short supply, many developing country PTOs fear that they will be left behind. As developing country PTOs are often major employers and revenue generators in their countries, this makes the need for assistance in human resources development even more critical.
Michael Minges and Tim Kelly, ITU telecommunication analysts
This article outlines the situation of IP telephony in six countries in different parts of the world. IP telephony is used as a generic term for the conveyance of voice, fax and related services, partially or wholly over packet-switched IP-based networks. The countries were examined as part of the ITU Internet Country Case Study Project (see www.itu.int.ti/casestudies ). They are Bolivia (South America), Egypt (Middle East), Hungary (Central Europe), Nepal (South Asia), Singapore (South East Asia) and Uganda (East Africa).* The countries vary widely in socio-economic and telecommunication development. They range from least developed nations (Nepal and Uganda) with low telephone densities to Singapore, the eighth richest country in the world (measured on a GDP per capita basis), where almost every household has a telephone (see Table 1).
The status of IP telephony varies throughout the countries (see Table 2). In four of the countries described in this article (Bolivia, Egypt, Nepal and Uganda), only licensed telephone operators are legally allowed to provide IP tele-phony. The rationale is that IP telephony is a voice telephone service for which incumbent operators have exclusive licences. In Hungary, IP telephony was legalized in mid-1999 and by the end of that year, there were 40 licensed providers. In Singapore, the IP telephony market was opened in April 2000 when a new Internet-Based Voice and/or Data Service licence was created. Any company can provide IP telephony provided they have a licence and abide by a minimum quality of service. By mid-September 2000, 70 companies had been licensed to provide IP telephony in Singapore.
Even though incumbent operators in all six countries are theoretically allowed to provide IP telephony, some do not.
For example, the incumbent operators in Bolivia, Nepal and Uganda do not provide the IP telephony service. This is
understandable considering that the main reason for launching an IP telephony service is that it tends to offer cheaper
prices than the existing international voice tariffs. Since they have a monopoly, there is little incentive to undercut
their existing prices.
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*The six country studies summarised here looked at the diffusion of the Internet in different sectors of the economy. A further six country case studies that looked specifically at IP telephony were also carried out in preparation for the third ITU World Telecommunication Policy Forum. These studies, which cover Canada, China, Colombia, the Republic of Korea, Peru, and Thailand, are available on the website at: www.itu.int/wtpf/ and are summarised in chapter five of ITU Internet Reports: IP Telephony 2001. |
In Egypt, the incumbent has an agreement to deal with United States IP telephony carriers to provide voice through a direct private IP link with the US. There is a PC-to-phone service provided through Telecom Egypt's website (www.support.idsc.gov.eg) at a rate equivalent to around 20 US cents per minute. In addition, incoming IP telephony traffic is terminated by Telecom Egypt at a lower settlement rate than for PSTN calls.
In Hungary, the initiative to carry international voice traffic over IP came from the mobile operators who saw this as a way of bypassing the monopoly of MATÁV, Hungary's incumbent phone operator. Rather than miss out on this lost traffic, MATÁV itself started an IP telephony service in December 1999. It uses a prepaid calling card named Barangoló. Calls can be made from any phone in Hungary to around 40 countries. Prices are HUF 80 (USD 0.28) per minute to Europe and HUF 90 (USD 0.32) to North America. MATÁV also acts as a wholesaler of IP telephony traffic for other carriers, including its competitors. While the service has proved very popular, users have reported a number of problems with misdirected calls and wrong numbers.
Singapore Telecom (SingTel) has launched a couple of IP telephony services that are significantly cheaper than its normal international tariff (see Figure 1). eVoiz allows users to make a call from their PC to telephone subscribers in selected countries. A one-minute call to the US costs 9 Singapore cents (5 US cents) compared to 30 Singapore cents (22 US cents) for international direct dialling (IDD). SingTel estimates that eVoiz will add 10 million minutes per year of international traffic. SingTel's V019 service, launched in August 2000, allows a telephone user to make an international call over IP-based networks. For example, a one-minute call to the US costs 19 Singapore cents (11 US cents), almost half the normal IDD charge. SingTel acknowledges that the quality of IP-based calls is inferior but notes in a press release that "while the V019 call quality may be somewhat below our 013 BudgetCall service, our target customers will still find it acceptable and very much value-for-money".
