Vrije Universiteit Brussel
Faculty of economic, political and social sciences
and Solvay Management School
Academic year 2004-2005
VoIP for companies in Belgium
Some business models and the consequences for
the players of the telephone market
Thesis submitted to obtain the degree of
Master in Business Information Management
Prof. Dr. L. Van Hove
Thanking everybody who helped me with writing this thesis seems an almost impossible task as
it doesn t only apply to those who were there for me during the last few months, but also should
imply all those persons whom I had a challenging conversation with about or around this topic
over the years. Sometimes seeds can be planted years before the first harvest is done.
In the first place I want to thank my promoter, Prof. Dr. Leo Van Hove. His door was always
open when I needed help or guidance.
My gratitude also goes to Levent Kocabiyik, who helped me with limiting my resources, scoping
my subject, looking at the bigger picture of this topic and determining the roadmap of writing
this thesis. Though this is not a small thing, I think the feeling that there is somebody who is
there when you need him was even a more stimulating experience.
Last but no least I want to thank Bart Homblé, External Product Specialist of 3Com for his
handy insights and for introducing me to Roel Gyde of Azlan.
Roel shared some of his valuable time and his knowledge of VoIP (Voice over IP) very openly
and benevolent with me.
To all the explicitly mentioned and to all the people who remained concealed:
Thank you very, very much!!!
Table of contents
Table of contents
CHAPTER I: INTRODUCTION ...................................................................................................1
1. SCOPE ..........................................................................................................................................1
2. STRUCTURE.............................................................................................................................. 4
CHAPTER 2: DEFINITIONS ....................................................................................................... 6
1. HISTORICAL OVERVIEW........................................................................................................ 6
1.1. FIXED-LINE PHONING ............................................................................................................... 6
1.1.1. POTS................................................................................................................................................................... 6
1.1.2. PSTN................................................................................................................................................................... 8
1.2. MOBILE TELEPHONY................................................................................................................. 9
1.3. IP BASED PHONING .................................................................................................................. 11
1.3.1. VO IP.................................................................................................................................................................. 12
1.3.2. IP TELEPHONY ................................................................................................................................................ 13
2. DIFFERENCE BETWEEN IP TELEPHONY AND VOIP ................................................... 14
CHAPTER 3: REGULATION ...................................................................................................... 16
1. REGULATION IN BELGIUM ................................................................................................. 16
1.1. H ISTORY ................................................................................................................................... 17
1.2. THE LAWS OF TODAY ................................................................................................................ 17
1.3. INTERNATIONAL RELATIONS ................................................................................................... 18
2. REGULATION OF THE EU....................................................................................................20
2.1. H ISTORY ...................................................................................................................................20
2.2. THE NRF (NEW REGULATORY FRAMEWORK) ........................................................................20
CHAPTER 4: PRACTICAL SIDE OF VOIP ................................................................................23
1. VOIP PRACTICAL.....................................................................................................................23
1.1. SKYPE ........................................................................................................................................23
1.1.1. START UP........................................................................................................................................................... 24
1.1.2. PHONE TO ANOTHER PC SKYPE USER ....................................................................................................... 25
1.1.3. THE ADDED SERVICES: CHAT, CONFERENCE CALLING, FILE TRANSFER AND WEB CAM ............... 25
1.1.4. PHONING TO A NON VO IP AND VOICEMAIL............................................................................................ 26
1.2. MSN MESSENGER ....................................................................................................................28
1.2.1. E XTRA FEATURES DURING A CHAT SESSION ............................................................................................. 29
1.2.2. TO HEAR AND TO SEE SOMEBODY .............................................................................................................. 29
2. IP TELEPHONY PRACTICAL ................................................................................................30
3. ADVANTAGES AND DISADVANTAGES OF VOIP .............................................................. 31
Table of contents
CHAPTER 5: THE DIFFERENT PLAYERS IN THEIR MARKET .........................................36
1.1. PHONING OVER THE PSTN......................................................................................................36
1.2. MOBILE PHONING ....................................................................................................................36
1.3. VOIP .........................................................................................................................................38
1.4. REGULATORS ............................................................................................................................38
2. THE MARKET ..........................................................................................................................39
2.1. MODEL OF PORTER ..................................................................................................................39
2.1.1. D ANGER OF NEW ENTRANTS ....................................................................................................................... 40
2.1.2. BARGAINING POWER OF THE SUPPLIERS ................................................................................................... 41
2.1.3. BARGAINING POWER OF THE CUSTOMERS ................................................................................................ 42
2.1.4. SUBSTITUTES .................................................................................................................................................... 42
2.1.5. COMPETITION BETWEEN EXISTING COMPANIES ..................................................................................... 43
2.2. SWOT ANALYSIS .......................................................................................................................43
2.3. KNOW YOURSELF AND YOUR COMPETITORS ............................................................................................... 45
2.4. THE MCFARLAN & MCKENNEY STRATEGIC GRID..................................................................45
2.5. STRATEGIC ALIGNMENT MODEL ..............................................................................................46
3. A GUESS OF WHAT IS THE FUTURE OF THIS MARKET ................................................48
CHAPTER 6: NETWORK ECONOMICS IN TELEPHONY MARKETS.................................49
1. ECONOMICS OF NETWORK INDUSTRIES ........................................................................49
1.1. D EFINITIONS ............................................................................................................................49
1.2. MODELS OF NETWORK EFFECTS...............................................................................................50
1.3. THE SIX MAIN QUESTION OF NETWORK EFFECTS .................................................................... 51
1.3.1. THE CHICKEN OR THE EGG .......................................................................................................................... 51
1.3.2. IS THERE SPACE FOR MORE THAN ONE COMPETITOR?........................................................................... 52
1.3.3. THE FIRST MOVER ADVANTAGE .................................................................................................................. 52
1.3.4. COMPATIBILITY ............................................................................................................................................... 52
1.3.5. O PTIMAL PRICING STRATEGIES ................................................................................................................... 53
1.3.6. MANAGING OF EXPECTATIONS ................................................................................................................... 53
1.4. THE CONSEQUENCES OF THESE EFFECTS ON VOIP ................................................................53
2. STANDARDIZATION ..............................................................................................................54
2.1. INTEROPERABILITY ..................................................................................................................55
2.2. COÖPETITION ..........................................................................................................................55
CHAPTER 7: SECURITY ISSUES ...............................................................................................56
CHAPTER 8: THE FUTURE OF IP BASED PHONING..........................................................60
1. NUMBERS AND THEIR EVOLUTION.................................................................................60
2. AN OVERVIEW.........................................................................................................................62
CHAPTER 9: CONCLUSIONS ....................................................................................................64
ANNEX 1: GLOSSARY OF ALL ABBREVIATIONS ..................................................................69
Chapter I: Introduction
This thesis will consider Voice over IP1. Is it the future way of communications? What will be
the business models of VoIP2 in comparison with the models of existing telecommunication
solutions and how will these models interfere? What are the advantages and disadvantages of this
new technology? Will VoIP change the relations between the different telephone operators?
How will these relationships be changed?
In this introducing chapter I will, in the paragraph scope, state the exact subject of research and
the boundaries of this master thesis. In the second paragraph I will expose the structure and
content of the eight remaining chapters.
When people are talking about phoning over the data network, one could suppose they are
talking about IP telephony, or about VoIP. I will explain the difference between IP telephony
and VoIP in the next chapter, definitions.
For the rest of this thesis I will discuss VoIP as it is the broader definition that comprises
phoning over the internet and not only over private networks (of companies).
VoIP is a recent and thus very dynamic and changing theme. Many different initiatives arise -
nationally as well as internationally - which makes it difficult to analyse all these different
initiatives. Therefore, and because as a Belgian I know this market better then any other, I aim
specifically to give a better insight of VoIP in the Belgian market. This, of course, will not
prevent me from illustrating, when needed, with cases from abroad.
I also will describe the legislations in the EU3 as VoIP is based on the internet and therefore can
not be limited to one country, but my main focus will be on Belgian companies, operators4 and
1 The Internet Protocol (IP) is a data-oriented protocol used by hosts for communicating data across the internet.
Data are then sent in blocks referred to as packets. Thanks to this protocol no setup is needed between the sending
and receiving host before data (packets) are send.
Wikipedia, The free encyclopedia (Consulted 2005 2 May), Internet Protocol.
2 Voice over IP (VoIP) allows you to make telephone calls using an IP enabled network. The voice signal is
converted into a digital signal that travels over the internet and is converted back to a voice signal at the receiving
FCC Federal Communications Commission (Consulted 2005 1 May), Voice-Over-Internet Protocol.
3 The European Union (EU) is a working together of twenty-five European countries, amongst which is Belgium. It
is not an institution that replaces existing states, but a part of these members sovereignty is delegated to the EU so
that decisions on specific matters of joint interest can be made democratically at a European level.
EUROPA, the portal of the European Union (Consulted 2005 2 May), EUROPA The EU at a glance.
4 A (telephone) operator or a telephone provider is a carrier that provides services such as telephony (and possibly
data communications). With the advent of cellular telephony, the term operator started including wireless carriers;
now with the advent of internet based telephony, it seems not unseasonable to me that the term operator would
start including internet based carriers. As such the term operator and provider seem to converge.
In addition to the telephoning aspects of VoIP I will describe added services that are offered by
VoIP telephone operators as they can be part of attracting companies to this new technology.
There are two big target groups for VoIP: individual users and enterprises.
Individual users that already have an internet connection need only download software (for
instance Skype) and have a headset to be able to phone other persons. This can be free of
charge if the receiver is connected to the internet or for a cost of a local phone call.
Enterprises will need to integrate their voice communication system with their existing IT6
system (their voice communications will be transferred over their IT network). Before a
company wants to do such a transition, they need to be sure of a certain QoS7 because this
transition will contain considerable investments and reorganisations. On the other hand the
integration of two different systems for voice and data into a single network will also save
money, raise efficiency and create additional surpluses (services) because of the interaction
that is now possible through voice, data and video communications.
A serious consideration of the pros and the cons is necessary for every company to decide
whether or not this transition is interesting for them.
I will shortly describe the private use of VoIP, but my main interest goes to companies and why
they should or should not change from the traditional phone system to an IP based telephone
system. This transition is more complex for a company but therefore more interesting. There is
the integration of the data and the voice system, and the possible added values of the new
Moreover in the market segment of the private users, it will be companies that supply software
that can make high turnovers (through paid calls).
In this second segment you have the replacement of a whole system. Software vendors, hardware
vendors and management consultants could profit from this conversion. Moreover, we see -
thanks to this possibility of internet based phoning solutions - that internet provider try to set
foot ashore as telephone operators.
The aim of this thesis is four folded:
Discover whether regulations (Belgian and EU) are ready to face this new technology.
Discover whether VoIP is interesting for companies or how they can figure this out.
What the consequences are of VoIP for the traditional phoning solutions.
Who will be tomorrow s operators or providers? Who will have the power of the market?
In summary, this thesis is an evaluation of the future of VoIP and the consequences this will
have for operators and providers in the telephony market.
5 An (internet) provider stands is a carrier that provides internet subscriptions. As telephone solutions can also be
supplied trough the internet it seems not unreasonable to me that the term provider would start including
providing phoning solutions. As such the term provider and operator seem to converge.
6 Information Technology (IT) or Information and Communication Technology (ICT) is the technology to process
information (convert, store, protect, process, transmit, and retrieve) trough using computers and software.
Wikipedia, The free encyclopedia (Consulted 2005 3 May), Information technology.
7 The term Quality of Service (QoS) refers to the probability of a packet (voice or data) getting to its destination
(also used to measure whether or not a network meets a given traffic contract). Such a packet transfer can suffer
different problems as dropped packets, delayed arrival, unordered packets delivery or even no delivery at all. If
video, telephone and data flow over one network then voice packets have to be prioritized as problems as a delay in
conversation is not acceptable (a little delay in your e-mail system will urge less irritation).
As I started this thesis as a literature search, it can be valued as quite theoretical, but I have tried,
whenever possible, to broaden the theoretical view with practical cases and numbers.
Because VoIP is not yet a mature product, most literature about this topic is quite hypothetical
and I experienced some difficulties finding exact numbers to confirm my opinions and to
substantiate my hypothesis. Moreover it was not always easy to interpret the articles and papers I
read: was the author giving his expectations or his dreams for the future of this innovation?
Certainly with commercially websites and resources I had to be critical: wishes were seen as
reality and depicted as such.
In addition VoIP is a hot topic about which day after day an overload of new information is
contributed in the different media. To illustrate this one only has to read the article of this week
(11th of May) in CNET News.com: Florida removes VoIP tax from books . One can read that
Florida is not planning to tax VoIP as it could see its regulation (REARDON, 2005). Shouldn t
the fact of not taxing VoIP, where traditional phoning is taxed, deserve at least mentioning in
this thesis in the chapter about regulations? It may be clear that cleaning out irrelevant
information and data wasn t always easy and remained a continuous job as a result of which
chapters never felt totally finished or up-to-date and kept on being revisable.
But no matter how much information I have found, real papers that cope with the total
spectrum of VoIP - from the technology behind it, the regulations that form it, the market and
its players, the business models and security issues to evaluate VoIP solutions - I have never
seen! One website, article, paper or book covers some aspects; gives some perspectives but
without outlining the whole context.
I think it is there that lies the added value of this thesis: in its broad survey! Starting at a short
view of the used technology, over the regulating framework, the different players in the
telephony market till an overview of some business models and security considerations to
evaluate whether or not this innovating technology is interesting for a company, and ending with
a personal interpretation of what the future will bring for VoIP and the market players of the
For me personally the added value was even of a greater extent: not
only have I deepened and nuanced my knowledge of VoIP and the
surrounding market. But I learned to reduce an overload of
information to the essential and maybe even more important: I
discovered a new and cheaper way of talking to my friends!
As I am describing the current topic, I have found a lot of
information on the internet. In the bibliography however I only
stated scientific resources as books and papers (if possible with an
URL where the resource online). Exact URL locations of the used
internet pages and further bibliographical facts (for instance when
this site was consulted) are given in a footnote when utilized.
Figure 1.1. Cartoon8
8CartoonStock (Consulted 2005 23 March), Cartoon.
When you find an abbreviation of which you do not recall the exact meaning, then you can
consult annex 1. When an abbreviation is mentioned the first time in this thesis it is explained in
a footnote and it is this description that you will hit upon in the glossary of annex 1.
After the clear defining of the scope of this thesis in this chapter, I will define IP telephony and
VoIP in the second chapter. To be able to explain the regulations imposed on this new
technology and the different models that VoIP is subject to, I will explain some of the
technology behind PSTN, mobile phoning and phoning through the internet. This will give you
a first understanding of what VoIP implies. In conclusion I will give a first, concise definition of
In the third chapter we will talk about the regulations and its Belgian and European authorities.
We will also resume shortly the history of the regulations in the telecommunication area as this
gives an inside view on the way the telecommunication market was considered - it shifted from a
natural monopoly to a liberal market. Will these regulations influence the evolution op VoIP?
Will it help or impose VoIP to gain market share from the competing telephone solutions? Do
regulators foresee shifting powers between the different operators and do they approve this or
In chapter four we will present some practical examples of how to download a VoIP software,
how to use it. The most explored example is Skype, as it is one of the first VoIP providers on the
market, and the main functions can be used without any charges. This makes it interesting for
the average users. We could also pinpoint MSN as a known VoIP operator, though, as chat is its
main and core function, my personal experience is that the quality is not that high. We will also
give some general advantages and disadvantages of VoIP. This will be important to be able to
analyse how this new form of phoning will do in comparison with the existing phoning
It seems logical that in the fifth chapter it is time to get the different players and the different
operators on this telecommunication market, in the spotlight. Which operators offer PSTN 9
lines, mobile phoning or through the internet? Also we will try to describe the market in which
these players operate. To this end we will use the model of Porter, the SWOT analysis and the
Strategic alignment model. We will end this chapter by trying to forecast the direct future of this
In chapter six we discuss network economics, as the phoning industry is subject to this
economics and clearly we will also discuss standards, interoperability and coopetition10, as this
will be important management discussions in this kind of network market. These analyses are
conducted to be able to predict the potential power of the different operators of the different
9 The Public Switched Telephone Network (PSTN) is the network of fixed line, circuit switching telephones and is
almost entirely digital (except for the final link from the local telephone office to the user) and includes mobile as
well as fixed telephones.
SearchNetworking.com (Consulted 2005 3 May), PSTN public switched telephone network.
10 Coopetition is the simultaneous behaviour of cooperation and competition (DAGNINO & PADULA, 2002, p.2).
In the seventh chapter we will describe some security considerations as this seems to be an
often quoted reason by managers not to converge voice into the data system. In this chapter I
hope to give a clear overview of the security problems that need to be addressed when a
company converges its voice and data system and how to do this.
In the eighth chapter I give some data, numbers and charts to outline the evolution of IP
telephony and VoIP and recapitalize the different chapters of this thesis to refresh all aspects
that will come back in the conclusions.
Finally in the conclusions I will describe my views about the future use of VoIP. Also I will,
given these expectations of the popularity of VoIP for professional and non-professional users,
give my opinion for the changing market shares and market powers in the phoning industry.
Figure 1.2. Cartoon11
Glasbergen, Randy (2001, Consulted 2005 23 March), Cartoon.
