What is VOIP

What is VOIP? • VOIP is a next-generation protocol that delivers voice via IP Internet Protocol (IP) instead of Time Division Multiplexing (TDM). The public switched network telephone network (PSTN) is a hybrid, using both. • Applications include • • • • computer-to-computer computer-to-phone phone-to-computer phone-to-phone 10/31/2008 1 How does VOIP work? • • • The VOIP carrier supplies a telephone number and a network translator device. The customer speaks into a telephone or computer microphone. The customer’s voice is encoded by the network translator device into packets and transmitted over the broadband connection. 10/31/2008 2 How do ‘packets’ fit in? • • The voice packets are routed within the customer’s intranet (LAN or WAN) or to the PSTN, or Voice packets are sent through the Internet to the VOIP carrier’s facilities and transmitted to the PSTN. 10/31/2008 3 Comparing VOIP and POTS • • Functionally, whether making a VOIP call or an ordinary local exchange call, there is no net change in customer protocol. By the time a VOIP carrier takes the call, the voice signal will have already been transformed twice, • • First, from analog sound into electrical impulses, and Then into the synchronous format used by the PSTN. • • Similarly, the “digital protocol interface” of two decades ago enabled existing customer telephone equipment to transmit under a new and different protocol. Then, as now with VOIP, there was no net change in form or content and no net protocol conversion. 4 What the Market Leaders are Doing Now • RBOCs, AT&T, MCI and Global Crossing as well as wireless carriers routinely use IP packet switching in long-haul networksit is inherently more economical than circuit switching. MCI now moves 10% its calls over an IP backbone, and expects 25% by the end of 2003 and 100% by the end of 2004. Source: Interview with Vinton Cerf („father of internet‟), MCI VP, CNET News.com, September 10, 2003. • • AT&T is testing VOIP with customers through February. Source: AT&T website. • Regional carriers – Frontier and Citizens – describe “an enormous economic incentive to follow the same path…would offer…circuit switches with IP-based packet switches as quickly as possible… would not charge sales taxes or 911 fees and would no longer… comply with CALEA…would stop contributing to the Universal Service Fund... Every other telecommunications carrier would have no reasonable economic choice but to do the same. Source: Comments of the Frontier and Citizens Telephone Companies, In the Matter of Vonage Holdings Corporation WC Docket No. 03-211 Petition for Declaratory Ruling Concerning an Order of the Minnesota Public Utilities Commission, pp. 11-12 10/31/2008 5 Cable IP Telephony • • • • Time Warner – Has filed an application for a CPCN to begin providing VOIP service throughout California. Comcast - will begin offering VOIP service by 2005. Source: Comcast Cox - is pilot testing VOIP. Analysts expect it to begin offering retail VOIP services in 2004 or 2005. Cablevision - is now offering unlimited local and long distance VOIP service on the East Coast to its 4.4 million customers. Three-fourths of its broadband customers and over 23% of all its customers have signed up. Source: Cablevision press release, November 11, 2003 Industry experts say within 2 to 3 years of a cable company offering VOIP, 20% to 30% of its customers will switch. Source: technical expert in meeting with TD staff, October 9, 2003. CLEC • 10/31/2008 6 Business is Migrating to IP telephony • RBOCs - SBC, Bellsouth – began in 2002 to migrate business PBX customers under intrastate tariffs to IP telephony services. Nemertes Research recently (2003) surveyed 42 large companies on IP telephony use • 62% use it now • 19% are running trials of it • The rest plan to implement it in 1-2 years Source: Nemertes Research, (in) “VOIP by the Numbers”, Network World Fusion (nwfusion.com), November 3, 2003. • • 10 percent of business systems have been replaced with a form of VOIP. Source: Washington Post, “Is it Phone or Internet…?”, October 26, 2003. VOIP equipment accounted for 46% of US enterprise telephone systems sales in 2002, up from 24% in 2001. Source: In-Stat/MDR, from “Has VOIP‟s Time Arrived…?” The Globe and Mail, May 21, 2003, on net2phone.com website. • 10/31/2008 7 Effect of IP Telephony on Universal Service Programs in 2008 • Total effect on Universal Service Programs may be a reduction in revenue of $200 to $400 million in 2008, compared to authorized appropriations for years 2003-2004. If only providers such as Vonage, 8X8, serve the market, fund revenues are likely to decline by about one percent. If Cable providers and ILECS enter the market in 2004-2005, fund revenues may experience declines from 25% to 40%. This effect on revenues is split about evenly between residential and business customers. Assumptions • • • No change in the number of effective residential or business access lines. Based on industry and financial community sources. Penetration rates for cable and ILEC business from 5-10%, and for ILEC residential from 2.5-5%. 8 • • • 10/31/2008 Potential Effect of IP Telephony on Universal Service Programs by Fund in 2008 Subsidy Program Total • • • • FY 03-04 Appropriation $939 2008 VOIP Effect • California High Cost Fund A (small LECs) $ 62 Potential for California High Cost Fund B (large LECs) $522 revenue Universal Lifeline Fund (Lifeline discount) $246 reduction of Deaf & Disabled 25-40% Telecommunications Fund (DDTP) $ 69 over all California Teleconnect Fund $ 40 programs. (schools, community based organizations, libraries) Note: The lower impact estimates occurs if providers are limited to Vonage capturing residential customers and ILECs converting business customers only. The higher estimates are the result of cable providers and ILECs entering the residential market as well. 10/31/2008 9 Currently IP Telephony does not do the following • Contribute to • • • • • California High Cost Fund A (small LEC subsidies) California High Cost Fund B (large LEC subsidies) Universal Lifeline Fund (Lifeline household discount) Deaf & Disabled Telecommunications Fund California Teleconnect Fund (schools, community based organizations, libraries) • • • • Provide E911 service Pay access charges Provide access to traffic for law enforcement Obtain telephone numbers under the North American Numbering Plan 10/31/2008 10