Voice Over IP: Developments in the Market

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

This OECD study looks at the shift in voice traffic from traditional public switched telephone networks (PSTN) to alternative Internet Protocol (IP) networks and its implications for telecommunmication markets.

  1. The development of broadband Internet access, as well as the usage of innovative technologies such as advanced wireless systems, including third-generation mobile (3G) and wireless LANs, have triggered a shift in voice traffic from traditional public switched telephone networks (PSTN) to alternative Internet Protocol (IP) networks. While there are a variety of IP-enabled services, one of the most prominent is likely to be voice over IP networks (VoIP). For the moment, the proliferation of IP applications/services is not likely to completely displace traditional telecommunications services as IP services today still generally run across an underlying telecommunications infrastructure. Although, at present, the VoIP market is not large, it is expected to grow dramatically driven by a number of factors such as:
    • VoIP can significantly cut costs because all of an organisation’s electronic traffic, phone and data, is condensed onto one network, which reduces costs for service providers and potentially may lower prices to customers.
    • VoIP could lower capital and operating costs by allowing existing service providers to evolve to a single platform for voice, data and multimedia services. New entrants can launch services with a single platform.
    • The use of packet switched infrastructure can provide new revenue opportunities for access providers through opportunities for “triple play”, that is, offering voice, data and multimedia via broadband Internet access services, although each provider’s ability to do this will depend, in part, on the policy framework applied to that operator.
    • VoIP can significantly enhance voice capabilities by enabling new features via web-based technologies;
  2. VoIP technology can be combined with other applications, adapted to a wider range of circumstances, transformed from one form to another, and generally utilized in more flexible ways (e.g. mobility) than circuit-switched technology. In some aspects, however, technological progress is still required before VoIP will support functionality equivalent to all aspects of the current functionality of PSTN services. For example, further work is needed to ensure that VoIP can provide calling party location information in an emergency call services or communications during power outages in the same manner as
    traditional circuit-switched telephone services.
  3. Service providers using VoIP include local telephone operators, long-distance telephone operators, CATV companies, Internet service providers, non-facilities-based independent providers, and will possibly include mobile operators. The incentives for local telephone operators to use VoIP technology is in part to ‘pre-empt’ other operators, in particular new entrants and Internet Service Providers (ISPs) from taking their customers by using DSL services to provide voice applications. In the case of cable operators, VoIP provides an efficient and relatively low incremental cost opportunity to offer
    voices using their broadband cable modem technology, and thus an opportunity to expand their potential revenue base. VoIP is thus expected to become a driver of competition and may impact the market share of incumbent operators. As noted, VoIP is also used by operators as a means to provide a comprehensive
    package of capabilities including telephony (voice), broadband Internet access (data), and broadband audio-visual services (video).
  4. The growing importance of VoIP services is reflected in the regulatory debate at both the national and international level among OECD countries. There are a range of issues that need to be addressed surrounding the issue of whether traditional regulations should or should not apply to VoIP services. They
    include classification of the application/service, interconnection, possible market entry barriers, numbering, universal service issues, customer protection, privacy protection, emergency call capabilities, law enforcement issues, and technical safeguards (e.g. solutions for possible low quality of sound). These issues are complicated by the fact that IP can be utilised in all or some parts of traditional and nontraditional communication networks. Delivering a voice service or application can be provided entirely over IP or partly over IP and partly over non-IP. Depending on how it is defined, the term “VoIP” can seep into the term any voice service which runs over IP at any point of their transmission. This might include services that differ in no respect from traditional circuit-switched analogue voice services provided to customers today other than at some point in the middle of the transmission of the service it traverses an IP-based part of the network. Currently, VoIP is, to a large extent, unregulated in a number of OECD countries, but there are several countries which impose regulations similar to PSTN regulations on VoIP. Some countries distinguish between the types of VoIP services in regulations; for example, VoIP services based on PC-to-PC calls are unregulated, whereas calls from a VoIP phone to the PSTN will be regulated. In the last year, a number of governments have started consultation processes on VoIP regulation.

Read the full report [pdf; ~300 kB)

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