Chapter 2: Definitions
After the defining of the scope and the roadmap of this thesis in the previous chapter, I will
define VoIP in this second chapter. To be able to explain the regulations imposed on this new
technology and the different models that VoIP is subject to in the next chapters, I will firstly
explain some of the technology behind fixed-line phoning, mobile phoning and IP based
phoning. This will give you a first understanding of what VoIP implies. Further I will explain the
differences between IP telephony and VoIP. To conclude this chapter I will give a first, concise
definition of VoIP.
1. Historical overview
I shall describe the different phoning possibilities chronologically. The occurrence of new
telephone possibilities does not mean that the old solutions are gone, most of the time they co-
exist, at least for a time, next to each other.
1.1. Fixed-line phoning
When Alexander Graham Bell and Guglielmo Marconi
invented the possibility of communicating on distances, over a
century ago (ZENG, ANNAMALIA & BHARGAVA, 1999, p.
128), the first solution was installing one line between every
possible connection, but as everybody wanted to be able to call
to everybody the amount of wires grew, especially as
telephones were becoming more and more popular. For every
new telephone user, wires had to be laid to every existing user
(see figure 2.1. for a visualisation of this idea).
Figure 2.1. The Telephone Full mesh network (TIBERGHIEN, 2003, Chapter 6, Slide 5)
POTS is this telephone network that has been available almost since the introduction of the
telephone system in the late 19th century. Here telephones are
circuit switched and use analogue signals.
As may be clear from figure 2.1., there was an obvious need for
an exchange device, a central switchboard, so that everybody
just had to be connected to this central operator. If you called
somebody you always got connected to the central switchboard
first and this switchboard would then connect your line with
the line of the addressee (this is represented in figure 2.2.).
Figure 2.2. The Telephone With central switchboard (TIBERGHIEN, 2003, Chapter 6, Slide 6)
12 The Plain Old Telephone Service (POTS) is the traditional network of fixed-line analogue circuit-switching
Wikipedia, the free encyclopedia (Consulted 2005 1 May), Plain old telephone service.
First this was manually done by a person. You called to the operator and this person would ask
you who you wanted to talk to, and would manually connect the two lines of sender and
receiver. Actually when you were calling somebody you would do first the signalling (the calling
to the connector), before you would have the requested correspondent on the line (the actual
useful voice transfer).
The person who made it possible to do this
reconnecting automatically was an
independent undertaker. His problem was
that the wife of his competitor was working as
a connector at the local telephone company
and that this lady always switched the calls for funerals to her husband and not to him. As a
solution to his problem he invented the automatic exchange switch board so that manual
(re)directing was not necessary anymore.
How the story of the little undertaker ended, I do not know; but what is sure is that his idea
found great acceptance because there were not enough connectors to cope with the booming of
telephone subscribers. And as a result the analogue telephone network became partly digital as
the signalling of the dialled number had to be handled digitally to make automatic switching
possible. Voice (analogue signal) and dialled number (digital signal) were handled separately and
a first part of the telephoning became digitalized around 1920 (TIBERGHIEN, 2003, Chapter 6,
So as a result phones were bundled around a switchboard (SW in figure 2.3.) and these
switchboards were, on itself connect with trunk lines13 (later this also got possibly through
Later the network was enabled to transport voice as
digital information. This was done by converting the
analogue information into digital data in the phone itself
(referred to as a digital phone) or by a PABX14
(AGORIA-FEBELTEL & BELTUG, 2005, p. 4). The
PABX on figure 2.3., helps assuring that phoning within a
company with an intranet does not need to pay the extern
phone rate time and time again.
Figure 2.3. The Telephone Network (TIBERGHIEN, 2003, Chapter 6, Slide 8)
Concluding POTS are analogue, circuit switched telephones.
Circuit switched means for traffic between telephones (KELLY, 2005, p. 9):
Routing traffic through switching centres from a sender to a receiver.
To make a connection between two or more telephones (or computers) so that once
established this data circuit is for this exclusive use until released.
13 A trunk line is a single transmission channel between two points that are switching centres, nodes or both.
14 A Private Automatic Branch eXchange (PABX) is a full automatic telephone switching centre that is owned by a
private business (a company that has intern lines). When a PABX is used the company does not need to connect all
telephones separately to the public telephone network. A PABX can convert analogue voice to digital data.
Wikipedia, The free encyclopedia (Consulted 2005 4 May), Private Branch Exchange.
The public switched telephone network (PSTN) is also a network of circuit switched telephones.
The difference between the POTS and the PSTN is that the latter is almost entirely digitalised
(except for the final link from the local telephone office to the user; in figure 2.3. this would be
between SW, the switch, and the telephone) (KELLY, 2005, p. 9).
If you wonder why this transition from an analogue to a digital system is so interesting, just
remember that during the last decades companies needed to have a complete digital network for
data traffic. Simultaneously they had a complete analogue network for voice traffic. This keeping
of a dual network is very expensive. Data is send in a digitalized form, voice is send in an
analogue form but the address (phone number) is given in a digital form, so the voice network is
a hybrid analogue, digital network. Is it not possible to make voice traffic digital and to integrate
these two systems (look at figure 2.4. beneath)?
Technologically the basic digital circuit in the
PSTN is a 64-kilobit-per-second channel. The
transmitted voice is digitized and is then
transmitted from the one end to the other to be
reconfigured to voice (analogue) at the receiver.
Only the oldest parts of the telephone network
still use analogue technology for anything other
than the last link to the end user (and even this
last mile has been digitalized during the last years
using services such as DSL15, ISDN16 and PABX).
Figure 2.4. The Dual Networks (TIBERGHIEN, 2003, Chapter 6, Slide 10)
ISDN was a first attempt to make digital voice signals (that could then be transferred over the
digital data network). To go on the internet an ISDN connection requires a terminal adapter as a
PSTN connection needs a modem. When a traditional modem is used, a data stream is encoded
into a series of audio chirps, which are then relayed by the PSTN in the same way as a regular
voice call, which are converted back to computer data at the destination (AGORIA-FEBELTEL
& BELTUG, 2005, p. 4).
ISDN has two advantages:
For the end user ISDN means a digital connection for voice and data from home which
means better quality and higher speed.
For the telephone industry ISDN is a faster way of call setup, the connection will be
established earlier or one will know sooner that the other line is occupied. This is important
because carriers pay for line time and because callers become impatient. 17
15 Digital Subscriber Line (DSL) is a family of technologies that provide a digital connection over the copper wires
of the local telephone network. A digital signal can be transmitted over unused frequency spectrum, so a phone line
can provide digital communication without blocking access to voice services.
Wikipedia, the free encyclopedia (Consulted 2005 1 May), Digital Subscriber Line.
16 Integrated Services Digital Network (ISDN) is a sort of circuit switched telephone network system, designed to
pass digital transmission of voice and data over ordinary telephone copper wires.
17 Wikipedia, the free encyclopedia (Consulted 2005 4 May), Integrated Services Digital Network.
Incumbents18 offer connection through ISDN for normal telephones (analogue) as well as for
internet connection (PC s with terminal adapters). Although ISDN is not as fast as ADSL19 for
internet connection, it was available sooner and the old telephone lines where already available in
many places. For the incumbents this new technology was also a way to let their infrastructure
discover a new life and as such yield more. In Europe, ISDN has been successfully marketed as a
phone with new exciting features.
Though ISDN was digital and widely used for telephony, it never became a real success for data
applications. This because it is not interesting to send data over a telephone channel as one has
to pay per second for a telephone channel. This is because one pays for the exclusive use of a
channel, even when the channel is actually not sending data all the time (TIBERGHIEN, 2003,
Chapter 6, Slide 13).
To conclude this paragraph about fixed line phoning we could say that the telephone network at
first was totally analogue (POTS) and is growing more and more digital (PSTN with services
such as DSL and ISDN). At this point of this historical overview all voice (telephone network)
and data traffic (for instance internet) are still circuit switched (one channel is exclusively
dedicated to this connection). In our chronological overview the data network is growing more
and more important, but before we go deeper into this we will shortly discuss mobile telephony.
1.2. Mobile telephony20
Fixed line phones are always connected at the same place to the phone network, but mobile
phones can "visit" any part of the network, whether across town or in another country via a
In order to gain access to GSM (the most used standard collection of applications and features
for mobile phoning) a user needs:
A subscription with a mobile phone operator.
A mobile phone which is GSM compliant and operates at the frequency of the operator.
A SIM21 card which is issued by the operator once the subscription is granted.
When you get a SIM card from an operator, information about your phone's identity and
allowed services are stored in a database in the HLR22. Once your phone is switched on your
18 Incumbents are telephone operators that are already in this business for a long time and who own their private
19 Asymmetric Digital Subscriber Line (ADSL) is a form of DSL and enables faster data transmission over copper
telephone lines than a conventional modem can provide. ADSL has the distinguishing characteristic that the data
flows faster in one direction than in the other (asymmetric in available bandwidth). This makes ADSL interesting for
people who want to download fast from the internet and who do not want to upload much.
Wikipedia, the free encyclopedia (Consulted 2005 4 May), Asymmetric Digital Subscriber Line.
20 Wikipedia, the free encyclopedia (Consulted 2005 3 May), GSM services.
21 A Subscriber Identity Module (SIM) is a smartcard securely storing information about the mobile subscriber such
as its current location area and securely storing information for the mobile subscriber such as text messages and a
phone book. This SIM card can be easily moved from one handset to another.
Wikipedia, the free encyclopedia (Consulted 2005 3 May), Subscriber Identity Module.
22 The Home Location Register (HLR) is a central database that contains details of each mobile phone subscriber of
an operators network.
SIM card will search for the nearest mobile phone mast. If a mast can be successfully contacted,
then there is said to be coverage in the area.
Once a mobile phone has successfully connected to a GSM network and the user wants to make
a call (dials a number) a call setup request message is send to the mobile phone network. Then it
is checked whether or not outgoing calls are allowed. If the subscriber is on a prepaid tariff, then
an additional check is made to see whether or not the subscriber has enough credit to proceed.
When the call is allowed then this credit is continually monitored and if the credit reaches zero
the call is terminated.
By itself the GSM call is routed in the same way as a telephone exchange (switchboard) does in a
fixed network. In addition entrance from the mobile operator s network to the PSTN network is
possible.23 Furthermore speech is transmitted through the mobile phone network (as through all
modern parts of the PSTN network) by digital means. It is converted from analogue sound
waves to digital data by the phone itself.
GSM voice calls are essentially an extension of the PSTN. Behind the scenes, we know these
audio channels (GSM voice calls) happen to be transmitted as digital radio signals. The GSM
standard also provides separate facilities for transmitting digital data directly, without any of the
inefficient conversions back and forth to audio form (for instance SMS).
Next to SMS, other data can also be transmitted
trough a mobile phone. But as with using of PSTN
for data traffic, also with the mobile network first a
circuit-switched data connection was used. A
certain amount of bandwidth can be reserved for
data traffic. Typically charges are on a per second
basis, regardless of the amount of data sent over the
link. The difference with the PSTN network is that
you do not need to use audio signals to create a data
connection and thanks to this iniquitousness of
information in a digital form a mobile "phone" can
act like any other computer on the internet, sending
and receiving data via the Internet Protocol.
Figure 2.5. Cartoon24
The present generation of mobile telephony is GPRS25, usually described as the 2.5G technology,
a packet switched connection. Packet switched means that packets (chunks of data) arrive at
their destination via different routes, at different times, out of sequence and sometimes they do
not even arrive at all.
Wikipedia, the free encyclopedia (Consulted 2005 3 May), Home Location Register.
23 SearchNetworking.com (Consulted 2005 3 May), PSTN public switched telephone network.
24 Glasbergen, Randy (2001, Consulted 2005 23 March), Cartoon.
25 The General Packet Radio Service (GPRS) is a packet switched data transmission protocol which was added into
the GSM standard in 1997. It is backwards compatible with systems that use standards from before 1997.
Wikipedia, the free encyclopedia (Consulted 2005 3 May), GSM services.
The advantage of packet switched connections is that bandwidth is only used when there is
really data to transmit. GPRS connections are thus generally billed per kilobyte instead of per
second and are normally cheaper for applications that only sporadically send or receive data.
The advantage of circuit switched connections on the other hand is that they provide a
constant, guaranteed QoS (Quality of Service), which is useful for real-time applications like
New GSM devices are able to exchange data over short range thanks to infrared light (IR on
figure 2.6., there may not be any object between the two connected points) or Bluetooth s short
range radio frequency (Bluetooth goes less far than infrared but still covers distances up to10
metres and is used mostly to eliminate wires on a desk,
see figure 2.7.). The future is, according to me, that as you
are walking around with your GSM, PDA26 or laptop you
are always connected to the internet: you walk from one
hotspot27 to the other, and if you do not have a hotspot in
you can always
connect through the
Figure 2.6. Infrared LAN s (TIBERGHIEN, 2003, Chapter 9, Slide 42)
Figure 2.7. Bluetooth (TIBERGHIEN, 2003, Chapter 9, Slide 43)
After a short description of the technologic solutions in mobile phoning in the next paragraph I
will give some important properties of the internet to conclude with an introduction to the
internet based phoning.
1.3. IP based phoning
In this paragraph I will first short introduce the Internet Protocol, the internet (a packet switched
network to transport data; data transportation over a circuit switched network is also possible
but is less efficient) to conclude this paragraph with a further deepening of the terms IP
telephony and VoIP.
The internet as a data carrier has already been mentioned some times, but before we rush into
internet based telephoning I think some basics may be interesting. The internet is the
26 A Personal Digital Assistant (PDA) is a handheld device that was originally designed as a personal organizer, but
became much more versatile over the years. A basic PDA usually includes a clock, date book, address book, task list,
memo pad and a simple calculator. One major advantage of using a PDA is its ability to synchronize data with
desktop, notebook and desknote computers.
Wikipedia, the free encyclopedia (Consulted 2005 5 May), Personal Digital Assistant.
27 A hotspot is a Wi-Fi (short for "Wireless Fidelity") access point or the geographical area from which you can
connect to the internet thanks to this access points.
Wikipedia, the free encyclopedia (Consulted 2005 5 May), Hotspot (wifi).
concatenation of all public IP based packet switched networks and for the moment the old
PSTN infrastructure delivers much of the internet s long-distance infrastructure.
The Internet Protocol (IP) is a data-oriented protocol used by source and destination hosts for
communicating data across a packet switched internet network (the network layer in table 2.3.).
The IP is the common element found in today s public internet. All the layers in table 2.3. and
figure 2.12. try to make sure the communication between the different computers and devices
goes smoothly, so they understand each other, they speak in the same language .
In computer networking and telecommunications, packet switching is a communications
paradigm, and other mobile phone technologies such as GPRS and i-mode also employ packet
switching. This makes IP an omnipresent standard and the way to ensure interoperability. With
the Internet Protocol packets are individually routed between nodes, with no previously
established communication path. Although the internet generally delivers its data in a fine state
there are no guarantees made about the quality of the packet (AGORIA-FEBELTEL &
BELTUG, 2005, p. 27):
the packet may arrive damaged;
the packet may be out of order (compared to other packets sent between the same hosts);
the packet may arrive more than once;
the packet may not arrive at all.
Application layer HTTP, SMTP (e-mail), FTP, SIP,
The application program elects the
kind of transport needed and passes
it to the transport level.
Transport layer TCP (checks data is correct), UDP,
This layer transmits data into small
packets and adds address labels.
Network layer Ipv4, Ipv6, ARP,
This layer manages the routing of
the packets from node to node.
Data link layer Ethernet, Wi-Fi, Token ring,
Physical layer RS-232, RS-449,
Table 2.3. The Internet Protocol (ADAMS & BHALLA, 2005).
Figure 2.12. TCP/IP Protocol Suite (WOLTERS, 1996)
So in our chronological story data traffic is coming: the internet. And more and more companies
want to integrate their data and voice networks. This is actually what VoIP is: phoning over the
public IP network, phoning over the internet (KELLY, 2005, p. 21).
A first experiment of direct phoning through the internet was not very successful because people
online as much in those days then they are now, and so you almost had to phone somebody
(with PSTN) to tell him you wanted to call him over the internet (additional internet phoning
services such as Voice Mail were not available yet). A second reason why this was not very
successful was because the voice quality was dependant of network delays, the quality could be
acceptable if the network was not overloaded but this was not to be guaranteed. This internet
based phoning is depicted in figure 2.8. (TIBERGHIEN, 2003, Chapter 6, Slide 53).
The first low cost telephone shops and low cost telephone cards emulated the normal POTS and
PSTN system, but in fact they used the internet
for the biggest part of data transport. They would
connect to the local PSTN (pay local charges) get
the voice transmitted over the internet till the
nearest PSTN switch of the receiver to then, once
again use the local PSTN network (and pay again
this local charges) to get to the receiver. In this
case you can phone somebody on his fixed line
and only pay only two times a local rate. The
quality of the conversation would however still
remain dependent from the network load (see
Figure 2.8. Internet Telephony (TIBERGHIEN, 2003, Chapter 6, Slide 54)
Voice (multimedia) and data have totally different requirements (see table 2.1.) and so it is quite
difficult and technically challenging to mix them on a single network. Data on the one hand has
to be correct but a delay of half a minute is normally no problem in contradiction to voice (and
movies) on the other hand where a delay is critical (no silence for half a minute in the middle of
a conversation) but correctness is not so import as voice (and movies) are acceptable as they are
comprehensible (and good enough to follow the movie).