Despite the official ban against IP telephony in Bolivia, Egypt, Nepal and Uganda, it is used to varying degrees (see Figure 2). While the ban is typically enforced by blocking Internet traffic to popular IP telephony sites (in Nepal, the dialpad.com site, which offers free calls to the United States is specifically blocked), the majority of IP telephony traffic in those countries is probably incoming. That is because IP telephony companies can strike deals with local Internet service providers (ISP) who have their own international Internet gateways, for instance over VSAT (very small aperture terminal) satellite dishes. The IP telephony companies provide ISPs assistance for purchasing equipment, allowing them to route international calls coming in over the Internet to the public telephone network.
In Bolivia, the telecommunications regulator has been called upon several times to warn cyber cafés about offering IP telephony. However, the current low level of Internet quality in the country mitigates against widespread use. As one user stated, IP telephony works at 3 o'clock in the morning but not during office hours.
There is some evidence to suggest that in Egypt also, incoming IP telephony traffic is more significant than outgoing traffic. For example, although Telecom Egypt's PSTN settlement rate with the United States is USD 0.35 per minute, telephone minutes to Egypt can be purchased from an exchange for USD 0.25 per minute. This lower rate reflects the special settlement rate for incoming IP telephony traffic offered by Telecom Egypt. This company also offers a wholesale IP telephony service for outgoing calls to the country's 60 or so ISPs, but it is likely that many of Egypt's ISPs have made their own deals for IP telephony traffic with other carriers. There are an estimated 3000 to 5000 users.
In Nepal, IP telephony is officially illegal as it is viewed as impinging upon incumbent Nepal Telecommunication Corporation's (NTC) international voice service monopoly. The regulator takes a neutral view on the matter, arguing that IP telephony is almost impossible to block. However, the Ministry of Communications has obliged the regulator to notify ISPs that IP telephony is illegal. In January 2000, the regulator sent a notice to all ISPs instructing them to block access to applications such as Dialpad, an IP telephony service which offers free calls to the United States. However, given that fax over IP is allowed, as long as one obtains a licence, and that it is virtually impossible for ISPs to distinguish between VoIP and fax over IP, it would be surprising if the ISPs were able to enforce the ban. ISPs in Nepal argue that the ban on IP telephony is similar to an earlier one on fax machines. According to The Kathmandu Post of 29 January 2000: "Operator(s) argue that NTC is doing the same [thing] it did to fax some years ago. NTC tried to block the use of fax machines fearing decline in revenue from telex. Years later, much of their income on international calls [was derived] from the use of fax machines by customers." In January 2001, the regulator called a meeting of all interested parties to discuss a new policy towards IP telephony.
As in other countries, the main usage of IP telephony may not be outgoing traffic from Nepal but rather incoming international calls. While it is difficult to obtain concrete evidence, it appears to be the case that incoming international voice traffic is coming in over the Internet and then breaking out into the PSTN locally. This service is relatively easy to provide now that VSAT data services have been liberalized and more than 5Mbit/s of international Internet capacity is available to ISPs. One contact described being offered tens of thousands of US dollars to host such a service, an offer which was refused, though others may not have been so circumspect. Given that the lines rented by ISPs are likely to show large volumes of incoming traffic, it would be relatively easy to hide incoming voice traffic, worth around a hundred times more per minute, mixed in with incoming IP data and fax traffic. Thus the official position on IP telephony becomes hard to justify when one considers that by blocking outgoing IP telephony while being unable to block incoming IP telephony, Nepal is suffering twice over: NTC is losing out on valuable incoming net settlements while the Nepalese are losing out on the chance to make low-cost foreign calls.
Like Nepal, Uganda's VSAT data market is liberalized. Consequently, there is more scope for bringing in IP voice traffic than is the case among Uganda's neighbours. The official situation is that only the two national telephone operators are licensed to use IP telephony. Neither claims to be actually doing so and in fact appear unaware that they are allowed to provide IP telephony. No Ugandan ISP admits to using IP telephony, though there are rumoured to be franchisees for US IP telephony companies which are active in the country. The regulator has not taken an aggressive stance against IP telephony, unlike those in other African countries.
It is interesting to speculate about the financial impact of IP telephony. It depends on several factors. One is how dependent operators are on international voice traffic — the main target of IP telephony. To this might be added the amount of traffic with the United States, the main source of incoming IP telephony. Another factor is the spread between local and international tariffs. This is relevant because an IP telephony call either originates or terminates over the local access network so a local call charge must be paid to the incumbent operator. If the spread between the international and local tariff is not great, then there is not much margin for IP telephony to be cost effective. Another factor is quality of service. The quality of IP telephony can vary dramatically and its usage will be influenced by how much users are willing to trade off price for quality. Here developing countries are often at a disadvantage because of poor quality.
