Voice over IP: Opportunities and regulations

Perhaps no single technology has put more fear into the eyes of giant telephone companies than Internet Protocol (IP) telephony. When it was first introduced in 1995, analysts believed that Voice over IP would explode onto the market because of three compelling advantages: lower prices for users; lower cost for service providers and new/advanced service integration with traditional voice service.

The idea of using the Internet to make long distance calls for the price of a local Internet connection has tempted consumers and businesses alike. The prospect of saving up to 70 percent on long distance bills had many people, including telephone companies, taking a long look at this new technology.

If IP telephony started taking off, many said it had the potential of absorbing a sizable portion of market share from telephone companies. According to some, it could be the David that slays the Goliath of entrenched phone companies, providing enormous cost savings to consumers.

Voice over IP, or also known as Voice over packet, is the process of transmitting voice information, which is traditionally transmitted over plain old telephone services (POTS), over packet networks such as Internet, ATM and frame relay.

Voice over the Internet, voice over ATM. Voice over Frame relay. Thinking back over the last few years, most of us can admit that we would have found it difficult to imagine that these telecommunications applications would be the increasing market force that they are today.

Moreover, there are varying visions of what VoIP would look like in two to three years -- mass market telephone substitute, niche teleconferencing product, or the videophone of the future.

Unfortunately, how VoIP will effect the Internet, telecommunications and the national and global economy is still unclear. Will it become a mass market competitor to the circuit switched network? Regardless of perspective, the future of VoIP will depend upon the interaction of three variables: technology, market strategies and regulations.

What is so different about voice?

In a typical Internet data transmission, the ISP for the most part validates the user's ID and then routes the transmission to a specific data switch, where the call is connected to the Internet and a session can begin. Voice calls must be handled in an entirely different process.

To begin with, protocols have been developed to address multimedia communications over packet networks which affect signal processing through the public network. For example, the H.323 standard affects terminals and gateways, while H.225 defines the means by which audio, video, data and associated controls are coded and packetized for transport between H.323 terminals.

The H.225 protocol is intended for packetizing and synchronization of traffic over the network with nonguaranteed quality of service (QoS). Consequently, to process VOIP exchanges, the ISP must be in a position to handle a complex message stream to route calls to their proper destination.

For these reasons, the ISP must assume a much different switching configuration, taking on the posture of a service switching point (SSP) in the public network. This is a major problem for many ISPs, because many cannot support functional SSP termination. However, some ISPs have begun using a combination of gateway and gatekeeper units to support call setup, packetization and routing functions to transport voice calls across an IP network.

Although new to ISPs, gateways provide the interface between the public switched telephone network (PSTN) and the IP network, and support the encoding/decoding and packetization of information between the two networks. In addition, gateways send and receive call signaling to and from the PSTN via multifrequency trunks, integrated services digital network (ISDN) D channels and so on. Gatekeepers act on the signaling information to determine the switching/routing logic so they can establish a communication path between IP networks and the PSTN. Gatekeepers maintain lists of remote gatekeeper IP addresses, as well as the associated PSTN dialing plan routing information.

Flavors and Varieties of IP Telephony

The idea of placing calls over the Internet spawned from corporate data networks, which now handle a considerable amount of voice traffic. IP telephony is a catch phrase for a variety of services that move real-time, person-to-person, audio, video and data via the Internet Protocol.

There are three types of IP telephony services: computer-to- computer, computer-to-phone and phone-to-phone.

Computer-to-computer products integrate a variety of functions into the call. The latest IP telephony products offer private or group conversations, video clips of discussants, the ability to manipulate text documents and white boards for messaging.

Increasingly, these services are incorporating many features of traditional online service providers, such as America Online. VoCall now offers subscribers access to numerous discussion groups, chat rooms and online dating features (coming soon). Computer-to-phone and phone-to-phone IP telephony allows users to make traditional voice calls over the Internet.

In order to reap the benefits of IP telephony, substantial setup costs are required. Though computer-to-phone transmissions do not require any additional end-user hardware, computer-to- computer technology requires that the sender, as well as the recipient of the call, be equipped with the necessary products.

Often, a computer program needs to be purchased and installed, sometimes with fairly expensive hardware. Relatively fast computers, such as Pentium processors, are needed to conduct conversations at normal speeds. Additionally, using telephony is not as simple as using the phone. In most cases, computers cannot ring other computers like phones can. Both parties need to be simultaneously on line in order to establish a connection.

While all IP telephony services utilize Internet Protocol, they are offered over either public or private networks. Calls that use the public Internet are called VoN (Voice over Net), while IP telephony calls that travel across private Intranets are VoIP (Voice over Internet Protocol).

VoN calls require the user to have an ISP account and provide the service over the Internet. The person accesses the Internet as normal and then executes a software package that allows a call to be placed. This call travels through the Internet, to the recipient's ISP and then to his computer.

After connecting to the ISP, telephony conversations can last indefinitely at no extra charge to either party. The calling party pays no per minute charge - just the cost of the software - when an ISP is used. This is essentially the "free" telephone usage that most people are referring to when discussing IP telephony.

Some Voice on Net services actually allow a user to access the Internet via an Internet Telephone Service Provider (ITSP). These services require a per minute or monthly user fee, and function much like a traditional long distance provider.

VoIP is an IP telephony call that is not transmitted over the public Internet, but rather, a private Intranet. This Intranet is essentially a closed-user group with dedicated network facilities put in place to handle IP telephony.

Instead of dialing into an ISP, a corporation can use its existing Wide Area Network (WAN) to place the call to a dedicated Public Switch Telephone Network (PSTN) facility. These systems route an IP call through an IP gateway (installed by the service provider), over dedicated Intranet facilities, and back through an IP gateway to the final destination.