Data Voice & Images
Correctness Essential Non-essential
Delay Unimportant Small & Stable
Table 2.1. The Multi-media challenge The notion of QoS (TIBERGHIEN, 2003, Chapter 6, Slide 57)
In the further future, I think most communications will probably go over the internet with
internet-like applications, but this will go slow because the traditional phone network exist (there
are more than 2 billion fixed telephones in the world nowadays). And when someone uses the
traditional telephone today, there is data send over your voice channel the moments nobody is
talking. But when everybody switches and starts internet based phoning it will not be possible to
subsidise data on the voice network anymore so data traffic will get more expensive.
1.3.2. IP telephony
We just saw the possibilities for phoning over the internet but what if a company already has an
intranet (possibly in different locations), then this network for data can be used to send the voice
traffic too. This can cut costs heavily without having to
do big investments, as you will connect to the local
network (PSTN) at the end (so you can leave all the
existing phoning devices unchanged) as can be seen in
figure 2.9. This is what IP telephony actually is,
phoning over the intranet. Such an intranet has the
advantage that the quality of the data send can be better
foreseen. You know the bandwidth and normal use of
your network and so you can anticipate how the quality
of the throughput of packets will be and if necessary
provide more bandwidth (KELLY, 2005, p. 10).
Figure 2.9. PABX & Intranet Integration (TIBERGHIEN, 2003, Chapter 6, Slide 55)
When a company has more offices a WAN (Wide Area Network) that connects the intranets of
the different offices can be interesting. The internet seems the logical answer as dedicated private
line facilities are expensive. But how is it possible to secure this voice communication? One way
is an encryption based firewall (filter) between the
internet and the intranet of the company.
Let us take three imaginary subsidiaries on three
different locations connected through the internet as
an example. Software at the three subsidiaries will
encrypt everything that is send from this location to
other subsidiaries. Only another subsidiary has the
knowledge to decrypt this information and so a
secure tunnel has been created between these three
affiliates (as depicted on figure 2.10.). A VPN can
also be used for telecommuters.
Figure 2.10. Virtual Private Networks (TIBERGHIEN, 2003, Chapter 6, Slide 42)
So IP telephony goes over the intranet of a company, and VoIP goes over any IP enabled
network. Therefore, IP telephony is a subset of VoIP, a more narrow part of the subject of this
thesis. In the next paragraph I will explain in short the difference between IP telephony and
2. Difference between IP telephony and VoIP
When I first stumbled over terms as IP telephony, internet telephony and VoIP I was somewhat
confused. They are frequently used and misused in many media and even when I searched for an
answer; it seemed many different definitions going round.
For instance some people suspect IP telephony to refer to all telephony services in general (also
fax; voice mail and others) where VoIP is suspected to stand only
for the transition of vocal communication.28 Once you start
searching in telecommunication or consultants resources
however, it may be clear that the difference between IP telephony
and VoIP is the usage of a public or private IP enabled network.
As a result of the characteristics of the internet (publicly available
with minimum quality controls or guarantees), the quality of VoIP
voice communications varies considerably more then the quality
of IP telephony. However as the internet capacity has significantly
improved in the telecom advanced countries during the last few
years; there has been a great improvement in service quality and
so the number of users has grown.
Figure 2.11. VoIP29
28 VoIP Forum (Consulted 2005 6 May), Voice over IP Forum.
29 FCC Federal Communications Commission (Consulted 2005 1 May), Voice-Over-Internet Protocol.
Although many individuals accept the quality drawbacks in return for significant cost reductions,
this is not an acceptable trade-off for enterprises. Primarily companies need to have a voice
communication system on which they can count. Secondly they mostly already have an intranet
on which data and thus also voice packets can run on a more secure and higher performance
level than on the internet. Thirdly working on the own private network (of converged data and
voice) will enable enhanced flexibility and, last but not least has this convergention the potential
to reduce costs tremendously by transferring intra company voice traffic completely to the
corporate data networks (ADAMS & BHALLA, 2005).
I decided to work with VoIP instead of with IP telephony because although some companies
will only convert to IP telephony (on the intranet), others will definitely use the internet as much
as possible for their external voice communications. And moreover, if a company has no intranet
yet, all these possibilities have to be very secure weighted before the decision for the traditional
PSTN network, IP telephony or VoIP can be made (IP telephony has quality and security
advantages but is more expensive).
Chapter 3: Regulation
In this chapter we will talk about the regulating bodies and regulations in Belgium and in the EU.
We will resume shortly the history of the regulations in the telecommunication area as this gives
an inside view on the way the telecommunication market was considered. First it was considered
a natural monopoly, and now it seems a successfully liberalized market. How will these
regulations that shape the telecommunication market influence the evolution op VoIP? Will it
help or impose VoIP to gain market share from the competing telephone solutions? Do
regulators foresee shifting powers between the different operators and do they approve this or
If somebody enters the telecommunication market and wants to start his own company, he will
have high sunk cost (gigantic infrastructure) and thus a somewhat different pricing model than in
other markets seems appropriate. Because of these huge investments necessary to penetrate the
market and the network effects working in this market it appears a natural monopoly market. If
competition is pursued, regulation seems necessary. But when infrastructures can be shared or
borrowed competition all of a sudden becomes more reachable. One could install regulations
that define maximum prices to ask for lending infrastructure and maximum prices to ask for
services. On the other hand, defining how much a provider should fairly ask is difficult to asses
as these huge investments need to be earned back. So it is impossible to have a normal optimal
competition as in other production markets, also because the network-effects that come up in
Nowadays new technologies are emerging in the telecommunication sector and as regulations do
not come to life in one day the regulatory bodies have problems to follow the new technologies.
On the one hand they cannot foresee what is to come, nor do they have an exact idea what to do
with the new technologies at the first moment. On the other hand, regulators want to give new
and innovative technologies the change to emerge. This problem of preparing against the
unknown is reported by Michael J. Balhoff (managing director, telecommunications group of
Legg Mason (ELECTRONIC COMMERCE NEWS, 2004, p.1).
I believe that the introduction of V oIP services will move residential competition to a place that
legislators and regulators could not heave expected realistically under the copper-based telephony model.
Not only does this ambiguity exist in encouraging or restraining new technologies, but there are
also the fading boundaries between the fixed telephone networks, mobile networks, LAN,
WAN, and IP based networks indicate problems for the regulators. They have to redefine which
laws are meant for which areas of this new enormous and complex converged market.
1. Regulation in Belgium
Telecommunication regulations in Belgium are made by the BIPT, the Belgian regulatory body
for postal services and telecommunication. In the next paragraph we will introduce the BIPT and
the laws this regulatory body made in the past as a prologue to the laws of today.
The BIPT has been established by the law of the 21st of March 1991 and lies under the authority
of the minister of telecommunications. The institute itself started its activities in 1993 and has
grown ever since, especially since of the liberalization of the telecommunication market.
The BIPT has been charged with:
The BIPT can always advise the federal government or the minister on its own initiative
for all matters in their authority and they can always be asked to giver their opinion over
pending cases. The BIPT also is a member in various international organisations in the
field of post and telecommunications in a European and global context.
The BIPT has to help preparing the Belgian legislation regarding post and
telecommunications and it takes care of transposing the European directives, the
publication of standards, and European and international technical specifications.
The BIPT is responsible for monitoring the correct application of prevailing legislation
(radio communications, radio broadcasting, television broadcasting networks and
commercial advertising on radio and television). The BIPT grants ministerial licences for
the different categories of users of private radio transmitter and/ or receivers and the
institute is also responsible for the frequency management at national and international
level and for monitoring the spectrum.
The task to arbiter in disputes between operators
This is done by a separate ombudsman.
The task to control the whole sector
Finally, the BIPT also focuses on setting quality standards in a European context.
1.2. The laws of today31
Belgium usually has a favourable government attitude towards competition, liberalisation and
foreign investment which means that companies (both foreign and domestic) normally compete
freely. The policy of the European Union mainly determines Belgian competition rules, although
there is no EU legislation on takeovers yet.
The most important Belgian law is this on the protection of economic competition of August 5th
1991. The Law of June 29th 1993 introduced the third and sixth EU directives on mergers and
Many disputes that came into court about competition policy are based on unfair trade practices
and consumer information (Articles 93 and 94 of the Law of July 14th 1991). When a merchant
or craftsman attempts to prejudice the business interest of competitors one speaks of unfair
competition. In this definition misleading advertising is an example of unfair competition.
30 BIPT (Consulted 2005 13 April), Belgisch instituut voor postdiensten en telecommunicatie.
31 (EIU ViewsWire, 2003).
Comparative advertising on the other hand is legal thanks to an amendment to the Law of July
Actually, nowadays there are few monopolies in Belgium, even in sectors where one might
expect to find these. Utility service providers will, in general, hold some public service
obligations (this was one of the reasons why the Bolkenstein proposal for a single market for
services encountered difficulties in Belgium and some other countries in the EU); for instance,
electricity may not be cut off to unwilling clients between the middle of December and the
middle of February (PILAT, 2005).
New entrants to markets that were previously monopolies of duopolies are protected by EU
rules. These former monopoly or duopoly networks include the telecom infrastructure. But new
entrants complain that the practice of third-party access to telecom infrastructures often lags
behind the theory.
Most of the markets for telephony and data transmission have been deregulated. Early 2001 local
networks and number portability were deregulated and since then there have been some entrants
in both conventional telephony and cable telephony. Nevertheless new entrants and major users
regularly claim (and even have gone to courts) as they claim that incumbent ex-monopolist
Belgacom is circumventing the deregulation spirit. Belgium offers particular opportunities for
cable telephony as more then 90% of Belgian households already cable because of cable
television. Access to mobile telephony however is limited by means of a licensing system.
Historically seen the internet has not yet been much regulated, it is substantially less regulated
than the incumbent telephony carriers. As the internet is evolving into a platform for global
communications (for voice and data) it will be subject to communications policy.
Implementation of a coherent policy probably will be hindered by the legacy of disparate local
regulatory policies (LEHR & KIESSLING, 1998, p. 26).
1.3. International relations32
Several international and regional bodies are created to enhance harmonisation and cooperation
between the regulators and public or private operators. The BIPT also involves the users.
Some of the international and regional bodies in which the BIPT is present:
ITU (International Telecommunication Union)
The ITU is an intergovernmental organisation in which the public and private sectors
collaborate to realise developments in telecommunications and harmonisation in
telecommunications policy in member states. She helps to prepare norms for a new
worldwide information infrastructure and facilitates and stimulates the development of
INTELSAT (International Telecommunications Satellite Organization)
INTELSAT, founded in 1964, is the owner of a global satellite communications system
that offers capacity in over 200 countries and territories for telephone services, services for
private and corporate networks and also for audiovisual services and Internet via satellite.
The BIPT participates whenever regulatory issues are discussed, such as the liberalisation
BIPT (Consulted 2005 13 April), Institut belge des services postaux et de télécommunications.
of the telecommunications sector or compliance with competition rules by operators of
satellite communications systems.
CEPT (European Conference of Postal and Telecommunications Administrations)
Since 1992 CEPT has been solely occupied with subjects of a regulatory nature. Within
CEPT two committees have been established: CERP (for the postal regulation) and ECC
(subdivided in ERO for radio communications and ETO for telecommunications).
IRG (Independent Regulators Group)
The IRG has been established in 1997 by European regulators to allow them to share their
experiences and their opinions on issues of common interest such as interconnection,
prices, universal service, and so forth.
ETSI (European Telecommunications Standards Institute)
The ETSI was set up in 1988 to produce technical standards with respect to
telecommunications. The Institute unites 617 members from 56 different countries and
with different interests: administrations, operators, manufacturers, service providers,
universities, research bodies and users.
BIPT participates actively in numerous committees and/or closely follows their activities.
Rainwat Arrangement (2000)
This regional Arrangement concerning the Radiotelephone Service on Inland Waterways
was signed in Basel on 6 April 2000. Belgium was one of the 16 countries to sign the
Arrangement which means Belgium is willing to implement common safety principles and
rules for people and goods on Inland Waterways.
Berlin Agreement (signed in Berlin on 28 November 2003) is the unofficial name used to
designate the Agreement that deals with the coordination of frequencies. The Berlin
Agreement provides for detailed administrative procedures concerning frequency
coordination and also includes technical provisions.
NATO (North-Atlantic Treaty Organization)
The BIPT participates in CCPC (Civil Communications Planning Committee) and FMSC
(Frequency Management Subcommittee), the competent body in the domain of
frequencies within the alliance.
OECD (Organization for Economic Cooperation and Development )
Since 1961, the OECD s objective has been to strengthen the economy in its member
states, improve their efficiency, stimulate the market economy, develop free trade and
contribute to growth in industrialised and developing countries.
WTO (World Trade Organization)
The WTO deals with the trade rules between nations. The WTO agreements form the legal
basis for international trade and trade policy. The three primary objectives are to promote
free trade to maximum effect, to gradually continue the dissemination of liberalisation
through negotiation and to introduce an approach to settle disputes.
Another part of regulation interfering with companies is the toll charges from the state. These
toll billings are normally minute charges and regulatory fees. VoIP can reduce toll carrier services
charges. These savings will be mainly because if you put all your affiliates on VoIP, all their local
and regional toll calls travel over your company s computer network. In this way, all these calls
bypass the regulated, conventional telecommunications carrier companies. As dodging these
costs can make a company decide to convert to IP based it may be clear that these tolls also have
to be laid upon IP based telephone providers to become fair competition(KELLY, 2005, p. 52).
2. Regulation of the EU 33
Historically, communications services in Europe were handled by interconnected but
independent national operators (PTTs). As we life in a global marketplace with more
interference nowadays there is the need for a regulatory coherence on a larger geographic scale.
At the same time, one standard European solution could impossibly serve the needs of the all
various Member States as they are not all at the same level of competitive development.
In the next paragraph I will talk about the NRF (New Regulated Framework), the latest attempt
of the EU to make some harmonisation in the regulations for new emerging technologies (such
as IP telephony in the telecommunications). This firstly because regulations till so far always
were somewhat legging behind on the reality and because every time a new set of regulations
came to order for every new technology. Determining its obligations and rights owing to some
technical specifications so with every new technology a new set of specifications and a new set of
laws had to be written, approved and implemented.
The fact that the new framework (NRF) implicitly decomposes telephony services into PATS
(Publicly Available Telephone Service) which operates over the PTN (Public Telephone
Network) in its definitions implicitly obligates the network providers (PTN) to provide various
functions. In this case, the obligation to support call setup, call tear-down and CLI (Caller
Allocation Information) falls under PTN providers, as does the duty to give location information
to emergency authorities.
But if these rules are to be applied on IP telephony three different service elements are found:
1. call setup and tear-down,
2. the call itself,
3. the transmission of the underlying Internet Protocol (IP) data associated with (1) and (2).
Though all different services are normally provided by one company in the traditional telephone
network, this is not necessarily the case in the IP telephony world. Different operators might
provide these distinct elements to a user, and the IP data transmission might even be provided
by multiple operators. As the IP network does not inherently know anything about telephone
calls it is debatable whether it should play a role in making caller location (CLI) available as is
implicated in the NRF. So some legacies of the traditional way of regulations are still posing
problems as are the old laws that still remain in force.
2.2. The NRF (New Regulatory Framework)
This European Union s New Regulatory Framework (NRF) for electronic communications
officially proceeded in July 2003. Implementation by the different Member States however has
not taken place at the same speed so far.
The new regulation goes as follows:
The European Commission defines a series of relevant products and service markets and
provides a set of guidelines to determine whether or not there is market power (through
methodologies borrowed from competition law and economics).
33 (MARCUS, 2004a, p. 1, 5-9, 14, 17-20) & (MARCUS, 2004b, Slide 15).
Within each of these markets, every country s National Regulatory Authority (NRA)
determines whether one or more parties possess Significant Market Power (SMP34).
Although the NRA has to take the utmost account of the recommendation, in some
instances, definitions that diverge from those of the European Commission may be applied.
If SMP exists, the NRA will impose appropriate obligations (for instance transparency , non-
discrimination, accounting separation, access to and use of specific network facilities,
unbundled network elements, wholesale obligations, collocation, interconnection, price
controls and cost accounting, making necessary leased lines available and carrier selection),
taking into account the particularities of the marketplace in question. These obligations are
forced ex ante (based on the presence of SMP) while it is not necessary to demonstrate that
this market power has been abused.
Conversely, if no SMP is found, then any obligations that may already be in place must be
Every NRA can determine markets in his own borders but the European Commission can also
identify trans-national markets, markets that span over country borders. To date, no trans-
national markets have been identified.
With this series of new laws the European Union seeks to achieve coherent regulatory treatment
across its Member States. The greatest strengths of this new framework are its technological
neutrality, and its close connection with competition law. With this new framework the
regulators did an explicit attempt to anticipating and addressing the convergence of
communications and computing markets and technologies.
As the idea is to seek harmonisation rather then uniformity, some small differences may remain.
Ideally this flexibility should not impose the different countries to lead to equivalent market
definitions; however, as different countries deal with different issues the National regulatory and
competition authorities may adapt slightly different market definitions.
Although this flexibility highly eases the political will to implement, it first poses significant risks
that European regulation would become something of a patchwork quilt, and that potential
benefits of the single market may be squandered.