The sound quality of an IP telephony call may be just as good as a conventional one and you might even get through more easily. For example, in Uganda, only 57 per cent of international calls went through in December 1999. Some developing country PTOs continue to block outgoing PSTN calls in order to maximize net settlements. Finally, access to infocommunications equipment will have a bearing. In countries like Nepal and Uganda, where most homes do not have electricity, let alone a telephone, citizens cannot readily avail themselves of IP telephony services. A related issue is that some nations require a deposit in order to dial international calls directly. In Uganda, less than 1000 of the 60 000 or so fixed-telephone subscribers can place direct international calls. This could encourage those without this ability to use IP telephony.
Table 3 shows the volume of international calls and dependency on international traffic of the six countries. The most vulnerable countries would appear to be Nepal and Singapore, where international revenues account for a significant proportion of total telecommunication revenue. If there was an immediate switch to IP telephony, the impact could be staggering. In Singapore, SingTel sent 885 million minutes of traffic abroad in the year ending 31 March 2000. At an average retail rate of SGD 1.21 (USD 0.70), this traffic generated USD 618 million in revenue, some 22 per cent of the company's turnover. Assuming that all of Singapore's outgoing traffic was priced at an IP telephony rate, SingTel would lose USD 521 million of revenue, an amount more than its capital expenditure for the year. SingTel is hoping that most of its customers will value the quality of conventional circuit-switched calls over IP telephony. It is also aggressively branching out into Internet activities and has one of the largest Internet backbones in the world. Its fastest growing revenue stream is from Internet and other data networks which account for 16 per cent of total turnover, up from 13 per cent a year earlier.
While much concern has been on the impact of IP telephony on international revenue, price distortions in other market segments are becoming even more pronounced. Take mobile for example. In Uganda, mobile generates more revenue than fixed. Mobile pricing in that country is such that it costs as much for someone in the capital Kampala to call a mobile down the street as it does to call neighbouring Kenya. Another area is domestic long distance. In Bolivia, it costs less to call border regions in Peru than it does to call from one end of Bolivia to another. The implications of IP telephony for fixed to mobile calls or domestic long distance may be more interesting than international telephony.
Tariff rebalancing — which typically involves lowering international tariffs and raising local ones — may be seen as one solution to minimizing IP telephony. However, users will have to pay more for dial-up Internet access, which will inhibit access. The portion spent on local telephone usage charges is a significant amount (see Figure 3). The impact of local call charges is striking in Bolivia. Unlike the rest of the country, residents of Santa Cruz department pay a flat fee telephone usage charge independent of the length of the call. This is cited as one reason why Internet access is higher in Santa Cruz than other parts of Bolivia. At the other extreme is Uganda, where telephone usage charges add significantly to the Internet access bill. Users pay almost USD 100 per month for 30 hours of dial-up access spread through the day. They would pay one-third more if they access the Internet during peak times. As a result, ISPs are becoming telephone operators. Intense users are finding it is cheaper to get rid of their telephone lines and fax machines and instead subscribe to wireless connections to ISPs. They then carry out all their communication over the Internet: e-mail, IP telephony and IP fax.
Another IP telephony issue is the cost of international Internet bandwidth. This is a significant expense for ISPs outside of the United States since they must bear the full cost of the connection. IP telephony will be constrained as long as the cost of international bandwidth remains high. On the other hand, ISPs and IP telephony companies in the United States get free Internet connections to other countries. This is one reason why IP telephony prices are so much cheaper from the United States to other countries. On the other hand, IP telephony could benefit Internet development. For example, if foreign IP telephony companies forge deals with developing country ISPs that include the provision of Internet backbones and VSATs, this will add to the bandwidth of the country and enable better quality access. Local partners can also benefit from training in the deployment of IP-based networks.
The legal ban on IP telephony will disappear as countries progressively liberalize their telecommunication markets. That is because the legal ban is almost always based on the premise that IP telephony is a voice service, the exclusive right of incumbent telephone operators, rather than as a data service or an application. This premise is becoming harder to sustain, particularly as voice functions become integrated into other Web-based applications, such as e-mail or "click-to-talk" websites.
