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					         When and where will IP
            overtake voice?


          Dr Tim Kelly,
  Co-ordinator, Strategies and
    Policy Unit, International
   Telecommunication Union,
 TeleNor Carrier Event, Lofoten,
  Norway, 29 Aug – 1 Sept 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. The author can be contacted at tim.kelly@itu.int.
        When and where will IP overtake
        voice?
 Why is the question important?
    Investment in networks
    Investment in companies
 Different dimensions of the question
    IP overtaking voice, by volume
    IP overtaking voice, by value
 The Geography of IP
    Accelerating returns to scale
    Cross-overs at global, regional and national levels
 Implications ….
    … for network provisioning
    … for bandwidth pricing
               Taking the long-term view
               Fixed voice, Mobile voice and Internet
               users worldwide (millions)

 1910-2010, Logarithmic scale                               Normal scale
                                                            2'000

 1'000                                                                Mobile voice
                                                            1'500
                    Fixed voice
                                                            1'000
                                                                    Fixed
    10                                                              voice
                                     Mobile                  500
                                     voice
                                               Internet                       Internet
     0                                                         0
     1910 20   30     40   50   60   70   80   90 2000 10      1990         2000     2010


Source: ITU.
            Relative bandwidth
            requirements (highly approximate!)
Typical         Duration and      Bandwidth Relative
usage           volume            per month size

Voice           6 hours per       350 Mb
telephone       month: 8 kbit/s
user            duplex

Current         30 hours per       6.5 Gb
Internet user   month: 56 kbit/s
                downstream,
                4 kbit/s upstream
Future          50 hours per       190 Gb
Internet user   month: 1 Mbit/s
(streaming      downstream,
media)          56 kbit/s upstream
                Market capitalization driven by market
                expectations: Top 6 firms in US$bn

                         Cisco

                   Microsoft

       General Electric

                            Intel

           NTT DoCoMo

  Vodafone AirTouch

                                     0       100 200 300 400 500 600
Source: Primark Datastream, valid at 27 March 2000.
         When will IP overtake voice (1):
         By volume?
 Measured by traffic:
    Around 105 billion minutes of international PSTN
     traffic in 1999 (mainly voice and fax)
    Around 5 trillion minutes of total PSTN traffic
    Global quantity of data traffic not known, but growing
     exponentially (doubling every 100 days?)
    Comparable data available for individual countries
     (e.g. Hongkong SAR, Germany, Portugal, Sweden)
 Measured by circuits:
    Data available for US carriers, broken down by PSTN,
     IPL and other
    Crossover between PSTN and IPL in 1998
                  Minutes of use by month,
                  Hongkong SAR ('000s)
  1'500

  1'250
                                 Dial-up Internet
  1'000
                                 (via PSTN)
    750

    500

    250      International voice
             (incoming and outgoing)
        0
           4 6 8 10 12 2 4 6 8 10 12 02
          98 98 98 98 98 99 99 99 99 99 99 00
Source: OFTA (www.ofta.gov.hk)
                 Deutsche Telekom
                 Percentage change in call
                 volume (minutes) 1998/99                             86.3%



                                                         36.0%


     -7.1%                                  7.2%
                        -2.1%



   Domestic              Int'l            Local calls    Calls to     Calls to
     long-            outgoing                           mobile     Internet (T-
   distance             calls                           networks      Online)
Source: Deutsche Telekom annual report.
                    Dial-up Internet traffic as % of
                    total traffic minutes
    40%
    35%               Telia (Sweden)                                                       38%
    30%
    25%             27%
                                                                                        19.5%
    20%
                             Telenor (Norway)
    15%            12%
                                                                                            18%
    10%
                                  Telecom Portugal
       5%         8.5%

       0%
                1998                                                                      1999
Source: PTO annual reports. Note: For Telia, Internet traffic as % of local minutes. For others, as % of total
     When will IP overtake voice (2):
     By value?
 Paradigm shift postponed
    Most Public Telecommunication Operators still
     heavily dependent on voice revenues
    Mobile revenues (largely voice) represent main
     current area of growth
    Price erosion of Internet revenues is offsetting
     volume gains (e.g., falling leased line prices)
 Paradigm shift regained
    Mobile Internet is likely to be a major area of
     future revenue growth
    Possible future shift of broadcast entertainment
     (TV, music, pay-per-view) onto telecom-type
     networks (broadband Internet)
    PSTN voice traffic shifting to IP-based networks
Projection of revenue growth (US$bn)
                             1000
                             900
                                                                  Actual         Projected
                             800        Other: Data, Internet,
  Service revenue (US$ bn)