A second possible bottleneck is that for each relevant market that a member state determines it
could generate notifications for market definition, determination of SMP and SMP remedies. If
all these papers would all of a sudden be sent - 25 member states and 18 relevant markets
defined by the Commission - the Commission could be barraged with one or two thousand
A last, the challenge lies in the inherent and inevitable tension among multiple regulatory goals as
between promoting competition versus encouraging a single market and fostering innovation.
removing remaining obstacles to the provision of electronic communications networks
encouraging the establishment and development of trans-European networks
Caution against inappropriate obligations in newly emerging market
(MARCUS, 2004a, p. 1, 14, 18-20) (MARCUS, 2004b, Slide 23) (ELECTRONIC COMMERCE
NEWS, 2004, p.5).
34A company is said to have Significant Market Power (SMP) if, either individually or jointly with others, it enjoys a
position equivalent to dominance (a position of economic strength thanks to which it can greatly act independently
of competitors and customers). SMP is normally only considered where the market share exceeds 40%. Where the
market share exceeds 50%, SMP is presumed to be present (MARCUS, 2004b, Slide 8).
Notwithstanding there are possible bottlenecks for this new framework, a preliminary judgment
seems to be that the Commission has struck the right balance to date: fostering the development
of the single market without being too severe in dealing with the NRAs. This gives high hopes
for the future.
As we have seen, the core methodology of the NRF relates to the definition of relevant markets
amenable to ex ante regulation; the identification of market players, if any, that possess SMP on
that market; and the implementation of minimally intrusive remedies on undertakings that
The mechanisms of the NRF offer a simple and holistic approach for communication
regulations. By making the framework technological neutral a future proof regulation was tried
to be made. To test this future-proof ness an attempt to apply the NRF to IP telephony can be
a thorough test. The Commission was consulted on IP telephony and stated:
changing the underlying technology used for a specific service offering, without changing the services
offered, does not constitute grounds to alter the obligations or rights associated with provision of that
service. (MARCUS, 2004a, p. 8)
If a company previously was found to possess SMP in delivering a service on a market, changing
the technology used to deliver this service without changing the nature of the service itself
(which solution do you offer your user), then the finding of SMP should ceteris paribus remain.
When a new, different service is offered, an economic assessment is required: Does the new
service participate in the same market as before? To what extend are the old and the new
services substitutable? Is the service quality or usage changed?
The market definition, SMP and remedies aspects of the NRF appear to accommodate Voice
over IP with no strain at all. Given that the NRF clearly was not designed with VoIP in mind,
this bodes well for the ability of these portions of the NRF to adapt to the new converged
technologies to come.
In introducing this new framework, the European Union seeks to move completely away from
technology-specific and service-specific legislation. This is a significant and dramatic innovation
and hopefully makes that this framework will be adaptable if new, not even known, technologies
arise so that regulations not always have to lag behind.
So it seems that with this new regulatory framework a harmonious regulation set has been
Practical side of VoIP
Chapter 4: Practical side of VoIP
In chapter four we will present some practical examples on how to download VoIP software
and what are the most common features one can use. The main example will be Skype as it is
easy to use and free to download, which makes it an interesting tool for the individual user. We
could also pinpoint MSN as a known VoIP operator, though as chat is its core business, and
VoIP is an expansion, my personal experience is that the quality is not that high.
We will also give some general advantages and disadvantages from VoIP and IP telephony. This
will be important to be able to analyze how this new form of phoning will do in comparison with
the already existing phoning solutions.
Before we can go more in depth into the question what will be the future of VoIP, it is essential
that we give a clear idea of what VoIP is and what it is able to do. We already gave a short
technical and juridical background and now we will give a more practical insight.
After this more practical description of the features of VoIP we will discuss its advantages and
disadvantages. We will also look into the advantages and disadvantages of IP telephony to be
able to compare the two IP based telephony solutions with fixed and mobile phoning solutions.
1. VoIP practical
VoIP can be used by anyone who has a computer with a soundcard and an internet connection,
a headset (or microphone and loudspeaker). To get an idea of what you can do with VoIP we
will explain some heavily used applications such as phoning, conference calling, file transfers,
chatting and web cam calling with somebody on the traditional telephone network.
With VoIP solutions such as Skype one can make free, unlimited calls using an Internet
connection.35 But the receiver must also be on the internet, otherwise the fixed or mobile
network has to be used and paid for. The power of a VoIP network increases with the numbers
of users making free calls over the Internet, as these people can be contacted for free (as will be
explained more in depth in the paragraph 1 about economies of network industries in chapter 6).
In this next we will take the example of Skype, although there are other examples of working
software we chose for Skype as it is, for the moment, the most used36, it is free to download and
it was the first software available for this purpose.
Imagine you want to talk to a friend. As you just read an interesting thesis about VoIP you want
to try this from your PC. How does this go?
35Skype (Consulted 2005 1 May), Skype The Global Internet Telephony Company.
Practical side of VoIP
If you already have an internet connection phoning to a buddy that is also online (and a Skype
subscriber) does not cost you a thing. When your friend is on the traditional fixed or mobile
network on the other hand you will pay the price for a local call (at a certain point
communication has to leave the internet and go on the paying fixed or mobile network of your
friend). How high this is exactly depends on the agreement Skype could reach with the specific
network operator (though in Europe and America this is normally around 2 cents as can be seen
in figure 4.7.). You will only pay a local rate as the internet brings you to this place, you just
need to pay for the bridging between the internet and the phone of your friend, namely the
infrastructure of your friends operator.
1.1.1. Start up
Skype is free downloadable on the internet and can be downloaded for Windows, Mac OS X,
Linux or Pocket PCs operating systems specifically. 37 Once you have downloaded and installed
the Skype software, you have to create your account: you have to choose your Skypename (that
does not exist yet) and a password.
Once you have created this account Skype will launch its Get Started
Wizard (see figure 4.1.). Here you can get extra information or, for
instance, import contacts from your computer. This is important
because Skype will then search in Office Outlook, Outlook Express,
Opera and MSN Messenger whether or not the contact you already have
in these programs also have a Skype address. If so you are asked
whether or not you want to add them to your Skype addresses (people
you can phone through the internet). In this way you shall have,
normally speaking, immediately some contacts (a network of friends) to
try the possibilities of this newly discovered medium.
Figure 4.1. Getting Started Wizard from Skype.38
Figure 4.2. Day to day screen from Skype.39
The second button Search for Other Skype Users also is very handy as it
allows you to search for Skypers according to their profile: where they
life, in a certain age category and others. You can make a test call through
the next button which is handy to check your headset works and
necessary settings are adjusted (normally this should not pose a problem).
You can also edit your profile (which other Skype users can see unless
differently defined in the privacy settings) or change your privacy settings.
Once you explored some starting possibilities through the wizard your
day to day interaction panel with Skype will be the following (figure 4.2.).
All the possibilities you could handle through the wizard are also possible
through this day to day screen, and even more. You can add contacts,
block contacts, search contacts, phone your contacts or dial even fixed phone numbers (if you
pay for this as will be explained more in detail in subparagraph 1.1.4.). If your contact updated
his profile with a picture this is his logo and the view during conversations.
37 Skype (Consulted 2005 27 April), Download Skype.
38 Skype (SkypeTM version 220.127.116.11), SkypeTM - Getting Started Wizard.
39 Skype (SkypeTM version 18.104.22.168), SkypeTM - eiblinmatthys.
Practical side of VoIP
O nce you have signed in on Skype, you can also check the state of your Skype account on the
internet. Whether or not you are subscribed to have a SkypeIn telephone number, a Voicemail or
SkypeOut credit to phone people outside the internet can be seen on your personal page. 40
1.1.2. Phone to another PC Skype user
If you want to phone to another Skype user you simply go to your contacts
(or you first search for your contacts Skype name via the tools option) and
double click on the green arrow. The connection will be made and it will
start ringing on your contacts computer. When your contact accepts to take
the call and his headset is working you have established the link (an
example can be seen on figure 4.3.). The quality of the connection is
normally very good and without delays, though not always. As an individual
this is not a real problem. You just disconnect and restart the process but in
a business environment this is not acceptable.
Figure 4.3. Phoning a Skype contact.41
1.1.3. The added services: Chat, Conference calling,
File transfer and Web cam
One of the biggest advantages of VoIP is that it provides other
services than the phoning services which are supplied by the
traditional phoning operators: fixed or mobile. Though these
operators also search to expand their service offer as it are these
extra services who can main lots of extra profit. For mobile phones
one can look at SMS, MMS, internet connection, location based
services and the fixed lines offer conference calling and even video
solutions when you have the right telephone device. In my opinion
these extra services connected to VoIP are, next to the cost savings
(lower prices and no extra voice network to maintain), the biggest
reason for VoIP to boom.
Figure 4.4. Chatting on Skype.42
On figure 4.4. you have a first example of an extra value: the chat mode. Every different
program (software) you use will have differences in its services. If you, for instance, would
compare Skype with MSN Messenger, you would see
that the emoticons and accessories for chatting are
more elaborated in MSN. So every software has its own
properties; in the case of Skype what is a pity is that as
you are sending a file (File Transfer, another added
value to be seen in figure 4.5.) during a chat session you
are not able to chat as long as the file is sending and this
transfer, regrettable enough, does not always goes fast.
Figure 4.5. Transfering a file through Skype.43
40 Skype (Consulted 2005 27 April), My Skype Account Overview.
41 Skype (SkypeTM version 22.214.171.124), SkypeTM - eiblinmatthys.
42 Skype (SkypeTM version 126.96.36.199), Sophie Deprez (Online) SkypeTM Chat.
Practical side of VoIP
When you want to make a call with more than one person, you can create a
conference call. Free conference calling has been part of Skype since the
beginning of 2004, through this extra feature one can call up five Skype
internet users (a host and up to 4 guests) at the same time for free.44 An
example of the view of a Skype conference call is provided in figure 4.6.
If a Skype user also is provided with a web cam he can also have a video, a
view of conversation partner. Of course your computer needs to have the
necessary software to deal with the web cam but you can use this on Skype if
you download a plug in (it is not yet a standard plug in option).
Figure 4.6. Conference calling with Skype.45
1.1.4. Phoning to a non VoIP and Voicemail
Through SkypeOut people that are not connected to the internet can be phoned. The rates for
this are normally lower than phoning through a fixed or mobile
network because till the moment the call is carried by another
carrier than the internet you don t pay anything. The rates can
differ from country to country and from mobile to fixed copper
lines, depending on the agreements Skype was able to make with
mobile and fixed operators in all different countries. Most
European countries, North America and New Zealand have very
low rates ( 0.017 which you can see in figure 4.7.).
Figure 4.7. SkypeOut Rates.46
You can find the rates of every specific operator in another country on the site of Skype. The
highest rate is East Timor with 1,345 per minute. From the 396 operators mentioned at the site
on the 27th of April 2005 only 7 have a rate of higher then 1 (1,8% of the possibilities) and only
19 have a rate of higher then 0,5 (4,8% of the possibilities). The average rate (included tax) of
those 396 operators is 0,202728. One has to be critical with interpreting these data as it may
not say much about the amount of people you can call (as you don t know how many people are
reachable under a certain operator), but it does give a clue.47
rate <= 0,02
I made a pie diagram to show how many of the rate > 0,02 en <=
How many operators charge how much?
operators that cooperate with Skype are charging 0,05
rate > 0,05 en <= 0,1
34 12 7 25
how much to use their infrastructure (for instance 9% 3% 2% 6%
9% rate > 0,1 en <= 0,2
how many operators charge between 0,02 and 12%
rate > 0,2 en <= 0,3
0,05 per minute, VAT included). So figure 4.8. (I
rate > 0,3 en <= 0,5
made the graph with data found on the Skype 111
rate > 0,5 en <= 1
website) should give you a better view on how 123
rate > 1
much operators ask on an average. There are 396 operators in total!
Figure 4.8. SkypeOut Rates.
43 Skype (SkypeTM version 188.8.131.52), SkypeTM Receiving file 36% completed.
44 Bellen.com (2005 18 January), Bellen via het internet.
45 Skype (SkypeTM version 184.108.40.206), SkypeTM eiblinmatthys.
46 Skype (Consulted 2005 27 April), SkypeOut Rates.
47 Skype (Consulted 2005 27 April), SkypeOut Rates All Destinations.
Practical side of VoIP
As you need money to phone out of the
internet connection Skype also had to set
up a paying model for its customers. If
you log in you can click on the option
Buy SkypeO ut credit which will then go
over a secured line (https://) to fill up
your credit for phoning. This is a pre-paid
system in which you pay in advance and
so you lose some interests, although if you
pay through VISA actually you can have a
delay up until a month. Figure 4.9. Buy SkypeOut Credit.48
The paying of your SkypeOut credit consists of four steps (as can be seen in figure 4.11.):
Amount (the chosen amount), Address & Credit Card (you can pay with a Visa credit card,
DinersClub credit card, PayPal (BETA), Eurocard/ Mastercard or Moneybookers), Details &
Confirmation (another screen of how much you pay, including 15% LUX VAT, and to
introduce your exact payment details after which, depending on your payment option, other
security screens will have to be filled in as can be seen in figure 4.10.) and at the end Completed
Order notifies you that your order is processed and this will conclude the transaction.
Figure 4.10. (left)LOGON49 and (right) SIGN50
If you want to phone a person that is not a Skype user you can dial his number (look under the
dial tab). Once you have an active connection with a person on the fixed or mobile network you
will be charged a minute. In the day to day panel you have different tab (see figure 4.11.). The
first tab Start normally will be opened if you use Skype and says how many of your contacts are
online, how much SkypeOut credit you still have and if you missed a call this will also be
mentioned. The second tab Contacts will give you a list of all your contacts and whether or not
they are online as well as the list of those phone numbers you enlisted. The next tab in figure
4.11. is the Call list tab gives you an overview of all the conversations you have had (you can
empty this list). Further you have the Dial tab which makes it possible to pinpoint the number
of a fixed or mobile device and as last you have the tab that appears once you are calling to
another person which shows the number (or if available a logo, picture or web cam).
48 Skype (Consulted 2005 27 April), Buy SkypeOut Credit.
49 Skype (Consulted 2005 27 April), LOGON.
50 Skype (Consulted 2005 27 April), SIGN.
Practical side of VoIP
Figure 4.11. Start tab Contacts tab Call list tab Dial tab Call tab.51
If you are on Skype you could have the impression that you can only be phoned by other
computer users, but if you acquire a SkypeIn phone number you can also be phoned from a
fixed or mobile device by dialling your SkypeIn number. If you have acquired a SkypeIn number
you will also be subscribed for a Skype Voicemail so people can leave you a message when they
call you and you can not pick up your phone/your headset. 52
After this overview of the different possibilities and features of Skype I will shortly describe
MSN Messenger to give a view of some other possibilities of a competitor for individual users to
be able to, at the end of this chapter, give some advantages and disadvantages of VoIP to
compare them with the pros and contras of IP telephony.
1.2. MSN Messenger
It is not because Skype is so known for VoIP that there are no other
companies that offer similar software. I will present the competitor MSN
Messenger, but I will not explain all the services similar to those of Skype but
those unlike. A big difference is that for Skype phoning over the internet is
the core business and chatting for instance is nothing more then an
additional service there where MSN was first know as a platform to chat
online with your friends that after a while, has taken the possibility to also
really talk to your friends in the packet of services they offer, but it is not
their core service.
Figure 4.12. Day to day screen of MSN Messenger.53
If we look at the day to day panel of MSN we can see in the slidebar at the left (see figure 4.12.)
different features of MSN Messenger: The tab open on figure 4.12. shows who is online (so you
can contact this person). The other tabs stand for, beginning at the top and ending at the
bottom: Alerts , MSN.be the regional tab, MSN.Dating , MSN Music downloads , GSM ,
eBay.be , Emoticons , Entertainment , Xbox and Search .
51 Skype (SkypeTM version 220.127.116.11), SkypeTM eiblinmatthys.
52 Skype (Consulted 2005 28 April), My Skype Account Overview.
53 MSN Messenger (MSN Messenger version 7.0), MSN Messenger.
Practical side of VoIP
1.2.1. Extra features during a chat session
MSN on the average has more cool features then Skype: the emoticons are nicer, you can
change your background, you can send winks, moving images, a buzzer (let the active screen of
your correspondent shake), predefined sounds or send messages you have drawn yourself (as can
be seen on the right side of figure 4.13., on the left side you can see an acting wink).
But it are these cool extra features that make big part of the revenues of MSN Messenger as
they charge for other than the standard backgrounds, dynamical screen backgrounds, emoticons,
winks or packs. Many times they work with partners to sell for instance backgrounds for a GSM
or they act as a link to the website of a partner such as eBay, where they get money for the
Figure 4.13. An example of a wink and writing (in stead of typing) a message.54
1.2.2. To hear and to see somebody
With MSN you can chat with multiple people but audio- and videoconferencing are only
available for a person-to-person contact (you see voice- on the left and a videoconference on the
right of figure 4.14.). The quality of the voice traffic seems to be lower at MSN then at Skype.
Figure 4.14. The dynamics of a conversation: sound and view.55
I will not go into depth of further features of MSN as most of them have already been
mentioned before. In the next part I will shortly describe IP telephony from a practical side.