In Singapore, telecommunication markets were fully opened in April 2000. In Hungary, markets will be opened from
January 2002 and in Bolivia they are scheduled to be fully opened from November 2001. Although full market opening is
not foreseen in the short-run in Uganda, there are nonetheless two competing full-service private operators who have an
incentive to provide low-cost service to users in order to gain market share. That leaves Egypt and Nepal where IP
telephony is bound to be controversial for the next few years. In Egypt, the operator has chosen to embrace IP telephony
but in Nepal the operator continues to try to suppress it. Six different countries, six different approaches!
Telecom Egypt: If you can't beat them, join them!Ties between Egypt and the United States are significant. There are over 100 000 Egyptians living, working and studying in North America. At the same time, Egypt is the second largest recipient of US-foreign assistance. Thus, there is considerable potential for international telephone calling between the two destinations. While outgoing traffic from Egypt to the United States has increased modestly since the mid 1990s, incoming traffic to Egypt increased dramatically, at least until 1998, when it stabilized (see Figure below). In 1998, US carriers started routing their traffic via alternative routes, which resulted in lower settlement payments, including refile via third countries, routing via "leaky PBXs" and, increasingly, via the Internet. The reason that US carriers have been shifting traffic away from the direct route is due to mounting settlement payments to Egypt, which reached some USD 80 million in 1999. Egypt has been reducing its settlement rate with the United States by an average of 12 per cent per year, and has agreed to come down to US benchmark rates on schedule. This is not enough to placate US carriers, nor to offset the increasing effects of asymmetry in the traffic balance. It is estimated that around 30 million minutes of traffic from the United States was diverted in 1998. It is not possible to know what proportion of this went via the Internet, but it is thought to be a considerable amount. 
Net2Phone, an IP telephony company, is known to have been particularly active in Egypt. Early in 2000, Telecom Egypt convinced the government to block Net2Phone's traffic. This has had mixed success since users can try any of the other dozen or so IP telephony services. So Telecom Egypt decided if it cannot beat IP telephony it might as well join in. In March 2000, it signed a deal with eGlobe of the US to market retail IP telephony service. The press release for the agreement shows support from the highest levels, quoting Egyptian Minister of Communications and Information Technology, Ahmed Nazif, as saying "I am pleased to offer the newest of technologies allowing our people to more efficiently and economically access the global marketplace". Telecom Egypt is offering the new IP telephony service at 80 piastres (21.6 US cents) per minute for calls to the United States, compared to the published rate for PSTN calls of EGP 3.50 (USD 0.95) per minute. In order to promote the service, Telecom Egypt is offering ISPs and other resellers a 10 per cent discount. Even so, Telecom Egypt reports that the majority of traffic is incoming rather than outgoing, suggesting that it is being less successful than it had hoped in marketing the service nationally. One reason may be that the website it established to market the service, www.commegypt.net, is regularly congested and works only sporadically. Telecom Egypt's rate of 21.6 US cents per minute for IP telephony is considerably below the official settlement rate with the United States, which is currently 35 US cents per minute. It is not known what Telecom Egypt is receiving for incoming calls terminated over its IP telephony service. The main point is that, at least Telecom Egypt is now gaining some revenue from what would otherwise be lost traffic. |
This article concludes our series of ITU case studies on IP telephony
The development of private voice over the Internet Protocol (VoIP) networks in Peru has been spearheaded by large private companies, such as banking institutions, industries or firms involved in natural resource extraction with multiple points of presence in the country. Mining and oil companies are good examples of this. The construction of private communication networks has been taking place mainly to reduce costs, the only other alternative being to use public networks. But these were still under a monopoly until 1998.
Today, many companies such as Banco Continental, Banco Latino and Banco Inter-bank use voice
over frame relay internally to supply voice and data services between their regional offices. The migration to an IP
platform is said to be fairly recent, largely because, at the time voice over frame relay was chosen, IP technology had
not yet gained the full confidence of these companies.
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*Peru: IP Telephony and the Internet forms part of a series of telecommunication case studies produced under the New Initiatives Programme of the General Secretariat of the International Telecommunication Union. This case study was prepared by Arturo Briceno (abriceno@spri.com) of Strategic Policy Research (www.spri.com) in collaboration with Juan Carlos Bisso (jbisso@osiptel.gob.pe ) and Agustina Guerrero (agustina@baedigital.com.ar ). It was directed by Ben A. Petrazzini, Policy Adviser, ITU Strategies and Policy Unit (Ben.Petrazzini@itu.int). Full texts of all ITU case studies on IP telephony can be found at www.itu.int/iptel. |
IP telephony in Peru is in its infancy. Major providers exist with capacity to supply this service: Telefónica del Perú (TdP), Red Científica Peruana (RCP), BellSouth Perú, SA, First-Com and Net2Phone, among others.
