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Tells you what's happening in Telecommunications around the world

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Voice over Internet protocol (VoIP) comes of age
 
Voice over Internet protocol
photo credit: Shutterstock
 
Voice over Internet protocol
Photo credit: Shutterstock

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 networks.

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 by 2010.

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

figure-1   figure-2
Source: IDATE   Source: IDATE

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 to infrastructure.

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 call.

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)

figure-3   figure-4
Source: IDATE   Source: IDATE

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.

Regulatory challenges

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 competitive environment.

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 market.

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.

Strategic implications

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 telecommunications.

* 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.

 

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