Key Points
The development of the telecommunications market is increasingly being shaped by the emergence of Voice over IP (VoIP) services. In the long term this trend will transform the network economy and revolutionize the service offer. It will challenge many of the principles that currently govern the telecommunications market. It will, in particular, call into question the separation of the legal framework for voice and data and highlight the international dimension of services.
Architectures and associated services must be the criteria for regulation
Currently, the IP technology market only concerns private networks and conveyance over public networks. Voice over IP from one computer to another, as a replacement for conventional telephony, appears at present to be a niche market. It therefore has much the same image that call-back services had a few years ago (and it remains to be seen whether they will become a permanent feature on the telecoms landscape). Equipment compatibility for any given communication can only be ensured by using end-to-end proprietary equipment built by the same manufacturer or, with some restrictions, H.323-compatible equipment. To date, there is no equipment on the market capable of managing the level of traffic encountered on the telephone network, or capable of providing a mass market service.
In the medium term, interoperability with the switched telephone network appears to be absolutely essential, pending the widespread deployment of end-to-end IP networks. PSTN universality is therefore unlikely to be challenged in the medium or even long term. UMTS and the next generation of satellite networks, by diversifying the offer of high-speed broadband network access, may well engender purposely-built IP connections that do not rely on intermediate circuit switching. Connections of this type will be introduced gradually over all existing transport and access networks.
In the longer term, when IP has become widespread, VoIP will be just one component of multiservice offers, possibly resulting in the gradual marginalization of the existing voice telephony market and circuit switching technology.
One of the key messages to emerge from this consultation is the need to keep regulation strictly neutral with regard to the infrastructure and technology used: regulation must concern itself solely with the services as they are perceived by the user and not with the technologies or infrastructures that support these services. Identical services must be subjected to uniform regulation.
However, neutrality vis-à-vis infrastructure and technology does not extend to neutrality with regard to the different architectures, nor should it imply the non-regulation of infrastructure networks.
Standardization and shared rules for operation and information will be essential to guarantee a minimum service quality
Standards: Existing services are based around proprietary technologies. There is not yet a stable standard for Voice over IP: H.323, SIP, MGCP, etc. These are not equivalent in terms of service and have yet to take account of all the requirements of the telephone service. They are all at different stages of development. While H.323 appears to be the most advanced standard to date, all the others remain credible.
Service quality: Service quality is more or less assured in a homogenous environment such as operator IP networks and private networks. The same cannot be said for the end-to-end service over heterogenous networks since this requires the quality of service to be assured at the level of each sub-network as well as knowledge of the performance and quality parameters in all of the networks used.
The operators feel that end-to-end service quality and fulfillment of quality criteria of each intervening network will not be best served by purely commercial negotiations. A minimum level of network service quality can only be guaranteed by including specific clauses in operators’ licences and by regulating agreements concluded between the various operators.
The end user must also be informed of the quality of the products he is being offered: quality benchmarking by independent bodies for consumer information (before offer release) may be useful in this respect.
The regulation of service quality would require a common understanding of all the underlying quality criteria, proper network and interconnection standards and a complete set of technical rules.
Networks, infrastructures, convergence
The gradual integration of PSTN/IP will concern three network levels:
- the access network: high-speed fixed and mobile access (UMTS);
- the transport network, resulting from the integration of the switched and packet networks (H.323 gateways), pending the introduction of end-to-end IP networks;
- implementation of multi-service platforms using intelligent network-type services and common platforms for invoicing, e-mail transmission, etc.
PSTN interoperability will remain key. While some people are prepared to consider gradually reducing investment in conventional switched networks before phasing them out altogether, others firmly believe that the PSTN is here to stay.
The search to provide perfectly equivalent functions and replicate the Plain Old Telephone Service with Voice over IP will considerably increase the cost of IP network and service development.
Terminals: a key link in the value chain
Terminals are necessary for the deployment of Voice over IP and are a critical element in the value chain:
- Terminal functions, which must be at least the same as those of traditional telephones, will have to be harmonized. At a time when standards are unstable, terminals, if they are to have full interoperability, must support most of the competing standards and H.323 in particular. The terminals market will thus remain proprietary for some time to come.
- Terminal costs will be a function of both the cost of interoperability and the regulatory requirements to which Voice over IP services will be subjected 1.
- If Voice over IP is provided as part of multi-service offers, the multimedia terminals will naturally be more expensive than existing telephones – one more brake on the development of a mass market.
To conclude, the cost of IP-based terminals compared with traditional telephones, coupled with the uncertainty that surrounds service quality and interoperability, will be a key factor holding back the development of Voice over IP services on the mass market.
An exploded value chain increasingly controlled by a small number of players
The essential elements that shape the market remain the access infrastructures and the long-distance and international infrastructures. The expansion of transatlantic link capacity will be central to the huge increase in the service offer.
There are four underlying trends:
- Voice over IP is currently offered in opportunistic ventures on the long-distance market for specific countries. Whether these niches survive will of course depend on the evolution of long-distance and international tariffs.
- Internet service providers are still essentially targetting Internet access and are not potential major players in VoIP provision. They make their money through the provision of additional services such as web site development and hosting.
- The mobile market currently has an insignificant IP access and services offer.
