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Over the last decade, driven by growth in broadband
networks and reductions in costs, voice over Internet
Protocol (VoIP) services have proved to be a disruptive
technology that has transformed the telecommunication
industry. VoIP has gained widespread
acceptance among service providers, consumers and
businesses, offering a cheaper way to get in touch.
Instead of using conventional landlines, people
can make phone calls via the Internet. And operators
themselves are saving money by using IP-based
Convergence and VoIP services are redefining
markets and blurring boundaries between networks
and content. They are eliminating barriers to entering
markets (as competitors no longer need to own a
network) and bringing facilities-based providers into
direct competition with service-based competitors,
redefining the role of regulators in the process.
The size of the market
Estimating the global number of VoIP subscribers
is difficult, for several reasons. The various definitions
in use mean that countries report different numbers.
Also, it is hard to estimate the number of computerto-
computer or pure VoIP users, including those who
employ such services as Skype, or who use embedded
VoIP in online games. This means that estimates
of the total number of VoIP subscribers are almost always
presented as a range; for example, the number
of residential VoIP customers in the United States is
projected to reach anywhere between 12 and 44 million
As regards the worldwide number of VoIP subscribers,
Infonetics Research, based in the United
States, estimates that there were some 80 million by
the end of 2008. Point Topic, of the United Kingdom,
suggests there were 92.2 million in the first quarter
of 2009, while IDATE, of France, projected 175 million
VoIP subscribers by 2009, equivalent to 10 per
cent of total mainline subscribers, and more than
200 million by 2012 (see Figure 1).
According to Point Topic, Western Europe accounted
for the largest tranche (38 per cent) of all
VoIP subscribers in March 2009 (see Figure 2). But this
share is declining as VoIP gains popularity elsewhere.
North America and the Asia-Pacific region are the
next largest markets. South-East Asia, Latin America
and Eastern Europe all have relatively small market
shares, but these are growing fast. TeleGeography
Research, of the United States, projected that international
VoIP traffic reached 94.8 billion minutes in 2008, accounting for around one quarter of the
world’s international traffic in that year (see Figure 3).
Meanwhile, the popularity of VoIP as a business
also continues to grow. AMI Research, of the United
States, projects that global revenues from IP privatebranch
exchanges (IP PBX), VoIP gateways, soft
switches, VoIP application services, IP phones and
adapters will reach USD 9.7 billion in 2010.
Figure 1 — Estimated number of VoIP subscribers worldwide, 2005–2011
Total and as a proportion of mainlines
Figure 2 — Distribution of VoIP subscribers worldwide (March 2009)
Regional distribution of VoIP subscribers, first quarter of 2009
A core element of business
VoIP is changing the telecommunication industry
by opening up new markets and bringing in different
players. Broadband, cable modem and wireless providers
are now competing directly with each other.
And VoIP boosts service-based competition by enabling
operators to participate without wholesale access
The perception of VoIP is of new market entrants
competing with traditional telecommunication providers. However, the reality is that most incumbents
now use wholesale VoIP to carry international
traffic over backbone networks. Wik Consult, a research
firm based in Germany, has observed that
“large and small operators, incumbents and competitors,
are converting their networks to next-generation
networks (NGN) and are betting their businesses
on a successful migration to VoIP”.
VoIP is now central to the business strategy of
many service providers in both developed and developing
countries. Incumbents in Bangladesh, Fiji,
Ghana, Tunisia and Sudan, for instance, all use VoIP
for the transmission of their international traffic.
Potentially, the costs of carrying telecommunication
traffic can be slashed. The cost of transmitting
calls over IP could be as little as a quarter of that for
sending calls through the public switched telephone
network (PSTN), and maintenance expenses might be cut by 50 to 60 per cent because VoIP calls use only
10 per cent of the bandwidth required for a PSTN
There are other forces behind the move to VoIP,
too. Some operators point to the high costs of maintaining
legacy infrastructure and the need to upgrade
to intelligent networks based on the latest
technologies. Other operators are trying to respond
to competitors (domestic and foreign) and position
themselves in a truly global communications industry.
As operators integrate voice and data networks, IPbased
networks may be seen as the foundation for
business applications. And consumer VoIP runs over
a range of devices, offering flexibility in the first step
towards seamless communications. On the other
hand, incumbents may be reluctant to introduce VoIP
because they already offer voice services over PSTN
and do not wish to cannibalize their higher-margin
international service offerings.
For some operators, IP-based transmission is
the first incarnation of a next-generation network.
It could be that cable television firms are at an advantage
compared with PSTN operators in this field,
because it is easier to adapt cable networks for VoIP
(which is transmitted in a similar way to video) than
it is for fixed-line operators to add high-speed data,
video and Internet services.