54 MSN Messenger (MSN Messenger version 7.0), ScRaT@IDDI - Gesprek.
55 MSN Messenger (MSN Messenger version 7.0), ScRaT@IDDI - Gesprek.
Practical side of VoIP
2. IP telephony practical56
When we discuss IP telephony we consider voice communications that goes over the data
intranet system of a company. Users are companies and not individual users. As companies need
a better QoS, and as they have more work to integrate their data, voice systems, and the
personnel around these two systems, there are more specialised companies that offer help,
knowledge and experience - and sometimes they are also able to supply the necessary hardware) -
in this transition. Some of these experienced companies are: 3Com, Cisco, HP ProCurve, Azlan,
DataTech and others.
We will further on discuss the exact possibilities of Cirilium, but this is just as an example of the
proposals of one such company. The way to implement IP telephony in a company can be
different if you would examine a different company, although the general ideas remain the same.
Cirilium develops and deploys not only IP telephony but also VoIP so you can install the
complete company set for voice over intranet and internet.
Cirilium offers a complete solution for companies or
carriers that want connections over a long distance
(figure 4.15). This solution (hardware and software) can
help a service provider to strengthen its customer
relationships while offering a high reliability and voice
quality (see figure 4.16. at the right). This solution can
also help an enterprise with business on different
locations through the cost savings and administrative
efficiency of a single network for all communications
(see figure 4.16. at the left). With this solution,
enterprise users profit from scalability for future
growth, integration of multiple technologies and a
software migration path for the integration of VoIP.
Figure 4.15. Cirilium Power~Suite A True End-to-End VoIP Solution57
Figure 4.16. (right) VoIP in a Service Provider Network and (left) VoIP in an Enterprise Network58
56 Cirilium (Consulted 2005 1 May), Cirilium Home.
57 Cirilium (Consulted 2005 1 May), Cirilium Home.
58 Cirilium (Consulted 2005 1 May), Cirilium Home.
Practical side of VoIP
The solution for a Service Provider Network (right in figure 4.16.) allows to:
Manage traffic between your VoIP network and other standard compliant gateway networks.
Configure, monitor and troubleshoot your network from a centralized location.
Deliver Interactive Voice Response capabilities.
Determine calling rates, manage individual accounts and process billing in real time; and
deliver this information to administrators via a Web interface.
Deliver sophisticated Web applications, like Touch-to-Talk, Web Push and Web Phone
technologies to the company s customers.
Purchase what you need now and easily scale up your platform later, at the growth rate of the
The solution for an Enterprise Network (left in figure 4.16.) allows converged networks with:
Quality of Service. Advanced technologies ensure quality and timely transmission of delay-
sensitive voice traffic.
Fault Tolerance. Distributed processing power across multiple ports and cards allows no
single failure to bring down the whole network.
Bandwidth Optimization. When voice is transported on a data network typically the voice
part uses 25% or less of the bandwidth of a traditional voice call (because packet switched).
Network Management. Allows remote configuration, monitoring and troubleshooting.
Lower Operating Costs. Bypasses the PSTN as a wide area data network is used, long
distance calls become local.
After this one example of IP telephony for a company I shall give the general advantages and
disadvantages when I am comparing this new technology with the existing, traditional telephone
solutions in the next paragraph.
3. Advantages and disadvantages of VoIP
Before we saw some practical features and possibilities of IP telephony and VoIP, in core all
features of IP telephony can be obtained over the internet, when enough security and enough
money is spend. Of course the readdressing of packets to have workable global IP addresses is
something typical for the changeover form the intranet to the internet and vice versa.
Now we will look at some advantages and disadvantages of VoIP and then compare this with the
traditional telephone solutions as a nice conclusion of this chapter.
Many big companies already did the switch to a single network of voice and data and now also
SME (Small and Medium-sized Enterprises) get targeted by VoIP solution companies. But why
do companies the replacement? Are VoIP enabled networks that successful as carrier for
integrated voice and data services?
One of the big advantages of IP enabled telephony is that it enables voice communications to be
enriched, to add extra features and possibilities for its customers. Hereunder in table 2.1. I will
give some of the advantages and disadvantages of VoIP for a company. Beneath the table you
can find explications for some of the less obvious points. Also a short presentation of IP phones
will be given as this can be a big part of the transition costs.
Practical side of VoIP
Advantages of VoIP Disadvantages of VoIP
Integration of data, voice and video There are still a lot of traditional phones
New advanced, innovative features that need connection to the PSTN
Web Voice Technologies IP phones are more expensive
Call Management and Billing When electricity is down there is no more
Possibilities for deaf people network and no more phone
Lower costs per call (or even free calls) Network security now also is a part of the
VoIP traffic may be deployed on any IP telephony solution
network (internet and intranets) No certainty of working emergency
Secure VPN are cheaper then dedicated numbers
private line facilities Additional costs to ensure QoS
Lower infrastructure costs A lower degree of reliability and resilience.
Reduced Equipment Costs White page listings maybe not available
Functionality is software (protocol) based Lack of people and skills
so hardware will not get obsolete Compatibility with the rest of the world
Less administrative costs Interoperability of equipment
Cost Savings Resulting From Regulatory
Table 2.1. The advantages and disadvantages of VoIP (ADAMS & BHALLA, 2005), (HELLSTRÖM, 2004, Slide 2),
(TIBERGHIEN, 2003, Chapter 6, Slide 58), (AGORIA-FEBELTEL & BELTUG, 2005, p. 10)59, 60, 61, 62, 63, 64
Maybe some of the points mentioned in the table need some extra explication:
What are these new advanced, innovative features?
VoIP offers increased functionality (call forwarding, conference call, unified messaging,
presence management) and sophistication for applications (such as customer relationship
management) when combined with other data on the network.
About which web voice technologies am I talking?
The Touch-to-Talk application voice-enables websites and creates immediate
interaction between a customer and a person of the companies support.
A Virtual Second Line (VSL) makes sure users can phone while staying online.
The RTP65 Proxy application allows packets to cross from the intranet to the internet
without the need to implement elaborate changes within enterprise routers. Within the
private network, computers communicate using local IP addresses but to communicate
with the internet, these internal addresses must be translated to global addresses.66
59 FCC Federal Communications Commission (Consulted 2005 1 May), Voice-Over-Internet Protocol.
60 Bellen.com (2005 18 January), Bellen via het internet.
61 Wikipedia, the free encyclopedia (Consulted 2005 1 May), Voice over IP.
62 Cirilium (Consulted 2005 1 May), Cirilium Home.
63 Cirilium (Consulted 2005 1 May), Cirilium Home.
64 Cirilium (Consulted 2005 1 May), Cirilium Home.
65 The Real-time Transport Protocol defines a standardized format for delivering audio and video over the internet.
66 Cirilium (Consulted 2005 1 May), Cirilium Home.
Practical side of VoIP
Call Management and Billing done by VoIP?
A LCR (Least Cost Routing) calculates the actual cost of a call and then routes the call in
the most economical manner. This comprises a check and balance system which also
generates numerous reports (detailed and accurate billing is also available for invoices).
What are the possibilities for deaf people thanks to VoIP?
You can sign, speak or type, you decide!!! Deaf people can call each other with VoIP (for
conversations) while they can see each other on the screen (sign language, lip reading) or
they can type text for character by character reading.
Secure VPN is cheaper then dedicated private line facilities
A single circuit (voice and data) saves money by reducing the number of leased lines
installed in an enterprise. While this saves costs over a number of trunk lines on the other
hand it increases the risk of a dual service disruption (discussed in disadvantages of VoIP).
How can VoIP reduce the equipment costs?
Many companies today still operate two networks: one for voice and one for data traffic,
for which they own or lease separate equipment. Adding voice to a data network can
potentially save costs in procurement and managing two separate networks. In addition, IP
technology-related products tend to have shorter product cycles than conventional
switching products, leading to a faster falling price trend.
How can VoIP induce less administrative costs?
The cost of managing one single network instead of two will bring economic benefits.
How is VoIP scalable?
A scalable telephony solution accommodates from the smallest application to the largest. A
new, small business can begin with a small solution on a single server and as the company
grows it can scale up its solution (this is when you use providers).
How can one save costs thanks to the New Regulatory Framework?
In some regulated markets, tariffs for packet switched traffic tend to be lower than for
conventional circuit switched (voice) traffic. In other markets, data traffic may not be
regulated at all. The existing of a regulation for Europe at least lessens the uncertainty.
What do I mean by enhanced mobility through VoIP?
With IP telephony the phone number is not connected to a physical line and thus can be
connected elsewhere in a company.
CIMS Configuration, Provisioning & Management (this is different for every company)
CIMS is essentially a common shell around various technologies and methods, hiding with
a simple interface the complexities of working in an elaborated VoIP environment.
Graphical User Interface
The CIMS GUI (Graphical User Interface) allows the user to navigate through and
work with the menus, network and component databases and reports.
Error Reporting and Performance Monitoring
In proactive mode users can collect statistics of certain events. In reactive mode this
will interpret and order proactive error handlings. Also it will make error reports.
On an administrative level groups of users can be defined to have access to different
parts of the system (clearance level, user name and password).
A synchronized database, when the redundant server can not access the master
server, the control switches over to the redundant server.
Practical side of VoIP
And what about the disadvantages:
No certainty of working emergency numbers
And if you call with VoIP to the emergencies, how can they identify your location? You
could be anywhere in the world thanks to the mobility of VoIP.
White page listings may not be available
But, on the other hand, programs as Skype offer more advanced search possibilities (I look
for people between 20 and 30 how like this or that hobby that speak Dutch) of course the
faultlessness of available data is uncertified.
Lack of people and skills
This may be one of the biggest problems as you need people who have knowledge of the
telephone system and the data system to plan, design, implement and manage the new
VoIP configuration. As many companies miss such in house experts, they will go to
consultants and other solution offering companies. These companies, however, should not
forget to train their own people for daily management of the system, once installed.
Nevertheless different standards have been agreed upon still interoperability between
vendors equipment remains an issue.
Why are IP phones are more expensive than traditional phones?
Because most IP phones on the market have a big LCD screen. If you work through a soft
phone (through a programme such as Skype on your computer this is not true, of course).
Maybe a little extra about IP phones and web or soft phones is necessary:
What is the difference between a web phone and a soft phone? This depends upon where the
actual application is stored. A web phone application is downloaded from a specific website
every time it is used, a soft phone application, on the other hand, is downloaded one time and
remains resident in the user s PC. If people are to be connected through the internet they will
have phone numbers like email@example.com or IP addresses with IP phones that will be
directly connect directly to your data network. 67
To show that there are many other possible web phones and interfaces I gathered some
examples in figure 4.17. I did not yet show so far: on the left you see a kind of interface software
(different then the Skype example already shown), secondly you see a headset that is needed if
you are working on your computer, in the third part of figure 4.17. you see a first hybrid
telephone computer (IP phone) and the last and upper left of the figure is another IP phone just
to show there are many choices, options and price categories in equipment for VoIP.
Figure 4.17. (left) Siemens, (middle left) Sanyo, (middle right) Marconi, (right) Intelligent Home Solutions.68, 69, 70, 71
67 Cirilium (Consulted 2005 1 May), Cirilium Home.
68 NetworkWorldFusion (Created 2002 25 February, Consulted 2005 1 May), IP phone interfaces.
Practical side of VoIP
To conclude this paragraph where we compared the pros and contras of VoIP we have to say
that every company has to make a table with the profits and the costs of the migration to VoIP
telephony. This will be different for every company as the existence of old telephones or the
lacking of an intranet for data and such have to be taken into consideration.
Figure 4.18. Cartoon72
69 Sanyo (Consulted 2005 1 May), Cellular Phone Sanyo.
70 Marconi (Consulted 2005 1 May), Home.
71 Intelligent Home Solutions (Consulted 2005 1 May), website intelligenthomesolutions.
72 Glasbergen, Randy (2004, Consulted 2005 23 March), Cartoon.
The different players in their market
Chapter 5: The different players in their market
After explaining the most important parts of the technology and the regulations behind VoIP
and given you a practical inside on the practical possibilities, advantages and disadvantages of
VoIP it is time to present to you the players of the Belgian telephone market. In the telephone
industry the fixed and mobile operators are a known factor; it are the internet-providers that
come into this market as new entrants.
In this chapter we will analyse the market of the telephony, its players and their positions
towards each other. To this objective we will use the model of Porter, make a SWOT analyse of
the fixed, mobile and internet operators and we will create a value-chain for VoIP. To conclude
this chapter, I will make a provisional prediction of the future of VoIP and a short commentary
on how this will shift the existing powers in the telephony market.
As players from abroad can also offer telephone solutions it is very difficult to mention all
players, but although in some categories I may have missed some providers or operators I hope
to give at least a full overview of the different categories of providers. The first division I will
make of all the different telephone solutions is that of phoning over the PSTN lines, mobile
phoning or VoIP.
1.1. Phoning over the PSTN
This is the oldest form of phoning and till the liberalisation of the market Belgacom was the only
provider for this service in Belgium. Though it is still the only one with a copper wire
infrastructure, another competitor has arisen as a new technology made it possible to phone over
the cable: Telenet entered the Belgian market as a new competitor for Belgacom.
When the regulated monopolies in this sector have been dragged down incumbents (such as
Belgacom in Belgium) were obliged to lend their infrastructure to other companies so that
companies such as Vodaphone or Euhoponie started leasing lines from Belgacom and became a
direct threat and competitors. This drove the price down.
There are also companies who buy minutes in bulk from the incumbents, against interesting
prices, which they will then sell, under another name to the end customers, such as Euphony
1.2. Mobile phoning
When mobile telephone solutions came to the market Proximus, a daughter company of
Belgacom, entered the Belgian market to, in a first stage, get 100% of this growing market. As
this was a growing market other competitors, first Mobistar and later Orange - which is now
named BASE - followed and rolled out their own infrastructure in Belgium. Proximus has always
remained the biggest mobile operator and BASE the smallest (this is probable the consequence
of the first mover advantage which is described in the next chapter).
The different players in their market
But lately BASE is doing fairly good lately, growing Shares of the Belgian mobile market
from little Thumbkin to a, still small, but important 17,0%
power in the Belgian market. The customer share of
BASE grown in one year time with 28,6% till 1 761 49,5%
million customers and so the share of BASE in the
Belgian market went from 13% to 17%. The share of 33,5%
Proximus in the Belgian market is 49,5% and this Mobistar
leaves a 33,5% share for Mobistar as is depicted in BASE
figure 5.1. (METRO, 2005b).
Figure 5.1. Shares of the Belgian mobile telephone market (METRO, 2005b)
Also in this sector there are companies who lease the infrastructure of these incumbents
(through new legislations the other operators have to lease there infrastructure to these new
entrants, against a fair price, so that free competition can take place). Tele2, Versatel and others
are nowadays entering the Belgian market. There are also companies who sell minutes for those
incumbents, but under another name, as Euphonie does for Mobistar.
A small part of wireless telephoning, but a great possibility for future booming, are WiFi
(Wireless Fidelity) hotspots. Nowadays hotspots are used for LAN in somebody s home, or for
instance in a public place or company (for instance in Zaventem, or in train stations) so a person
can go on the internet (possibly only after payment). Another possible use of hotspots is if
providers try to let people connect to the internet through a hotspot that comprises (a part of)
An example is the American Clearwire that offers wireless internet broadband connection in
Belgium since little two weeks. You have a modem at you place who will make wireless
connection with the mast of Clearwire (for the moment such masts are only in Brussels but
Clearwire wants to expand this area). One problem is that the connection of the radio signals can
be disrupted by high trees or a concrete construction. That is why you can also connect the
Clearwire modem through the electricity network (METRO, 2005c).
When WiFi hotspots are all around us, in our homes, in our workplace and in public places such
as stations, libraries, schools and even in restaurants such as Quick then you can go and walk
around connecting from hotspot to hotspot into the internet with your GSM or laptop. When
for a moment you do not have a hotspot to connect to you can still connect to the infrastructure
of the mobile operators to use this network or to connect to the internet. The ultimate mobility
is not that far away anymore.
A risk for the mobile voice market is the extreme competition and price drops; mobile voice
traffic and revenue slowing down around the globe. Mobile operators should integrate wireless
LAN and move towards mobile VoIP. Otherwise they risk losing profit to fixed-line operators,
who are anxiously seeking to incorporate mobile services into their portfolios (SINGER, 2005).
Maybe mobile operators should give fixed-line operators and VoIP service providers the
possibility to add mobile voice offerings and then all operators could have more revenues. In this
way mobile operators can enhance their products with personalized services and improve their
competitive position. Some of those services might actually combine mobile voice with video or
messaging. In the fixed-line sector it already has been proved that bundled services have a
positive impact on keeping subscribers on the site. Maybe mobile voice is also to be bundled
with other services in the future. If mobile service providers gain revenue growth and customer
loyalty thanks to bundling they should start seeking partnerships (SINGER, 2005).
The different players in their market
With VoIP it is difficult to speak of one provider, if you talk about IP telephony the IT
department of a company can, in theory, take care of everything and you should be able to
phone over the intranet. Of course you need hardware for this but you can get this at the normal
hardware providers that also supply for other IT solutions.