The advantage of this network architecture is noticed readily in voice quality and reliability, but these come at a price. Users are required to pay per minute of use, unlike Voice on Net service, which is free after the software is purchased.

Both Voice on Net and VoIP suffer from two significant drawbacks: packet loss and latency. Packet loss is a problem for all Internet-based systems, although less of a problem for VoIP services. The Internet was never designed to handle real-time communications.

When a packet is "lost" on an IP telephony call, i.e., it does not reach its destination in the order in which it was generated, it is simply excluded, which makes the voice call sound choppy and incomplete.

Latency is a more pressing problem than voice quality. On a wireline voice call, there is no detectable latency. Because an IP telephony call must be processed at many different points in the transmission, there is a discernible delay in the time someone speaks and the time the other person hears the spoken word.

The first IP telephony products had delays of more than 500 milliseconds, about double the delay found in satellite telephones and a significant deterrent to its appeal. Current Voice on Net services have reduced the delay to a detectable, but manageable 150 milliseconds, and some believe that products with very low latency (50 milliseconds or less) will be available soon.

Regulatory Considerations

Today, the regulation for VoIP is not so clear, and while one expert says it should be included in the Internet regulation, others say it should be included in the telecommunications regulation. For this part, the discussion is still hot, with a small missing link here.

Regulation No. 36/99 have decided there are three providers; network providers, service providers and content providers. Network providers will provide all connections related to the physical layer, access and network with a capability to transmit services directly to the customer's side either between operator. The service provider will provide services directly to the customer complete with a customer-based record, as well as customer care and a billing system. The last is the content provider that has the responsibility to provide content. As an example, the CATV provider that needs channel videos will be provided by the content provider.

In a real situation, operators may act as all three providers, providing the network, service and content on their own. For cases like this, the operator should make a big investment to prepare all of those as an end-to-end customer service solution.

For VoIP, we should be careful of legalities. VoIP can act as a value-added service that is deployed from data services. As an example, with a growing company that needs to communicate between a branch with its main office, they can use their data network to be integrated with telephony services using VoIP technology, not just IP based but also Frame relay based, ATM based etc. With this solution, the company can cut its investment in communication in half because it does not need to build a network.

A different situation could move from being legal to illegal if the company was to lease the networks and sell them to others. This means the company would act as an operator and if they do not have a license to do that, it is illegal. To be an operator of VoIP, it means it is also acting as a telecommunications company and either it would be sent as a service with a calling card or by using a special code on the phone to connect to the gateway.

In this situation, the government should pay careful attention to the regulations, as not everyone knows about this technology, and if we make a mistake, we would be known as the bad boys from the point of view of international telecommunications operators.

To be consistent on the three parts of the provider, the license would be born from those regulations, and it would not be illegal.

A Vision of IP Telephony

The future of IP telephony is in great flux. The long-term future of IP telephony probably lies in computer-to-computer Voice on Net and VoIP business and residential services.

Over the next two years, regulatory action/inaction is likely to create short-term opportunities for phone-to-phone Voice on Net IP telephony. Several things are certain to occur.

The regulation will be forced to take action regarding calls to ISPs and IP telephony. The current ISP access charge exemption will likely come to an end, meaning that there will be a per minute usage charge to access the Internet via the PSTN.

Even so, the effects are not likely to diminish the cost advantage of IP telephony significantly. Over a plain copper connection on a circuit-switched network, this charge is likely to be around $0.003 (3/10 of a penny) per minute, which is still a far cry from the access charges paid by long distance carriers. This change will benefit Internet Telephony Service Providers (ITSPs) who bypass the ISPs to provide IP telephony services as well as the VoIP carriers providing residential services.

Second, access and universal service charges will be applied to VoN IP telephony providers. While the regulation will attempt to insulate these providers as long as possible, in an attempt to push down international and domestic long distance rates, they will not likely be successful past the year 2000.

But the ultimate charge may be different depending on the type of IP telephony service provided, and it may be applied later for computer-to-computer IP telephony services. Phone/computer-to- phone services will likely be charged a fee equal to that charged to comparable LD services (the access charge). This will make it much more difficult for Voice on Net providers to compete head-to-head for phone-to-phone and computer-to-phone services.

When charges are assessed, it's possible that they will be substantially different from the charges now paid by long distance or local carriers. As a result, there may be a larger window of opportunity for computer-to-computer IP telephony services to work out the technical difficulties, expand their customer base and service offerings, and overcome the market challenges from larger players. Hence, their prospects will largely depend on integration of "ISP-like" services, teleconferencing and multimedia applications.

VoIP service provider and network equipment vendors are in the best position to take advantage of IP telephony technology, and business customers are likely to be the greatest benefactors. Unlike Voice on Net carriers who rely on preferential government treatment for some of their cost advantages, VoIP carriers (such as Qwest) face no upcoming regulatory challenges and are today successfully competing based on true costs. Additionally, the technical challenges faced by VoIP systems is substantially less than those running over the public Internet (Voice on Net). Americans will likely see fast falling rates as these carriers begin seriously entering residential markets. Business users will certainly receive the most benefit from VoIP services as IP telephony functionality is added to their private networks. Over the course of the next few years, there could be a massive expansion of VoIP over existing corporate Intranets, with significant implications for long distance traffic and public carriers.

When some of the more significant technical concerns are addressed, large businesses may be able to leverage their existing systems to place international and domestic long distance calls at a fraction of the public tariffs they now pay. (Henri Setiawan W.)