Figure 3 — Growth in international VoIP and time division multiplexing (TDM) traffic
Figure 4 — Worldwide regulation of VoIP (2004–2009)
Note — VoIP traffic includes all cross-border voice calls
over IP networks, but terminated on PSTN. Computer-to-computer
and private network traffic are excluded.
Figures for 2008 are projections.
Note — “Closed” means countries where wholesale VoIP
is permitted, but retail VoIP is banned, as well as those
countries where only the incumbent is licensed to provide VoIP.
VoIP service providers, such as Vonage, Fastweb
or Skype, often have quite different business models
and service portfolios. Defining VoIP is one basic step
every country can take in determining the regulatory
environment it wishes to see. And if VoIP is to spread,
it needs broadband networks, deployed within the
“level playing field” of a technologically neutral and
Most countries view broadband Internet access
as the future of modern communications. By 2008,
according to ITU data, broadband Internet services
were commercially available in 182 countries. Other
regulatory measures that encourage the growth of
VoIP include ensuring number portability between
PSTN and VoIP users, and rules to prevent the blocking
of VoIP traffic.
By 2004, VoIP had been explicitly legalized in
46 countries (see Figure 4), mainly in Europe, North
America and Asia. In another 57 countries, VoIP was
also broadly permitted, while 80 countries prohibited
VoIP services, mainly in Africa and some Arab States.
In contrast, today 92 countries have explicitly legalized
VoIP and it is tolerated in just over two-thirds of
the world’s nations, while the number of countries
banning VoIP has fallen to 49, or around a quarter of
all countries for which data exist.
This growth raises a host of issues for regulatory
frameworks designed mainly for the PSTN world. The
main questions are whether VoIP should be regulated
as an alternative to PSTN telephony, and whether the
regulation of VoIP services should differ when they
come from PSTN incumbents or from VoIP operators
(including Internet service providers).
Many developing countries still retain outdated
telecommunication legislation from an era long before
VoIP. Legacy obligations that worked well for the
PSTN network (and more recently, updated regulations
for mobile networks) can coexist with growth
in VoIP, but it is difficult to apply them directly to VoIP
services. For example, access to emergency service
numbers is more difficult to achieve with VoIP, and
some providers argue that requiring them to offer
such services is, effectively, a barrier to entering the
When the European Commission first examined
VoIP regulation in 2004, it advocated a “light regulatory
touch”. European regulators are now moving on
to consider geographic numbering, nomadic services
and caller location, as well as interconnection issues
and lawful interception of calls. In the United States,
VoIP has gradually become more regulated, especially
in the context of security concerns (whether and how
VoIP traffic can be monitored) and the provision of
emergency calls. Regulators in the Commonwealth
of Independent States take various views. For example,
Georgia and Kazakhstan have generally allowed
VoIP operators to flourish, while Turkmenistan applies
a strict licensing regime.
The bottom line
Although VoIP can save money, incumbents may
also be concerned about its impact on revenues.
In several countries, greater use of VoIP has been
widely associated with declining revenues for international
calls, alongside the growth of such options
as e-mail and the international short message service
(SMS). For example, Ghana Telecom’s revenues from
international calls dropped from USD 42 million in
1998 to USD 14.4 million in 2002. FINTEL, the sole
provider of telecommunication services to and from
Fiji, saw its revenues fall from USD 41.27 million in
2000 to USD 24.91 million in 2004, as VoIP eroded
its international business.
The effect of VoIP on an incumbent’s revenues
depends on the structure of its traffic. The CEO of
Etisalat, a telecommunication provider based in the
United Arab Emirates, commented in January 2008
that, overall, the company did not expect a huge net
impact from any future roll-out of VoIP, given the
scale of its business in sixteen markets. And growth
in the use of VoIP does not always mean that a
country’s incumbent operator will lose revenue. This
is because the opportunities and volumes that the
new technology may open up can compensate for
losses, especially if countries actively promote the expansion
of VoIP. For example, in Bahrain, over the
two-and-a-half years to July 2008, VoIP captured
60 per cent of international call minutes and about
40 per cent of revenues, taking these away from
Bahrain Telecommunications Company (Batelco). But
the overall market in Bahrain is growing and there is
still money to be made. PSTN incumbents can also
consider enhancing their revenues through offering
value-added services, including IP television.
The transition to IP-enabled networks and services
is taking place across the telecommunication industry.
New business models must be developed to
accommodate new services that do not follow traditional
parameters. Pricing models based on distance,
time and call duration are becoming obsolete.
The entry of new service providers could result in
new and improved services and greater incentives for
domestic and foreign investors — but only if regulatory
frameworks are adapted to accommodate technological
and business changes. ITU continues to
monitor and track these changes, which are transforming
* This article is based on a chapter on VoIP in the “Trends in Telecommunication Reform 2009” report to be
published by ITU later this year.