What is a more urgent problem for most companies is that they do not have enough people
experienced as well in IT as in telephony and who know the needs and possibilities of IP
telephony. For this many companies stand up to sell this experience: consultants but also
hardware providers that already gained experience in these IP telephony solutions. If you search
to Belgian VoIP providers you have quite a long list such as: Packetnet, IPness, Belphin, C-Tone,
Intertel, MT SERVICES, SPECTECH, Phonitel Technologies, PSI, Telco R&D, Telegal,
Tornado Network Services, VoipRent and Voixip RealROOT.73
For voice over the internet (VoIP) at least you need an internet connection and thus internet
providers enter the scene. In Belgium you have Belgacom and Telenet as national providers and
then some local providers such as BruTele in Brussels. Something else you need is or the
software (for instance Skype or MSN Messenger) on your computer or IP phones (hardware and
software combined) to be able to phone over the internet.
The mobile operators are also interested in entering this market of VoIP through a Dial-up line74,
DSL, Cable or Satellite Internet. Proximus for instance uses its current telephone system at work
and routes long-distance calls over its existing internet service.75 And as the mother company
from BASE (KPN) will start this very month with VoIP for individuals it will probably not be
long before BASE is also in the running (METRO, 2005b).
Mobile operators who will use the internet are only one part of the story as internet providers are
also trying to become telephone operators. Telenet and Belgacom have made an official request
to get the licence of a telephone operator which should be legally in order in September 2005. It
may be clear that the line between operators and providers is fading.
So far I concentrated on the Belgian players on the market but as the market is widely open for
any player from all over the world, the list of possible VoIP providers (of solutions, hardware or
software) is almost inexhaustible.
As already seen in the chapter three in Belgium you have mainly the BIPT as a regulating body
for telecommunications and the regulations of the European Commission of course as they have
more power then national regulations.
After I introduced the different players to you one by one I will now have a look at the market
they exist in and at their relative position against each other.
73 Telecom Portal (Consulted 2005 13 May), VoIP Provider VoIP Belgium VoIP Providers Belgium.
74 This is a computer that connects to the internet via a telephone line using a modem.
Thuraya, Satellite Internet and VSAT (Consulted 2005 5 May), Belgium Proximus Mobile VoIP solutions.
The different players in their market
2. The market
In this paragraph we will see the market through the model of Porter, make a SWOT analysis
after that and we will make a Strategic alignment model so in the conclusive paragraph of this
chapter we can make a first educated guess of how the telephony market will evolve seen the
analysis we will perform.
2.1. Model of Porter
VoIP is a relatively new medium, which is still in evolution. If one wants to get a view on the
possible evolution it is very important to analyse and evaluate the market and all its players. If
VoIP is mentioned normally a call over the internet is meant (though other additional services
can be supplied). When looked of who supplied, so far, telephony then we come only at the
fixed line and mobile operators as the incumbent suppliers. Lately there have been new intruders
in this market: the operators without an own infrastructure that lease lines with the incumbents.
Why this theoretical thinking exercise one could wonder? In the model of Michael Porter,
presented in figure 5.2., there are 5 strengths distinguished that will exert an influence on the
market position of a company: the competition within the industry, new entrants, substitutes,
providers and customers. To finish this model it is first necessary to define the market you are
analysing: in this case it is this market that serves the need to communicate and that, more
specifically want to this vocally (one could perform also a greater analysis and imply all forms of
communications till the broadcasting on television but I will focus on telephony).
In a way we could divide this market in two segments:
The market that supplies the individual users of VoIP
The market that supplies the professional users of this technology
These two markets are different as they demand different rates of certainty; service-level and
they have a different spending patron. In reality we also can notice that indeed different
companies exist to supply these different segments (as companies will also address IP telephony
for intranet telephony). One could deploy two different models for these different markets but I
will only deploy one, as more or less the same power shifts will flow in these two models.
Figure 5.2. The model of Michael Porter (TORFS, 2003, Chapter 3, Slide 31).
The different players in their market
The second question is who is now in the market? Who are new entrants? What are substitutes?
Who are providers and who the customers? The fixed line operators are already a long time in
the market and the mobile operators (although once intruders) are also already in the middle of
figure 5.2., competing in the market. New entrants are the virtual operators that lease lines but
do not have an infrastructure of their own; they compete with the same technology and take
advantage of the barrier (the infrastructure) that has fallen away thanks to current regulation.
VoIP (the internet providers and holders of intranets) on the other hand are substitutes, they will
use the internet, a technology that was already used to serve different needs but that all of a
sudden also comprises the promises of enabling telephony.
Once substitutes have entered the market, their providers can also gain importance and for this I
will also address manufacturers of IP phones, hardware and software while concentrating on the
power of manufacturers; while the customer group is formed out of companies and individuals.
Hereunder you can find a figure of the Porter model for telephoning, figure 5.3., in which the
traditional ways of phoning are central. In the next paragraphs we will present every of the
different powers (entrants, suppliers, customers, substitutes and competitors) more in detail.
Danger of new entrants
Operators that use leased lines
Bargaining power Bargaining power
IP phones manufacturers Individual customers
Fixed/mobile Professional customers
Danger of substitutes
Figure 5.3. Michael Porter model for traditional telephony
2.1.1. Danger of new entrants
To be able to offer phoning applications to customers you need some infrastructure. If we think
about the more traditional ways of phoning, through fixed lines or mobile, this comes down to
the old PSTN lines and to the masts that allow mobile phoning (this is a simplified vision on all
the necessary infrastructure before one can start offering telephony, but nevertheless it gives a
good idea about the dynamics of such).
To get this infrastructure a company needs to invest a lot of money in the hope that these
investments later on will return. This is not that certain for a new entrant in the telephony
market and so it can be much more interesting if it is possible to lend the infrastructure from the
The different players in their market
already existing, incumbent operators. Nevertheless for these incumbents an extra competitor is
not appealing and for this, in a not regulated market, a not easily gained position.
But nowadays some new regulations are in order which order these incumbent to lease their
existing infrastructure to other operators for a fair price and thus incumbents need to allow new
entrant in the market (these barriers are presented in figure 5.4.). Seen the multitude of new
entrants (also big companies from abroad that already delivered similar, related or expanded
services who have the advantage of a relatively known brand; knowledge of the market and its
technology and enough cash to do some marketing) one could conclude however that there are,
for the moment, few entry barriers. In fact by reducing these barriers the government made sure
new entrants can come into the market and thus, if prices are too high, competition will arise.
Nowadays everybody can try starting up a business through which professional or non-
professional people can phone each other, but there always will remain a number of thresholds
to overcome. In the first place there are the existing operators against who one has to fight! With
known brand names they already gained the trust of the public, which can make it easy for them
to enter this new technology or to convince their customers to stay with them as they offer an
assured, known service level.
If the known phoning operators will also supply VoIP this can thicken the band they already
share with their customers (this is symbolised by the thickened arrow between existing
companies and customers in figure 5.4.).
Figure 5.4. Michael Porter model force game (TORFS, 2003, Chapter 3, Slide 33).
2.1.2. Bargaining power of the suppliers
The providers from the traditional telephone suppliers could bargain some power as the amount
of companies offering masts or specific wires is not that big. On the other hand some caution
for backward integration of these traditional telephone suppliers probably was not unintelligent.
In VoIP data is transported over the internet in bulk, so you could say you work with a dumb
network that needs intelligent terminals. In this construction it is imaginable that manufacturers
(of IP telephones and hardware) will gain importance.
The different players in their market
2.1.3. Bargaining power of the customers
Generally it is quite difficult as an individual consumer to get any bargaining power. Only thanks
to more competition (which has been realized through the recent liberalisation) and the fairly
great assortment of substitutes available, one person can have some pressure and take advantage
of promotions and lower rates in general.
An SME will not have more bargaining power then one individual (maybe they can use Unizo,
the Belgian grouping for these undertakings, to aggregate their power) but a big national or
international company can go and ask cheaper prices at the telephone companies. As the threat
that they will go to the competition, or to a substitute is real.
An advantage of VoIP over fixed and mobile phoning can be for individual users that this is a
new technology that is not yet generally accepted or even known. As phoning is a network
sensible industry it can be important to serve the first customers very cheap or even for free to
obtain the critical amount of needed users, to bypass the chicken-egg problem76 (on the other
hand there is interoperability between all phoning solutions and all operators, between most
hardware en most software so this should not be too important).
For the traditional phoning technologies (I already count the mobile phoning as a mature
technology that can be counted in as a traditional technology) VoIP can be a dangerous
competitor as it can substitute their services and can even enhance and elaborate these services (a
web cam of your contact person, extra data transfers, easy conference calling and others).
Some other parts are irreplaceable, of course, such as the mobility of a mobile phone. Normally
one goes not for a walk with his desk top under the arm quickly phoning that one will be home
late. But if you are seated for five minutes (working in the train for instance), then connecting
the laptop to the internet through hotspots or through the mobile network if no hotspot is
available is possible. A PDA never the less, is easily portable and can make use of the mobile
network as a mobile phone or go through the mobile network or through hotspots to the
internet (even to use VoIP to phone somebody). It may be clear that the danger for the mobile
network is that more and more hotspots will become available. Mobile operators should search
for extra services with added value and possibly to expand their business.
The choice of the consumer between the different ways of phoning will be chiefly decided by the
price of the offered service, the quality of the offered services (in fixed line and mobile telephone
solutions, once a connection is established the channel/ line is guaranteed for their use alone but
with VoIP the quality of the internet connections will gravely influence the QoS) and the extra
services that one operator can offer.
Of course the availability of internet, the knowledge of internet technology, the necessity of
mobility and the amount of masts in the neighbourhood will gravely influence the decision
between mobile, fixed or internet-based phoning. There were the former section merely
described the reasons to choose for one operator or another.
76 One can read more in specific about the chicken-egg problem in chapter 6 paragraph 1.3.1.
The different players in their market
2.1.5. Competition between existing companies
Since the liberalization of the market, there have been a great number of new entrants in the
telecommunication market in Belgium.
The mobile operators have the advantage that they are, so far, the only competitors that supply
good options for real mobile phoning. The fixed mobile incumbent operators on the other hand
have the advantage that they already have established brand recognition but if they have to
compete against internet providers, also known by the public, this helps not so much. The great
advantage of the internet providers is however, especially for the individual users is that by
means of some new software there are no additional costs to VoIP as long as there is already an
established internet connection for the two PC s that will connect.
2.2. SWOT analysis
In the previous paragraph we analysed the market and the current players with the Porter model.
In this paragraph we want to evaluate fixed, mobile and IP based telephony providers. What are
they good in? We already looked at the advantages and disadvantages of VoIP at the end of
chapter four but now we will carry out a SWOT analysis. Now your competitors and now your
self, your strengths and your weaknesses is one of the basic rules of business.
Hereunder in table 5.2., we give a SWOT analyses for VoIP. Thereafter we will discuss the
pointed out strengths, weaknesses, opportunities and treats of this table.
Cost reduction The quality is not always supreme
Possible to plug in on traditional Good internet connection needed
Integration with other data services
Added value for customers Regulation can change things
One integrated platform for voice,
Substitute the present infrastructure
Lacking of regulations
Table 5.2. SWOT analysis of the VoIP technology.
For companies VoIP can make a big cost reduction for their national and international
calls. And costs can be cut through the dismantling of expensive leased trunk lines
between offices. For an individual that already has internet this can even be a total cutting
of phone costs. This cheapness and easiness to install will shorten the introduction path
needed to convince the critical mass (free software, and phoning to a fixed or mobile line
The different players in their market
is, on average, cheaper through Skype then through the PSTN). The normal S-shaped
introduction path is depicted in figure 5.4.
Figure 5.4. The S-shaped introduction path (SHAPIRO & VARIAN, 2000, p. 187).
Possible to plug in on traditional network
This is an extension of the traditional network; you can
phone a mobile or fixed phone from your computer. You
will only have to pay the price from were the internet
connection switched to the PSTN or mobile network.
Services such as chatting, conference calling, and presence function.
Integration with other data services
Data, voice and video of the person can be all integrated into one platform.
The quality is not always supreme
The quality of the voice coming through is fluctuating as each different package has to find
its own way to reach the receiver.
Good internet connection needed
When your quality of internet connection is not supreme the quality of the telephony
connection is not supreme either. VoIP is dependent of the quality of internet connection.
Added value for customers
The biggest advantage from VoIP is the promise of added value. For instance one can see
the opponent speaker through a web cam.
One integrated platform for voice, vision and data
As you are phoning from your computer, you can easily integrate data and video to your
conversation. As VoIP sends all data through the network in packages it is not difficult to
incorporate other data then digitalized voice.
Substitute the present infrastructure
Most companies still have the old telephone network. Some individual users already deserted
the old telephone network and now converted their entire voice communication through the
mobile network. As a lot of households and most companies in Belgium already have the
internet infrastructure they do not need to make extra investments. People whose old
telephone infrastructure gets written off probably see more in an infrastructure that at the
same time can be used for internet connectivity. It is like killing two birds with one stone.
Lacking of regulation
As one can clearly see the lacking of regulation is a, probably temporary, advantage for the IP
based phoning technologies.
Regulation can change things
The different players in their market
The NRF already lessened a lot of uncertainty for regulations to come. But still issues like
emergencies are not taken care of yet. New regulations could cause implications not to
foresee yet and thus this means a degree of uncertainty for the moment. Surely it will not
impose this new technology to evolutes but maybe some more things (as first aid calls) shall
also be properly addressed by suppliers of internet based phoning.
2.3. Know yourself and your competitors
In the next table I shall try to summarize in a competitive analyse (table 5.3.) the relative
strengths and weaknesses of all competitors, this is a personal exercise. The more asterisks the
better to attain more customers (in the section of regulating position this can mean a less
A competitive analyse for the phoning industry
Type Presence in Technological Regulating Added Perceived
provider the market capacities position services price
***** ***** * ** ***
without ** ***** ** ** ****
***** ***** * *** *
without ** ***** ** *** **
VoIP * *** **** ***** ****
Table 5.3. A competitive analyse of the different competitive technologies.
2.4. The McFarlan & McKenney Strategic Grid
To understand the importance of the decision to do the transition to VoIP or not the strategic
Grid of McFarlan and McKenney can help. This grid, depicted in figure 5.6., contains two axes,
the horizontal shows the strategic impact of current IT systems and the vertical awes shows the
potential strategic impact of future IT systems .
Figure 5.6. The McFarlan & McKenney Strategic Grid (CORBOY, 2002).
By doing the transition to VoIP you can spend more money in your IT system (the money that is
not spend in the telephone system any more) and maybe you can gain some potential strategic
The different players in their market
advantages by exploring the possibilities and added services ad the fullest. Maybe you can have a
better customer service and so beat the competition. If you are in a currently non IT
environment you shall be in the right upper corner of the grid in figure 5.6., when you are
already competing on IT services with your competitors than you have a place in the lower right
corner of this same grid (TORFS, 2004, Chapter 1, Slide 21).
This grid is just to help you see the opportunities that you can exploit thanks to VoIP. You can
enhance your IT system, add extra services for your customers and beat your competitors. This
will take place if VoIP is used in an open minded spirit and not just to substitute telephony but
to substitute and complete it. Cease the potential competitive advantages!
2.5. Strategic alignment model
The next model we shall deploy in our quest to the potential importance and future of VoIP in
business is the strategic alignment model. This is an integration structure for Business and IT.
Figure 5.6. The strategic alignment model (HENDERSON & VENKATRAMAN, 1992).
Between Business and IT you have a strategic integration (external) and an operational
integration (internal) which our represented in figure 5.6. by the functional integration arrows.
This is important because a company does need to have more then an external strategic vision of
integration of business and IT strategies when they do not posses the necessary infrastructure,
skills and knowledge inside the company to make the operational integration (TORFS, 2004,
Chapter 2, Slide 20).
What is difficulty in realizing value from IT investments (such as VoIP) is firstly due to the lack
of alignment between the business and IT strategy of the organizations that are making
The different players in their market
investments, and secondly due to the lack of a dynamic administrative process to ensure
continuous alignment between the business and IT domains. If you invest in VoIP there are four
possible dominant alignment perspectives towards the alignment of Business and IT as can be
seen in figure 5.7. (VENKATRAMAN; HENDERSON & OLDACH, 1993):
Figure 5.7. Strategic Alignment Model (VENKATRAMAN; HENDERSON & OLDACH, 1993).
Hereunder I will describe the potential gains and losses for the four possible migration paths:
1. Strategy execution alignment perspective:
In this case a company will use the IT infrastructure to support the business strategy. The
business is the core driver. The management takes strategic decisions that the IT
management has to implement. In this case VoIP would be a just another way to make a
2. Technology transformation alignment perspective:
The companies in this migration path also have a business strategy vision but they will
actively use an IT strategy to obtain and support this goal. The IT manager will have to
design and implement the given strategies into the IT infrastructure. So the added services
that VoIP can provide will be used to get a better relationship with customers when this is
a strategic goal.
3. Competitive potential alignment perspective:
Here a visionary manager sees an IT opportunity, a new technology such as VoIP and he
decides he can make a business out of it, that he can gain competitive advantages through
this technology. Here business strategy can be modified via emerging IT capabilities. Here
the IT manager should be the catalyst, he should assist the business manager to help him
identifying and interpreting the possibilities and threats of this new technology. In the case
of VoIP this could be a new company that as first offered conference calling where voice
and video went over the same channel.