TdP is the dominant telecommunication operator and the top company in terms of revenue. Its licensing agreements gave it exclusive rights over basic services for a five-year period (1994-1999). However, an agreement between the State and TdP made it possible to end the exclusivity period one year ahead of the planned expiry date. Hence the telecommunication sector became liberalized in 1998, with regard to the granting of licences for offering long-distance and fixed-telephone services.
TdP has been implementing an IP network in the country since 1996/97. As of January 2000, a total of 28 companies had been licensed to offer long-distance services, while in the case of fixed-local telephony, two licences had been granted in addition to the rights held by TdP.
Net2Phone is one of the world leaders in Internet telephony, its market being retail end users. Net2Phone Perú has been operating in the country since September 1999. Gateways have been installed in Peru for connections with the public telephone network, and this will make it possible to originate and terminate telephone calls via the Internet.
RCP plans to continue with the development of public Internet centres by installing an additional 400 public centres in the country. Likewise, it will start a new project for the implementation of a network of several "mono-centres" for access to integrated Internet and VoIP services. A "mono-centre" is a multimedia centre open to drop-in users, giving access to the full range of media: television, radio, Internet and telephony. The project also envisages the development of a major information network supporting urban management in commercial circles, sharing and backing up State administrative management. Covering the 23 departments of the country, the project will be implemented in the next three years and will require investment of USD 12 million.
FirstCom is a company with North American and Latin American (mainly Chilean) capital and began commercial operations in Peru in 1999. It also has operations in other Latin American countries (Chile, Brazil, Colombia). In early 2000, it concluded a strategic merger with AT&T, creating AT&T Latin America. The company has invested some USD 70 million to date in the fibre-optic network and in network support equipment.
BellSouth Perú, SA is the second mobile service operator in the country after TdP. In 1999, it obtained licences for long-distance and local services and now offers dedicated services, the public telephone service and cellular telephony. BellSouth acquired most of the shares of the cable company Tele2000, but withdrew from the latter's cable television service marketed as TeleCable while retaining the coaxial cable network covering the whole of Lima. Through this extended network it should be able to provide Internet access, telephony, data transmission and other services.
The first dispute over the provision of VoIP services in Peru arose in 1999 from legal action brought by TdP against RCP. In March 1999, TdP started proceedings against RCP for alleged "acts of unfair competition". According to TdP, RCP was supplying a long-distance national and international service, for which it did not hold a licence, using so-called APLIO equipment — a small computer designed specifically for voice transmissions via the Internet (see box).
While both the calling and called parties must have a telephone line and active Internet connection, a computer is not necessary. Rather, APLIO allows the caller to use an ordinary telephone. How does this work? The telephone is plugged into the APLIO device, which itself is plugged into a standard telephone jack. In this way, any telephone subscriber who also has Internet access can make long-distance and international calls via IP telephony. At the time of the complaint, RCP was only authorized to provide value-added services, Internet access being one of them. It had no legal authorization to offer long-distance or international telephone service.
TdP argued that offering the national and international long-distance service through the APLIO equipment without having a licence allowed RCP to obtain an illegal competitive edge over companies which were legally authorized to provide that service.
Two things were certain. Firstly, a licence was required to offer the long-distance service. Secondly, at the time of taking legal action, RCP only had a licence to supply value-added services, including the Internet service.
Several months after the complaint was lodged, the Organismo Supervisor de Inversión Privada en Telecomunicaciones (OSIPTEL) issued a ruling stating that no licence was required for marketing the APLIO device, and that RCP, like other bodies marketing the same equipment, was not contravening any regulations or the terms of any existing licences. In addition, marketing the equipment could not be deemed to be equivalent to providing the long-distance telephone service. TdP appealed against this ruling. However, at around the same time as the appeal, RCP received its licence for supplying long-distance services. Before the second instance issued its ruling (upholding the first instance ruling or accepting TdP's accusation), TdP dropped the proceedings.
At that time, the subject of IP telephony was the focus of heated discussions in various forms outside telecommunication circles. A pronouncement from a State body, in this case OSIPTEL, was necessary since even limited awareness of this new service was giving rise to all sorts of comments. Some opinions emphasized the tariff advantages for the user, who would now have a much cheaper alternative to traditional long-distance telephony. Others discussed the subject of quality in voice transmission and the possibility of putting switched telephony in its place, while others ventured to discuss the legality or otherwise of offering such a service in Peru. The ruling issued by OSIPTEL in the APLIO case gave an early hint of the direction which State policy might follow on the question of IP telephony in the future.