- The main actors on the VoIP market will be existing telecoms operators.
In the longer term, we can expect a new link to appear in the value chain in the form of "clearing houses" 2. These will open up the capacity supply market to Internet service providers who are at present penned in by traffic exchange agreements or, increasingly, cooperation agreements (peering). Telecoms operators will thus be vying for control of this valuable link in the chain which, moreover, is not specific to voice over IP services.
Initially bound up with PSTN interoperability, the cost of all-IP solutions could eventually lead to considerable savings
Voice over IP services developed as a result of the gap in tariff structures on the long-distance and international market segments. The use of Internet protocols and the massive introduction of fibre optic technology will one day see a single communication charge that is independent of distance.
The cost factors of VoIP for the end user and the operator are: the multimedia terminal 3, subscriber access, transport capacity (long-distance and international, interconnection), special equipment and gateways.
The cost of developing existing VoIP solutions is tied to the need for PSTN interoperability. In the longer term, however, the all-IP networks that should emerge may well be less expensive because they will use a single transport platform.
For long-distance transport the savings generated by using end-to-end data-specific technology are of the ratio of 2:1 or even 3:1 compared with switched technology. In theory, then, voice services can be offered for marginal cost. However, on top of the actual transport costs we need to add all the costs of the service, the equipment needed for managing, marketing, invoicing, and so on.
Generally speaking, market parties all agree that regulation should foster the emergence of new services as opposed to bringing ephemeral price cuts.
IP-based service offers including VoIP essentially target the business sector
For the general public the key market segments are cheaper international calls and call centre services, in particular those offering electronic commerce; for business the key segments are international telephony, intranet telephony and multimedia services.
- Growth factors are:
- a more generalized use of the Internet protocols (rapidly becoming an industry reference) and the flexibility that it provides (especially with regard to the quality-to-cost compromise);
- on the business market, the availability of VoIP technology and office networking is fostering the use of VoIP for multimedia services. A key factor driving growth in this area is the rapid development of intranet and extranet architectures and inter-company electronic commerce applications;
- lower bandwidth prices and an adapted regulatory framework for competition.
- Brakes on growth are:
- the cost and regulation of the local loop;
- recent investment in the Plain Old Telephone Service;
- service quality, security and availability;
- the lack of a directory, which appears to be a major hindrance for companies;
- and public resistance, due mainly to a complicated and intimidating offer coupled with relatively expensive terminals.
Concerns over regulation are also freely expressed.
The key factors which will determine whether Voice over IP is to replace the Plain Old Telephone Service are the development of high-speed Internet access and the perspective of data and switched network interconnection.
Numbering and directories
Most actors would welcome a numbering allocation for Voice over IP services within the national numbering plan. The E.164 numbering plan must underpin any credible initiative. Number portability is absolutely essential.
Actors in this sector now consider that the approach which limits the universal directory to national conventional public telephone service numbers is unsatisfactory; many of the responses highlighted the need for a link between telephone number, geographical address, e-mail address, location, etc.
Interconnection, interfaces
The cooperative Internet model based on peering agreements has been taken as far as it can go. The consensus seems to be that the public would now be better served by a data interconnection offer. The issue extends beyond IP voice services and is linked to the introduction of GPRS and, above all, UMTS.
Respondents stressed the link between service quality and interconnection. Interconnection agreements should be extended to include data networks and services, while the interconnection rules should include a quality commitment by the networks transited.
The various quality criteria also impact on the choice of interconnection protocol. Network interconnection standards should be promoted – H.323 and MGCP in particular – adjusting the thresholds to take account of the specific nature of IP.
To conclude, while regulation is not totally ruled out, it must be consistent with the existing offer and uniform from an international point of view
The actors on this market want:
1 - A set of rules and a regulatory framework that are totally neutral with regard to technology and infrastructure. The continued separation of networks and services is not called into question, nor is the regulatory framework governing public access telecommunications networks which already takes no account of the type of infrastructure, the technology used or the network content (voice or data).
2 - A single regulatory structure for interchangeable services.
With the one condition that offers that are more or less equivalent to public telephony but which provide a lower quality of service and do not have to respect the same regulatory restrictions must not be afforded the same advantages in terms of access to resources, interconnection fees, etc. The balance between rights and duties must be maintained and a return generated on the investments made in the regulatory context of the 1996 law.
3 - A greater approximation of the systems governing public network infrastructures, independent of content (public communication or private correspondence).
4 - The rights and obligations of the various actors to remain in proportion to investment.
5 - A further examination of the harmonization of the regulatory systems governing voice and data,
6 - A set of national regulations that is as consistent as possible.
No atypical regulations should be permitted. Any credible initiative should be taken at least at European level. Nor should the liberalization of the European market profit third country operators present through privileged access arrangements, generating windfall benefits and creating here-today-gone-tomorrow markets. Market domination must be assessed at global level rather than being viewed from a purely national perspective.
7 - Where regulatory restrictions are concerned (privacy, confidentiality, emergency services, etc.), standardisation is essential and must be a priority.
(1) for example: continuity of service
(2) as in the Tiphon business model
(3) domestic PC sales are essentially replacement purchases and there are therefore relatively few "new subscribers". Moreover, ISP and IAP customer turnover is high, which complicates market evaluations.