4. Service level alignment perspective:
Here IT is the driver and it will be the performance of the IT that will fix the satisfaction
of the customers. The top management should have to encourage the implementation of
new IT technologies whereas the IT will be the main voice in the company s management.
Here IT is used in an effective way to comply with the fast-changing demands of the end
users and to remain the first to offer these new possibilities to gain competitive advantages.
Here a company would jump to the transition of VoIP to be able to offer its customers
voice, video, data, presence functions and all other possibilities as soon as possible.
(TORFS, 2004, Chapter 2, Slide 17, 18, 19, 20).
The different players in their market
3. A guess of what is the future of this market
To conclude this chapter I will make a first educated guess of what the future of this telephony
market may be. In a first place it may be clear that companies have to try to cease the most out
of this emerging possibility of VoIP. There are a lot of plain advantages in cost and
infrastructure convergences but also a company can gain strategic advantages in exploiting the
added services of VoIP when his competitors do not. On the other hand a serious weighting of
advantages and disadvantages for every company on itself is no wasted time as there can be still
investments to write off while perhaps the company works in a business environment in which
services to customers and IT can not offer a competitive advantage.
If we see a bit further then the decision of the one company one can wonder what the effects of
this new technology will be for the traditional suppliers of telephony solutions. They are under
threat as a cheaper substitute comes into the market. Also boundaries between possibilities as
mobile phoning, hotspots and wireless connection to the internet are fading. Maybe it is a good
idea for these traditional telephone operators to try to gain themselves a share of these new
emerging VoIP users. In this way they can sustain the power they have by winning the users in
VoIP where they are losing them in their traditional solutions.
When we make the distinction between companies and individuals we have to see that
individuals are interesting because of their mass and the profits they can generate over traffic and
minutes charged a bit above the cost. As for companies with an own intranet there are already
big gains to make in the transition as these companies need new equipment and help to
implement this new solution. If it is possible to build a long-term agreement with companies
through outsourcing (also interesting for the company that is not sure yet about the winning
features of this new technology) this can become a cash cow for telephone operators.
Figure 5.8. Cartoon77
Glasbergen, Randy (2002, Consulted 2005 23 March), Cartoon.
Network economics in telephony markets
Chapter 6: N etwork economics in telephony markets
In this chapter I will discuss network economics in the telephony market. I will also examine
standards, interoperability and coopetition78 in this market, as they will influence the network
economics working in the telephony industry. As the telecommunication market is subject to
network economics it is interesting, if not necessary to completely comprehend what this means
for the market as it will influence every possible model one applies to this market.
As phoning is a network good, I will go deeper into this topic to be able to forecast the
popularity of VoIP. The more people that use and know for instance Skype, the more people
will hear about it and want to use it too. The more people that are VoIP users and are
consequently able to insert web cam video into their conversation, the more interesting it gets to
subscribe to VoIP yourself to be able to see web cam video as you are speaking with this person.
In the last paragraph of this chapter, I will discuss standards in VoIP and the importance of
these standards. It is thanks to these standards that voice can be digitalised and be recreated into
understandable vibrations. It is thanks to these standards that different software can interact to
send and receive voice packages. And it is thanks to the interoperability of these different
software packages that voice, pictures and data, in other words all kind of formats, can be send
over the internet.
1. Economics of network industries
In this paragraph I will first of all explain and define some terms and, secondly the principles of
network effect that will be introduced in a more mathematical, model shaped form. Finally we
will study some issues associated with network effects. In the last section, we will analyse in
which ways network effects work in the VoIP market.
Externalities are present when activities of one economic agent influence the activities of other
economic players, without this influence has been taken into account through the price
mechanism (SHAPIRO & VARIAN, 2000, p. 191-192). If, for example, somebody smokes in a
public room, this smoke has a negative effect for the other people in this room, though they are
not compensated for this negative influence. This is an example of a negative externality.
The utility of a network good for its user depends and rises relatively to the amount of other
users that exploit that good (or a compatible good). In this case one can state that these goods
are components of the same (virtual) network (SHAPIRO & VARIAN, 2000, p. 17-18).
As already stated by Katz & Shapiro in 1985 (KARL & SHAPIRO, 1985):
The utility that a given user derives from the good depends upon the number of other users who are in the
same network as is he or she .
78 Coopetition is a contraction of cooperation and competition.
Network economics in telephony markets
Direct (or demand) network externalities are realised when an extra user raises the utility of the
other users in the network. Let us look at telephoning: when you are the only one with a
telephone then you can not call anyone, and as such this telephone does not have any value at all.
The more people subscribe and have telephones, the more people you can call, and the more
value this telephone will have for you (VAN HOVE, 2002a, Slide 16). The more people phone
through VoIP and have a web cam (or other services such as the presence function), the more
people will want to use VoIP themselves to see the person with whom they are calling.
Indirect (or supply) network externalities will not immediately generate effect for the other users
of the good (and of the network) when a new user subscribes, but it will have a slow delayed
(indirect) effect in time (VAN HOVE, 2002a, Slide 16). If we apply this on VoIP we can imagine
that more PC s will install good soundcards and microphones developed especially for VoIP.
Also, new applications (as for conference calling) and more (and thus competitive) software will
be developed. As long as these competitors remain developing consistent with certain standards,
this will generate lower prices and services of different providers will be interoperable. However,
certain services will never be invented, as they are outside specified standards, and therefore
impossible to develop within these standards.
1.2. Models of network effects
Before the model will be presented to you, it is important that you first look at the assumptions
on which this model is build, to value this model at the fullest (VAN HOVE, 1999b, p. 2).
Consumers are rational, surplus maximizing individuals who weight the utility of a good
against its costs;
The utility of a network good equals a + b(n) in which:
a equals the utility the user gets out of the good when there is no network
b (n) equals the advantage the user gets out of the size of a network
b(0) = 0 when nobody has a phone, you can not call anybody so the utility is null
and so the utility of the good will rise as the network grows;
In this model consumers have to decide at the start of a period whether or not they will buy
the good (so before the network size is known). The decision whether or not to buy is
consequently dependent of the formed expectations:
a + b(ne) ne stands for the expected network size;
The consumers are homogeneous in their valuation of the network externalities:
The consumers have heterogeneous preferences and all expect the same network size.
One of the implications of these network effects is that it is the expected network size
that is of crucial importance (VAN HOVE, 1999b, p. 4).
Imagine that the price (p) one has to pay for the good would be put equal to the costs.
When you are the first to bring your product to the market then the consumers will only buy
it when the total utility minus the costs are bigger than zero:
a + b(ne) p 0
Network economics in telephony markets
In case of pure network goods a will be zero. In this case if only you possess the good you
will get no utility out of it (for instance a telephone or a paying card):
b(ne) p 0
When a product is brought to the market in a competitive situation, than consumers will
chose the brand that brings them the bigger surplus (in underneath formula this is good 1):
a1 + b(ne) 1 p1 a2 + b(ne) 2 p2
With pure network goods a will be zero:
b(ne) 1 p1 b(ne) 2 p2
One chooses the brand with the highest surplus. With a pure network good this is the
biggest network. So there is a positive feedback in which big companies get even bigger and
little companies get even littler. One can conclude that this is an all or nothing market (this is
depicted in figure 6.1.).
Figure 6.1. An all or nothing market: Positive feedback (SHAPIRO & VARIAN, 2000, p. 185).
As network goods posses specific properties a company supplier has to take a different strategy
for this kind of goods. He could try to come as first supplier on the market (first mover
advantage) to ensure that most of the users would have bought his product (to lock the clients
in). This lock in effect will occur if competitive products are not compatible. When they are
compatible all products can coexist (unless you can convince a niche of customers of your
superiority; as Apple has been doing for many years).
1.3. The six main question of network effects
As phoning is a network good, we have to walk across the next six questions, as these represent
the typical problems that can arise. In the next paragraph we will interpret these six questions in
detail for VoIP. In some of the previous chapters there already have been some references to
these network effects.
1.3.1. The chicken or the egg
When the size of a network is smaller than a certain minimal size, than the new technology will
not survive. This is because a big part of the utility of a network good depends on how many
other clients use the good. This critical point also is called the critical mass point .79
As a technology only becomes interesting when there is a network, the question is: who will
engage first? Who was first: the chicken or the egg? Suppliers only want to invest when there are
enough customers and customers only want to buy when there is already a network (VAN
79 The critical mass is pointed out on the migration path that is depicted in chapter 5, subparagraph 2.2.1.
Network economics in telephony markets
1.3.2. Is there space for more than one competitor?
When two incompatible products fight for one market, then the positive feedback will make the
big company even bigger (people choose the company with the largest network as this gives
them a higher utility) till this company pushes the smaller competition out of the market.80
1.3.3. The first mover advantage
In this kind of markets it can be very important for the producer to get his product as first in the
racks. In the theoretical model all people would then buy your product because there are no
other products (yet) on the market. And if people have invested in your product they will use
this product for the whole its lifespan. They will not invest in another, possible incompatible
product of your competitor. This is what is called a lock-in, the consumer is locked in by the
costs he has to make to switch to the technology of the competitor. This is the switching cost
(SHAPIRO & VARIAN, 2000, p. 15-18).
But when the consumer is aware that he could get locked in, it is possible that he chooses to wait
with buying the product till he is certain which of the two technologies will gain the most
customers. But if all people combined think that way none of the two competitive technologies
will fetch the critical mass and none of the two technologies will get accepted. In these cases
compatibility and standardization are the preferable solution.
When there is no compatibility it is possible to end up with no customers at all as all potential
clients are waiting till one of the technologies goes down. This is illustrated in figure 6.1.
The positive consequences of compatibility are (VAN HOVE, 1999a):
The confidence one can create (it is impossible to get locked in a compatible technology);
The stronger network effects (the two technologies will have a bigger network together).
The negative consequences of compatibility are (VAN HOVE, 1999a):
The two products become substitutes and will have to compete each other (this is only bad
for the better product that should have won the whole market in case of competition);
Because of the competition, prices will be lower.
Figure 6.2. More compatible users magnify the chance on a beneficial cycle (SHAPIRO & VARIAN, 2000, p. 189).
80 To illustrate this, one can always look at figure 6.1.
Network economics in telephony markets
1.3.5. Optimal pricing strategies
In case of network goods, firstly the good is offered for low prices (even in case of a monopoly)
to obtain, in this way, the necessary critical mass.
Hereto there are two possible strategies (VAN HOVE, 2002b, Slide 12):
The penetration strategy in which one sells the good against a price even lower then the
cost to produce the good (sometimes even for free).
The introduction strategy in which one sells the good for a low price, but this price will at
least cover for the expenses, the cost to produce it.
1.3.6. Managing of expectations
As already mentioned, the expectations one has over the future success of a network good vary
whether or not the product would also be successful in reality.
To influence the expectations of the people positively one can (VAN HOVE, 2002b, Slide 13):
Let big companies launch the product together (two big brands together will make a bigger
impression and generate more confidence);
Announce the product, even before the launch (this can also be very important if a
competitor could get a first mover advantage)
Take care of good public relations. One has to emphasis how good this product is and that
really everybody has the fullest confidence in its success.
1.4. The consequences of these effects on VoIP
In how far network economics are present in the market of VoIP and how do they affect the
market power in this market? In the case of VoIP the chicken-egg problem seems to be solved
as traditional fixed line calling, mobile phoning and VoIP is interoperable (you can even apply
for a VoIP telephone number that can be reached from the traditional networks). But if we talk
about the added values and content as, for example, the view of your partner on the screen
through a web cam, the philosophy is the same: the more users with a web cam, the more
interesting to talk in front of a screen.
The first mover advantage of a VoIP software seems to be small, as all software will be
compatible and operates following the general internet and phoning standards (to be
interoperable with fixed lines and mobile phones, and to be able to send the packages through
the internet). Therefore, the switching costs will remain small. On the other hand the first
program on the market will be familiarised first and people will know how to click their way
through the software. Learning how to use new software is on itself also a switching cost.
For the moment, one can still easily download free software (for instance Skype) but whether or
not this will remain this way is uncertain. After all this is the introduction phase of a network
good and as such companies want to lower the threshold of potential users to reach the critical
mass. Once this critical mass is reached it is possible they will raise the prices, or maybe they will
only raise the prices for those users that need elaborate services (normally these are the
Network economics in telephony markets
Nowadays one can find more and more information about VoIP as the solution for the future,
that it will replace the traditional fixed phones. O ne could conclude that these companies public
relations are doing their jobs by getting the expectations about VoIP as high as possible.
Whether or not these expectations are realistic, further investigation is necessary to come to a
Without standards it is not possible to have compatibility, and it is exactly this compatibility (not
only between different VoIP software packages, but also, and not in the least, between all
different kinds of phoning technologies and devices) that makes that contacting people through
voice (and also possible through view) is such a success!!! The moment VoIP came into the
market it already had a critical mass, because every person that uses the traditional net can be
phoned through VoIP (then it is not possible to phone for free as you need not only to have
internet connection but you will have to pay for the connection using the copper or mobile net).
Nevertheless there are two conditions to which standards have to satisfy to stimulate rather then
to slow down a new technology:81
The standards must be developed at the same speed as the demand of the market.
The standards must involve all parties with interests, or they will not be general accepted.
Through standards interoperability is secured and thus the network will gain size. Also these
standards will work optimal in a universal regulating framework. Once these standards are fixed,
plural companies will start supplying, with minor differences/ differentiations in between the
standard, the new technology. 82
When standards and norms are defined this will have grave influences on the rules of the game
between the different market players. One shall (ALBRECHT, 1999, p. 58):
have a bigger network en thus stronger network externalities;
have a diminished uncertainty within the potential clients and thus swifter acceptance;
have more problems to lock-in clients so future competition will be more intense;
fight for a share of the market in a later faze, in stead of fighting for the whole market during
the market introduction;
compete with each other through prices and not through properties; most of these
properties are after all already defined and thus can be differentiated any more;
try to offer extensions, that are not defined in between the norm yet and thus can be
The development of standards for VoIP has been going on since the middle of the 1990s. Early
gateways were based on proprietary protocols and could not communicate with gateways on
different networks (ADAMS & BHALLA, 2005):
The ITU (already discussed in chapter three) recommended the H.323 standard enabling
interoperability between IP and PSTN gateway vendors. While this standard takes care of
packetization and interoperability between PSTN and IP networks, it has problems dealing
81 ETSI (Consulted 2004 16 April), Want to know about ETSI?
82 ETSI (Consulted 2004 16 April), Want to know about ETSI?
Network economics in telephony markets
with large user groups and is more suited to multimedia applications. As subsequent versions
of H.323 were released the problem of inoperability between different products that used
different H.232-compliant versions emerged. Although H.323 is the most widespread
standard used in VoIP it is expected to have a short life.
The Internet Engineering Task Force (IETF) has developed the Session Initiation
Protocol (SIP) as a better alternative to H.323, explicitly designed for the IP environment.
SIP does seems to become the long term standard for VoIP as it has won endorsements
from major U.S. carriers such as Level 3, Qwest and MCI, as well as from software vendors
such as Microsoft.
Media Gateway Control Protocol (MGCP) is an alternative standard from the IETF,
designed to overcome in short term the shortfalls of H.322. In August 2000, an agreement
was reached by the ITU to supplement the H.323 family of protocols and integrate MGCP
into a protocol called Megaco, also known as H.248 protocol.
Nowadays most gateways and equipments on the market support H.323 protocols. However,
Megaco is likely to be adopted in some form as some products that use this standard have been
launched. While proponents of these three main protocols (H.323, SIP and Megaco) continue to
advertise their standard, SIP is being adopted by all of the mainstream IP telephony vendors, a
sign that it most probably will be the successor to H.323 (ADAMS & BHALLA, 2005).
When one defines standards one gains interoperability and clients from different technologies
will thus not get locked-in and will have more faith in the new technology. The question is who
gains with defining standards and who does not?
What are the consequences of defining a norm for consumers, manufacturers, known companies
and new entrants? These questions will be coped with in the next subparagraphs one by one:
The advantage for customers is that they do not need to fear to get locked-in. They do not
have to guess in advance which of the competitors products will win. Besides they will also
take profit and greater utility out of the bigger network. However there is also a drawback
because manufacturers will be restricted by the norms and thus will offer less variety.
For the manufacturers it is extremely important whether or not their product is within the
defined norm. In most cases they will try to influence the choice and definition of the norm.
A known company with a huge, fixed clientele has the most to lose if norms get defined.
Normally the known big brands will try to stop standardization.
The new entrants normally welcome the norm as there users will then be part of a large
sized network. There are no more doubts whether or not they will attain the critical mass.
In this case one shall first cooperate to define the common norms. But once these agreements
are made one shall start competing with each other within the norm to get the biggest share of
the market. The term coopetition combines the tensions between cooperation and competition
that are gravely present in network industries (ALBRECHT, 1999, p. 238).
This is also what is happening now in VoIP. Once standards will be defined and the market is
growing exponentially, every player on the market shall try to get the biggest part of the market.
The colleagues from now or the competitors of tomorrow!
Chapter 7: Security issues
In this chapter we will describe some security issues and, also, some QoS problems. Before we
will see in chapter eight more data, numbers and graphs, we have been given in the first chapters
(2 till 6) a sharp view of the technological possibilities of VoIP. VoIP s regulating obstructions,
the current players and their competitors in the telecommunication market. However, security
has to be treated as it is an important factor for companies to decide whether or not to make the
transition to VoIP (as stated in figure 7.1. uncertain voice quality, single point of failure and
network security are real inhibitors for CIO s83 to make the jump to VoIP).
