IP Telephony:
Substitute or Supplement?
Dr Tim Kelly,
International
Telecommunication Union,
“Telecoms @ The Internet VI”
IIR, Geneva, 12 June 2000
The views expressed in this presentation are those of the author and do not necessarily reflect the opinions of the
ITU or its membership. Tim Kelly can be contacted at tim.kelly@itu.int.
IP Telephony:
Substitute or Supplement?
What is IP Telephony?
PC-to-PC; PC-to-Phone; Phone-to-Phone
“Internet Telephony” and “Voice over IP”
How will IP Telephony evolve?
Market potential
Constraints to market development
Implications for Public Telecommunication Operators
Regulatory policies regarding IP Telephony
Is it voice? Is it data? Is it a substitute? Is it an
“internet application”?
Economic and strategic issues
How will IP Telephony evolve?
What is IP Telephony?
“IP Telephony” is the transmission of voice, fax
and related signals over packet-switched IP-
based networks. There are two main subsets:
“Internet Telephony”: using the public Internet;
“Voice over IP”: using private, managed IP-based
networks, in addition to the Public Internet.
“IP Telephony” is also used as a generic term
to cover Fax over IP, Voice over Frame Relay,
Voice over xDSL etc,
Relevant ITU-T standards include H.323, H.324,
H248, T.120 etc.
IP Telephony: Four main stages
of evolution
1. PC-to-PC (since 1994)
Connects multimedia PC users, simultaneously online
Cheap, good for chat, but inconvenient and low quality
2. PC-to-Phone (since 1996)
PC users make domestic and int’l calls via gateway
Increasingly services are“free” (e.g., Dialpad.com)
3. Phone-to-Phone (since 1997)
Accounting rate bypass
Low-cost market entry (e.g., using calling cards)
4. Voice/Web integration (since 1998)
Calls to website/call centres and freephone numbers
Enhanced voice services (e.g., integrated messaging)
1. PC-to-PC over IP
Internet
Phone Gateway Computer Phone Gateway Computer
Needs similarly equipped Internet users (e.g., IP
telephony software, multimedia PC etc), both
logged-on simultaneously
Main applications: avoidance of usage-based
telephone charges, chat-rooms, company LANs
Application providers include Firetalk, Phonefree
Potential Market: 250 million Web users,
receiving >1.3 billion telephone/mobile users
3. Internet
Phone/mobile
to phone/ Phone Gateway
Computer
Phone Gateway
Computer
mobile (fax to
fax), over IP
Fax Fax
Telephone Public Switch Telephone
Any phone/fax/mobilephone user to any other
Main motivation: Reduced call charges,
accounting rate bypass, market entry for non-
facilities-based carriers (e.g., via pre-paid cards)
Service providers include speak4free, I-link etc
Market potential: >1.3 billion phone/fax/mobiles
4a. PC to Internet
website/
Call centre, Web Server
over IP
Public Switch Phone Gateway
Desktop PC Telephone
Computer at
Service Provider
Internet users with multimedia PC browse Website
and choose voice/video connection option
Main motivation: Service provider can interact
directly with potential clients, via voice or video,
for instance for telemarketing, freephone access
Service providers include NetCall, ITXC etc
Market potential: >250 million Internet users
4b. Phone/ Internet
mobile to
website/ Phone Gateway
Computer at
Web
Server
Local PoP
e-mail, over IP
Public Switch
Phone Gateway
Telephone Mobilephone Computer at
Service Provider
Phone or mobilephone users utilise enhanced
services (e.g., integrated messaging, voice
response) available from IP service provider
Main motivation: Integrated messaging, computer
telephony integration, m-commerce
Market potential: >1.4 bn phone/mobile users
Service providers include Yac.com, T2mail etc
Constraints to IP Telephony
Quality of service
But, getting better, thanks to common standards,
upgrade to IPv6, diffserv etc.
Transition to private, managed networks (VoIP) rather
than use of public Internet (Internet Telephony)
Bandwidth
But, getting better, particularly on trans-Atlantic and
trans-Pacific routes
Bandwidth shortage still a problem in developing
countries especially if gateway to IP is asymmetric
Regulatory prohibition
But, more than 70% of int’l traffic flows between
markets where IP Telephony already liberalised
Many more regulators are liberalising some form of
IP Telephony, or “turning a blind eye”
Addressing constraints: Increased
trans-Atlantic bandwidth
100'000
Circuit capacity (56/64 kbit/s, 000s)
10'000
Circuit costs,
falling by 72% p.a. 10'000
Circuit cost p.a. (US$)
1'000
1'000
100
100
10
10
Circuit capacity,
rising by 89% p.a.
1 1
TAT-8 PTAT-1TAT-10 TAT- AC-1 TAT-14 Flag
Source: ITU,
adapted from
1988 1989 1992 12/13 1999 2000 Atlantic
FCC. 1996 2001
IP Telephony wants to be “free”
Cumulative number of Dialpad users & call minutes
Since launch on 18 Oct. 1999
6 350
Registered users (million)
300
Call minutes (million)
5 Users
minutes 250
4
200
3
150
2
100
1 50
0 0
18-Oct- 22-Nov- 10-Dec- 12-Jan- 04-Apr-
99 99 99 99 00
Source: ITU, adapted from DialPad.com press releases.
Impact on Telecommunication
Operators: Who gets what …. ?
International telephone call @ $3 per 3 mins
Telco which “owns” customer gets share of line rental
(US$0.70)
Telco terminating call gets interconnect or local call
fee ( 250 milliseconds and packet loss > 1%.
In China, the operator has negotiated a specific
accounting rate for IP Telephony traffic .
Economic and strategic
questions
How big is the market for IP Telephony? How
big will it become?
What impact is IP Telephony having on net
settlement payments to developing countries?
Does IP Telephony generate new traffic, or
does it substitute for existing traffic?
What impact will IP Telephony have on tariff
rebalancing strategies of carriers?
Should developing country carriers attempt to
block IP Telephony or to provide it?
Should incoming and outgoing IP Telephony
calls be treated differently?
How big is the IP Telephony
market? How big will it become?
IDC forecasts that “Web Talk”
revenues will reach US$16.5 bn 16.5
by 2004 with
135 billion mins of traffic
DeltaThree estimates that “Web Talk”
IP Telephony will generate revenues,
16 billion mins of int’l traffic in US$bn
2000
IP Telephony as % of all
int’l calls in 2004
Tarifica forecast 40% 0.208
Analysys forecast 25%
In developing countries, the 2000 2004
majority of IP Telephony calls
are incoming Source: IDC.
Conclusions: Substitute or
supplement?
Historically, IP Telephony has been a substitute
for high-cost PSTN telephony:
Avoiding long-distance and international call prices;
Avoiding above-cost settlement rates.
Increasingly, IP Telephony is becoming a
supplementary application, offered by ISPs:
“Free” PC-to-Phone calls to US and elsewhere;
Integrated messaging and computer/telephony.
In future, a majority of telephony offered by
telecom carriers will be “IP Telephony”:
Integrated voice and data networks;
Regulators need to be consistent in approach.
For more information: http://www.itu.int/iptel