Tariffs for long-distance international calls between Peru and the United States are based on two methods: from PC-to-telephone and from phone-to-phone. In the first case, the tariff per minute for a call from Peru to the United States is USD 0.15 via Net2Phone. The same call via TdP costs USD 0.66. It should be stressed that the settlement rate (which is the equivalent of half the international accounting rate) that TdP has to pay to the United States carriers is currently USD 0.31 per minute. This indicates that the settlement rate that Net2Phone Perú pays to Net2Phone United States must be much less than the rate paid by TdP, probably somewhat less than the peak tariff. A call from the United States to Lima costs USD 0.21 per minute and USD 0.30, if it is to a city outside Lima.
An interesting aspect to note is that with the Net2Phone tariffs, it is cheaper to call the United States from Peru than vice versa, unlike with traditional international telephony tariffs. Traditionally, tariffs from the United States to Peru have always been lower than vice versa.
Net2Phone's phone-to-phone method is only available for calls from the United States to Peru and tariffs are between
50 and 60 per cent higher than those for the computer-to-phone method.
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APLIO: an innovation in equipment APLIO is a new type of equipment with software and a modem for voice communication via the Internet. It contains a digital signal processor which performs, among other things, voice compression and decompression according to ITU-T Recommendation G.723.1 for 5.3 and 6.3 kbit/s. APLIO began to be sold in Peru for USD 295 each, with discounts available for bulk purchases. As in the case of voice communication using a PC, the user must have a telephone line and an Internet access account, which can be supplied by any ISP. APLIO makes the connection, makes the call to the ISP and sends the IP addresses of the parts which will be communicated to the so-called "global management centre" to establish the Internet link. |
Peruvian legislation on telecommunications does not cover the Internet service specifically. At the time of the study, the Ministry of Transport and Communications regarded this service as a value-added service. This involves the addition of some feature or facility to the basic service (carrier or final services). The apparent justification for classifying the Internet under this heading is that it uses carrier and final services (telephone lines and circuits), adding an extra feature (IP connectivity).
As explicitly stated in the Telecommunication Act, all value-added services are covered by a regime of free competition, which means that OSIPTEL cannot, in principle, regulate tariffs for such services.
The specific name used by many of the Internet service providers is "packet-switched data service". A peculiarity of the legislation is that it excludes real-time voice traffic from being classified as a value-added service. Apparently, at the time of this classification, it was already known that value-added companies might be able to carry voice traffic, but to do so in real time, it would be necessary to hold a licence. As a result, discussions on the subject of VoIP have focused on whether VoIP transmission is performed in real time or not. But the legislation does not offer a clear definition of what "real time" means, giving rise to a variety of opinions on the matter.
The ruling on the APLIO dispute was the first and, at the time of the study, the only formal pronouncement from a Peruvian State body on the subject of voice over the Internet. Even though it was limited purely to resolving whether the marketing of APLIO constituted offering long-distance services, it clarified certain doubts on that subject. The fact that it could not be known a priori which would be the competent body to resolve the dispute (the Ministry or OSIPTEL) added to the complexity of the matter. Three different positions emerged from this debate. One was that the fact that Peruvian legislation made no mention of VoIP implied that there was no regulation on the matter. Therefore, these services could be offered freely. The second was that the VoIP service only implied the transmission of data, not voice. As such, it could not be considered to be telephony and so to offer that service, it sufficed to have an authorization for providing value-added services. The third was that the VoIP service was regarded as the equivalent of telephony and therefore regulations covering the field already existed. In this last case, it would be necessary to have a State licence to offer this service. The global trend is to regulate services consistently, irrespective of the technology used to provide them. If this is applied to the case of Peru, it would be necessary to determine whether the VoIP service constitutes a telephone service, a value-added service or another, different service, in order to determine the appropriate extent of regulation.
The development of IP telephony in Peru is likely to continue being closely tied to the market power of the leading telecommunication operator in the country, TdP. Hence, it is the regulatory aspects (in particular anti-trust) more than technological or market ones that will continue to dictate the development agenda of IP telephony in the country. But the situation in Peru is not unique: a number of countries the world over are moving forward slowly and cautiously, trying to avoid any major mistakes in the handling of a technology which raises high hopes but also presents great challenges.