Not Just Money, Honey!

Many of these PC to Phone or PC to PC service providers have vanished despite offering cheap or even free voice, pointing towards the fact that offering standalone cheap voice is not a business that could last long. A case in point is Firetalk.com. The company will be closing shop this month, notwithstanding its two million registered users. As such, a more recent approach that this market has been following is that of leveraging cheap or free voice to get consumers to subscribe to a host of value-added services like unified messaging.

IDC estimates that the IP telephony market generated traffic equal to 2.7 billion minutes in 1999, and would expand to 135 billion minutes, with revenues of US$ 19 billion, by 2004. Tarifica estimates that more than 40 percent of all international calls will be carried over IP by 2004. While Deltathree.com estimates that IP telephony will account for 35 percent of international traffic by 2005, Analysys think that it would reach 25 percent by 2004.

How AT&T found a New Opportunity in IP Telephony

Acknowledging that IP Telephony would allow increased innovation and new communications applications, AT&T, a PSTN monolith, began IP telephony operations in 1997. Even though it accepted that price was a key driver in the IP telephony market, more strong was the realization that the very future of IP telephony depended, in part, on the development of compelling applications that benefit from the integration of voice and data on a single network and user interface, leveraging the significant investments that businesses are making in their IP networks.

Two years after the first PC to PC call was made, AT&T started its IP telephony services in August 1997, by introducing AT&T @phone Service to Japanese customers. AT&T @phone is based on the Phone to Phone call type and provides a calling-card-like experience, terminating calls to 140 countries. To date, AT&T claims that the service is routing millions of minutes per month over AT&T’s IP network and is growing at more than 20 percent, month after month.

In May 1998, AT&T started offering Voice over IP services to US consumers through AT&T Connect ‘N Save® Service (www.connectnsave.att.com).

Launched in three US cities, and currently available in seven, this service also uses a multistage, calling-card-like dialing scenario. In June 1998, AT&T Inter@ctive Communications Services introduced two PC to Phone IP telephony services. AT&T Click2Dial ServiceSM (www.click2dial.att.com) and AT&T Chat ‘N Talk Service (www.chatntalk.att.com) enable consumers using a web interface to control the Public Switched Telephone Network to launch conference calls or call other participants in a web chat session.

According to a survey conducted by iLocus.com, there are over 1,600 companies offering Internet telephony, of which 50 percent are backed by financial institutions. The global IP market is growing at a rate of 120 percent annually, with PC to phone traffic reaching 280 million minutes per month.

According to the survey, the manufacturing sector in IP networks is growing at 149 percent annually, but soon the services growth figures will take over the equipment growth rate.

For the telecom regulators, this fast paced growth of IP telephony has posed many questions, fueling a debate on whether to embrace and then regulate it or just ignore it or prohibit it completely. While IP Telephony is permitted unconditionally in the USA, it is permitted in the European Union countries only when the voice traffic is not real time. Countries like Japan, New Zealand, Poland (Phone to Phone by mobile operators only), Czech Republic (except Phone to Phone by other than the incumbent), Hong Kong SAR, Singapore and Switzerland permit real time IP telephony, with certain light conditions. In Australia, Canada and South Korea it is permitted and treated on par with other voice telecommunications services. Acknowledging its inability to check proliferation of clandestine Internet telephony operations, China opened its IP telephony market in April 1999, with licenses to three state-owned carriers to roll out services.

Many countries, mostly developing ones, do not allow any type of voice traffic that bypasses circuit-switched networks largely because competition with incumbent carriers is prohibited. However, many of these may be tolerating PC to Phone calls because it is not considered voice telephony at all by them. Besides, many others have liberalized services like Fax-over-IP (FoIP). The International Telecommunications Union (ITU) has noted that many developing countries are following "asymmetric policies" with a view to maximizing incoming settlement payments. This, according to ITU, means that many countries permit (or even encourage) use of the Internet to carry outgoing international calls (thereby bypassing the accounting rate system), while insisting that carriers making incoming international calls pay the full inward settlement rate.

Interestingly enough, even though the US Federal Communications Commission (FCC) has ruled that Phone to Phone IP telephony (both true Internet telephony and VoIP) appears to be functionally equivalent to PSTN voice services; they are not governed by any telecommunication regulations. Incidentally, the US is also the country of origin of the highest number of IP telephony voice calls.

While users have benefited from the cheap IP telephony based long distance calls, for incumbent carriers, especially in countries where IP telephony is allowed, this has forced a number of complex issues. While on the one hand a new set of pure IP-based service providers, with no legacy networks, have cannibalized their revenues, on the other hand, it has left them wondering whether to move towards providing telephony services over an IP platform and at what speed. This is largely because many of the incumbent operators who planned to implement VoIP, matching the quality and reliability of circuit switched networks, found the price advantage disappearing in the face of dampening prices for traditional telephony. For instance, long distance calls in the US are now down to 5 cents per minute from around 25 cents per minute a couple of years back. In places like Hong Kong, where a call to the US cost 20 cents per minute a year back, it now costs 3 cents per minute. PSTN calls to the US during the night in Hong Kong, cost as little as one cent per minute.

VoIP, however, has certainly forced the incumbent carriers to reorient their business strategy and technological inclinations away from a circuit-switched environment. In most cases traditional carriers are looking at migration to an IP-based platform as a step towards facilitating integrated voice, data and video services, thereby opening new revenue opportunities. Cheap voice as a business case is already out of favor with these carriers. These include carriers like AT&T, BT, KPN, Deutsche Telekom, Telekom, Telenor, Telia, Sonera, Telstra, KDD, NTT, Korea Telecom, Sprint, Japan Telecom, China Telecom, etc. These carriers are mostly looking at combining the values of traditional telephony–reliability and quality of service—with the convergence-multimedia opportunities offered by IP.

Ravi Shekhar Pandey