                             700      Leased lines, telex, etc

                             600                                                 Mobile
                             500
                                                          Int'l
                             400
                             300
                             200
                                      Domestic Telephone/fax
                             100
                               0
                                    90 91 92 93 94 95 96 97 98 99 00 01 02
Source: ITU “World Telecommunication Development Report 1999: Mobile cellular”
       The influence of Voice over IP
 IDC forecasts that “Web Talk”
  revenues will reach US$16.5 bn                   16.5
  by 2004 with
  135 billion mins of traffic
 Gartner Group forecast that       “Web Talk”
  voice over IP and competition     revenues,
  in Europe will reduce prices by   US$bn
  75% by 2002
 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.
         The Geography of IP
 Investment in IP networks is still highly US-centric
    More than 95 per cent of inter-regional IP bandwidth
     connectivity is to/from North America
    Accelerating returns to scale means that big get bigger
 Europe catching up fast
    Major investment in fibre-based networks since
     opening up of EU markets in late 1990s
 Asia-Pacific lagging behind
    Top European city (Geneva) has 50 times more
     connectivity per inhabitant than top Asian city (Japan)
 Latecomers disadvantaged by high prices
    Non-liberalised telecom markets and obligation to pay
     both cost of both half-circuits of Int’l Private Line
    Insufficient demand to force down prices
                   Inter-regional Internet backbone
                                                                                   152 Mbit/s

                                              USA &                  13’258 Mbit/s
                                              Canada
                  5’916 Mbit/s



        Asia-               949 Mbit/s
       Pacific                                170 Mbit/s                               Europe
                                                                         69
                                                                         Mbit/s
                                Latin                         Arab
                              America &                      States,
                              Caribbean                       Africa

                                                                                      63 Mbit/s
Source: TeleGeography Inc., Global Backbone Database. Data valid for Sept. 1999.
                 Number of int’l circuits in use,
                 worldwide, and by region 1998
                 (in thousands)                             Western Europe
 300                                                                      PSTN,
                                                                          32%
                                                                   IPL,
 250                                                               68%

 200                                                                  Asia
             PSTN circuits
 150                                                                    PSTN,
                                                                   IPL, 41%
                                                                   59%
 100

                       International Private Lines                 Caribbean
   50                                                       IPL,
                       (Internet)                           18%
    0                                                                     PSTN,
                                                                          82%
     1995                  1996             1997     1998
Source: FCC. Applies to US carriers only.
        Implications for network
        provisioning
 Internet is likely to be the main demand driver
      World Wide Web
      Company Intranets
      Managed IP-based networks
      Streaming media
 Voice growth may nevertheless be significant
    International voice growing by around 15% p.a.
    Demand for digitized voice in unified messaging
     applications
    Voice demand will be more geographically
     dispersed than data demand
 Infrastructure capacity and costs,
 TransAtlantic cables, 1988-2001
                                10'000                                                                                 100'000




                                                                                                                                     Circuit capacity (64 kbit/s, 000s)
                                                           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-1 TAT-10 TAT- AC-1 TAT-14 Flag
                                            1988 1989 1992 12/13 1999 2000 Atlantic
                                                               1996             2001
Source:                         ITU, adapted from FCC.
Note:                           Circuit costs assume a usage level of 18%, a compression level of 5:1 and a life-time of 20 years.
      Implications for bandwidth
      pricing
 “Cost-oriented” pricing may be unsustainable
    Customer perception is that voice has more
     “value” than data
    Narrow-bandwidth services, such as voice, might
     otherwise be “too cheap to meter”
 Pricing for access more significant than
  pricing for usage
    Price of link to fat pipe would cost more than
     share of fat pipe
    Internet-style flat-rate, distance-insensitive
     tariffing of capacity likely to be dominant mode
 Key to success will be managing transition to
  lower prices

				
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