Figure 7.1. Inhibitors to VoIP adoption in the Enterprise (WIEDEMANN & KNÄBCHEN, 2005, Slide 5)
As voice and data converge on a single network, security of this network infrastructure is a key
issue. Security has often been cited as an obstacle for implementing VoIP. Managers fear that
that voice servers would go down or get bottlenecked and so the QoS would go down or stop all
together. The odds of congestions can gravely be lowered but they can not be eliminated
(ADAMS & BHALLA, 2005).
The term Quality of Service (QoS) in reality covers a set of solutions to make sure that VoIP
traffic gets a preferred status in the network, so that voice has no delays, if this can avoided. This
preferred status is granted because different applications have different time sensitivity, mission
criticality and performance reliability (a half a minute of silence in a conversation is
unacceptable). To improve the overall quality of the transmission, more bandwidth is the easiest
solution though, though giving a weighed importance (preferences), a network management of
QoS will emerge (AGORIA-FEBELTEL & BELTUG, 2005, p. 24).
83 The Chief Information Officer is the title for the manager responsible for IT within an organization.
When the quality of telephony has to be measured, one has to be aware of the fact that such is
dependent of the (AGORIA-FEBELTEL & BELTUG, 2005, p. 24-27):
Quality of service in the terminal;
Quality of service in the LAN;
Quality of service in the WAN/VPN;
Delay which is constituted out of four important elements:
Propagation delay is the time the signal needs to travel the physical distance from end-to-
end. When traffic has to go a long way, ensure that the taken path is as direct as possible;
Transport delay is the time spent inside each of the devices in the network one has to
reduce the number of hops and try to reduce the latency in the devices delay the most;
Packetisation delay is the time needed for the codec to compress or convert the data;
Jitter buffer delay is used to rub out the variations in packet arrival rates.
Knowing what causes a delay is a first step in solving the problem. Security concerns result from
many aspects of the VoIP technology and because of the importance of voice communications
within the enterprise and comprise (AGORIA-FEBELTEL & BELTUG, 2005, p. 29-30):
Toll fraud where crackers crack into the system to make free long distance calls.
Confidentiality. Fake identity; learning private or critical information.
IP security items.
VoIP turns phones into applications that have inherited PC vulnerabilities such as
SPAM (vendors focus on reliability, voice quality and features; less on security).
Lack of a (standard) VoIP security framework.
Denial of service has a significant business impact.
As VoIP introduces new risks to the enterprise, it should become a part of the enterprises overall
security plan. One should first think about the security requirements (an example can be seen in
table 7.1.) to come up with a focused action plan.
Voice over IP Voice Data &
High protection of
According to call Same access control
Confidentiality call data records
protection level like other systems
Same voice quality High protection of Same integrity like
than standard number plans other systems
According to specific High availability of
Availability High availability
business requirement data and applications
Table 7.1. VoIP Security Requirements (WIEDEMANN & KNÄBCHEN, 2005, Slide 10)
The focus plan depends on the requirements of security (confidentiality, integrity and availability)
and in how far these requirements have been reached in the different sub services of the voice
and data traffic network. You have to overlook the communication channels in the whole
enterprise and try to cover on average a balanced security level. As a chain is only as strong as its
weakest link, one should assess the sub services and make sure none of these deviate too much
from the targeted security level. Such a matrix to overlook and asses the different sub services of
a company are depicted in figure 7.3., hereunder (WIEDEMANN & KNÄBCHEN, 2005, Slide
Figure 7.3. Balanced Communication Channel Security (WIEDEMANN & KNÄBCHEN, 2005, Slide 11)
A security framework will have to be set up and the management should look at the least to the
following sub divisions (AGORIA-FEBELTEL & BELTUG, 2005, p. 31-34):
1. Securing the Infrastructure
1.1. Separate voice and data into virtual LANs (VLANs).
This is normally done to provide more efficient bandwidth utilization, but now it is to
separate the two networks for security purposes. This gives a better overview over the
voice traffic, as well as the ability to prioritize delay-sensitive voice traffic using QoS.
1.2. Use intelligent firewalls that understand voices.
1.3. Employ strong security for management and administration.
Often security policies can be compromised by employees that should enforce them.
1.4. Secure remote offices.
Remote workers need full access to corporate assets, but this must be ensured by
converged network security technologies such as voice- and video-enabled VPN.
2. Securing IP Telephony Equipment
2.1. Harden the IP phones.
Use embedded security features (signed firmware images and signed configuration files)
of IP phones and use additional settings to protected insecure modifications.
2.2. Harden desktops and servers.
Use not only perimeter firewalls and signature-based anti-virus solutions, but also host
based intrusion prevention software.
2.3. Harden call management software.
Like any other server the unused services of the IP telephony server should be disabled.
The host-based intrusion prevention software should be used to give further protection.
3. IP Telephony Authentication and Encryption
One of the major threats to the network are unknown devices. To overcome this problem,
IP phones must be well-known to the network (some IP phones contain unique digital
certificates). In a first stage access can be limited to those phones with known (or trusted)
certificates while in a second stage the IP phones themselves can be configured to only trust
and connect to servers with specific certificates.
Before concluding this brief chapter about the nevertheless very important topic of security I
want to give you some essential topics that will always come back regarding security of a VoIP
network in a company (AGORIA-FEBELTEL & BELTUG, 2005, p. 30-31):
Any really practiced security policy is more important than even the best security system.
Security should be built in layers to avoid that the system compromises cascading once one
has intruded in one weak point.
The VoIP security strategy and data security strategy are interdependent.
Regular security assessments are vital to ensure true protection against new threats.
A perfect security system doesn t exist: security is a balance between risk avoidance and cost!
We can conclude this chapter by saying that IP telephony and VoIP can bring many benefits to
the enterprise today, but that a secure foundation of this telephony system must be obtained.
The new single network of voice and data introduces a level of vulnerability to the voice network
that did not exist before (though you could see upon this risk as an opportunity to improve your
security policies, processes and infrastructure of voice, data and video applications) (AGORIA-
FEBELTEL & BELTUG, 2005, p. 29-30).
Given the risks, any corporation must conduct a thorough evaluation of its security
infrastructure before deploying any IP telephony or VoIP solution. The design and
implementation of such a security plan should bring extra focus on the organization s overall
security, and it may even serve to improve security levels as a whole but the policy and
infrastructure must be implemented. Though VoIP can hold many advantages if one want to
implement it in a secure way, it does not come for free! Whether or not this is interesting
depends on how much advantages VoIP beholds for the company in specific.
Figure 7.4. Cartoon84
Glasbergen, Randy (2002, Consulted 2005 23 March), Cartoon.
The future of IP based phoning
Chapter 8: The future of IP based phoning
In this penultimate chapter we shall discuss the evolution of IP telephony and VoIP while I will
give some figures to endorse my findings and outline my vision on future evolutions in the
telephone market. I will finalise this chapter with an overview of the passed seven chapters.
1. Numbers and their evolution
As always, we will divide our analysis to individuals and companies where our special interest
goes to the numbers given for the enterprises.
The amounts of individuals that use the internet, and thus potential users of VoIP, are mostly
people up to 45 years old (table 8.1.). As woman use the internet more to communicate with
their friends (trough email or chat sessions), it is not impossible to pretend they will also discover
the Skype s and MSN s of today to use the internet as a telephone operator to call their friends.
Age Man Woman
15-24 392 000 496 000
25-34 616 000 624 000
35-44 540 000 316 000
45-54 364 000 232 000
55-64 228 000 96 000
64+ 80 000 40 000
Table 8.1. Belgian internet population (FOD Economie, KMO, Middenstand en Energie, 2005)
As for individuals, the decision to Skype can not hold great disadvantages. For companies, this
could be the case (the infrastructure involved is more expensive and not yet available in the
company most of the times). So the decision to use IP telephony and VoIP is a better-considered
and preoccupied decision for companies then it is for individuals (as can be seen in figure 8.1. in
the months companies take to investigate, plan and test these solutions).
Figure 8.1. Deployment of VoIP in the Enterprise (WIEDEMANN & KNÄBCHEN, 2005, Slide 3)
The future of IP based phoning
It may be clear something is changing: VoIP and IP telephony seem to be in a rollercoaster (as
can be ascertained in figure 8.2. at the left). The transition to this new network started some 5
years ago and was in the first place mainly cost driven. Further on, bandwidth prices and IP
based network costs are dropping fast (ACCENTRURE, 2005, Slide 10).
The validation of the exact cost cuttings a company can attain differ from source to source, and
will fluctuate from company to company as every enterprise has a different cost structure. But I
will depict one of these many validations of possible cost savings in figure 8.2., on the right.
Figure 8.2. Enterprise Infrastructure Transformation (ACCENTRURE, 2005, Slide 10)
In a first place, the transition to IP telephony and VoIP was interesting because of the lower
charged rates, but as prices go down in the traditional telephone solutions, this reason gets less
important (in figure 8.3. one can see that carriers overall voice and data revenues are declining,
though the average expenses on IT of a company incline continuously).
Figure 8.3. Service Provider Losing Proposition (ACCENTRURE, 2005, Slide 12)
The cost benefit that drove the initial incentive will not be long lasting, as the charged rates of
the traditional operators are falling rapidly. Service providers will, therefore, have to differentiate
their services so people and companies see the advantages of the added services they can obtain
by converging to a single network.
The future of IP based phoning
Some of the advantages of VoIP for a company are: increased flexibility, infrastructure
consolidation, reduced management and administration, as well support for advanced features.
However, there are some disadvantages as upfront infrastructure investment, risk management,
and there may be interoperability issues between vendors. Nonetheless, as all major vendors and
operators are committing in VoIP, one can suppose that most of these issues will be addressed
soon enough (ADAMS & BHALLA, 2005).
Voice and data convergence based on IP telephony and VoIP will be at least considered in more
than 95 percent of major companies by 2010. Some people even state that 95% will actually have
taken the leap (HAFNER, 2005), but that, is my humble opinion, a very optimistic vision.
However, it is true that all major organizations should at least be testing a converged network
today to see whether or not the benefits exceed the costs.
The long-promised convergence of voice and data onto a single network is becoming more and
more a reality. Many large and midsize companies have tested IP telephony and VoIP, and will
begin migrating in the next few years. But it will take many more years before all businesses
complete this transition.
Eventually, a great part of the businesses will switch to this new telephone network, but the
challenge of today is to decide when the time is right for a certain company. Businesses will have
to assess the pros and cons of each technology and trade these off against the financial
ramifications and technological benefits of switching. (HAFNER, 2005)
2. An overview
While looking back at what we already saw in this thesis, we remember that the first chapter
was merely an introduction of the exact scope of this thesis, and a defining of the roadmap we
would follow to answer are questions.
In the second chapter we have given a historical overview of how the telephone industry
evolved so far and we gave a concrete definition of IP telephony and VoIP. This is important as
our main focus in this thesis goes to VoIP. How will companies (and individuals) cope with this
new possibility? And how will this inflect the other players of the telephone market?
In the third chapter we then talked about the Belgian and European regulations and regulating
bodies that affect VoIP. The New Regulating Framework that the European Union introduced
seems to be more adaptable to new technologies such as VoIP.
In chapter four we have given a more practical insight of what VoIP can mean for individuals,
and in this way we presented some of the features possible with IP based telephony that are also
very important services for companies. We concluded this chapter by comparing the pros and
cons of VoIP. It seems that every distinct company has to do this exercise self, to decide
whether or not the profits will outbalance the costs of the implantation of this new telephone
In the fifth chapter it seemed time to introduce the different agents of the telecommunication
market. We used the model of Porter to get a first insight into this market and then used a
SWOT analysis for VoIP to see how strong VoIP is seen its competitors. Where are his
The future of IP based phoning
strengths, weaknesses, opportunities and threats? Then we gave a comparison between some of
the features of VoIP and its competitors.
To understand the importance of the decision of transition to VoIP we used the strategic Grid
of McFarlan and McKenney. This grid will help to understand the importance of this transition
for your company strategy in the long term. The strategic alignment model let us see how IT can
change the future of a company if visionary used. We ended this chapter by trying to forecast the
direct future of this market.
In chapter six we discussed network economics, as the phoning industry is subject to this
economics. In the last paragraph of this chapter I discussed standards in VoIP and the
importance of these standards. It is thanks to these standards that voice can be digitalised and
put again into understandable vibrations. It is thanks to these standards that different software
can interact to send and receive voice packages. Ant it is thanks to the interoperability of these
different software packages that voice, pictures and data, all kind of formats in other words, can
be send over the internet.
In chapter seven I presented some of the security risks of VoIP as they are also an important
specification in companies decision whether or not to make the transition to the single voice
and data network. Given the risks, any corporation must conduct a thorough evaluation of its
security infrastructure before deploying any IP telephony or VoIP solution. Though VoIP can
hold many advantages if one wants to implement it in a secure way it does not come for free!
Whether or not this is interesting, depends on how much advantages VoIP holds for the
company in specific.
In this chapter we have tried to outline the evolution of IP telephony and VoIP by giving some
data, numbers and charts. And recapitalize what we have seen in this thesis so far so we can start
reading the conclusions with all examined aspects fresh in memory.
Finally in the next chapter, conclusions, I will describe my views about the future use of VoIP.
Also I will, given these expectations of the popularity of VoIP for professional and non-
professional users, give my opinion for the changing market shares and market powers in the
Chapter 9: Conclusions
Will VoIP become more then a hype? I do think so. Will it become ubiquitous and displace all
other telephone solutions. Absolutely not, but it will work together with the fixed and mobile
network till the point that it becomes difficult to say as a user, whether you are using the IP
based network, the mobile network or the fixed line network to transport voice, data or video or
to go onto the internet.
For individuals VoIP is a very interesting way of cheap phoning (this is when one has already
an internet connection at home). But though the first idea is one of solely cost savings, in time
more and more people will get used to the additional services that arise with this new
technology. Whether or not individuals move to VoIP thanks to the greater competition lately
(not only from VoIP but also from companies who lease lines from the incumbents) call charges
have dropped and they will normally not rise again.
In a simplistic way this is also true for companies: they can cut costs by converging to one
network, and because they do not need to lease trunk lines anymore and they can take advantage
of the flexibility of integrated data, voice and video. But one should not forget that there also a
lot of conversion costs that float to the service: companies need skilled people, the IT
infrastructure, the security process and the right management culture to make the profitable
decision to convert to a single network of voice and data. Furthermore, in the short term, it
seems not yet that compelling to companies to make the investments of a new system as the old
system is still in place and working.
The migration to IP telephony or VoIP can nevertheless be good for a company, when it brings
competitive advantages to this company and brings them overall profit. Every company should
make a list of costs and gains from the conversion to a single data and voice network and then
make the sum for itself, but whatever this decision will bring, it is time to make the exercise!
Businesses considering IP telephony will struggle in the short term to make all the necessary
preparations. Companies that are integrating their voice and IT systems must cease this
opportunity to use the new IT enabled VoIP services to gain competitive advantage.
Business starting to use VoIP will drastically affect the telecom industry: call charges will
continue to decline, and mergers and acquisitions among operators will be a common
occurrence. At a minimum, it will change service provisioning and rating schemes; telephone
numbering constructs; inter carrier compensation mechanisms; universal service policies; rules
governing national security, privacy and content delivery, and the provisioning of emergency and
lifeline services. These changes will affect all telecom service providers, other industries (software
vendors) and how end users obtain and pay for services (HAFNER, 2005).
Some observers believe that the long term future of the fixed line network is to be just one
application of the internet. But as the QoS can be guaranteed in the PSTN at least some niche
markets will stay open for them. For the moment millions of lines and telephones are not written
of yet and still fully operational, so any distinction vision is not for immediate at the least.
In the case of the mobile network, the most striking trend is the fading lines between internet
based and mobile connections. A GPRS or UMTS enabled mobile phone can surf onto the
internet through the mobile network, or use a hotspot to get connected to the internet. Here you
get the strange situation where the mobile phone could go onto the internet to use VoIP to
Mobile operators who will use the internet are only one part of the story as internet providers
are also trying to become telephone operators. Telenet and Belgacom for instance have made an
official request to get the licence of a telephone operator which should be legally in order in
September 2005. It may be clear that the line between operators and providers is fading.
Maybe you should think of an integration of mobile, fixed and internet and take all best services
and create a mobile and fixed possible internet connected solution for voice, data, video and all
added features and values, and you kind of describe what the future will be and should be like.
The convergence of services, providers and service offerings are all blurring the boundaries
between local voice, long distance voice and wireless voice, data and video.
We see technological barriers becoming weaker and competition for these services increasing, Frank
Louthan, vice president equity research, Raymond James Financial, Inc. said. A s the
RBOCs85 integrate their offerings with satellite providers through joint ventures, the cable operators roll
out telephony services, wireless data becomes a larger mass-market offering, and other new technologies
complicate matter further, we believe their regulatory community should be aware of the impact these
trends will have on the industry participants, investors, and consumers.
(ELECTRONIC COMMERCE NEWS, 2004, p.4).
But maybe it is time to unleash some doubt about whether or not the growth rate of the internet
as it is now is bearable (TIBERGHIEN, 2003, Chapter 6, Slide 58)?
Seen the large amount of traditional phones, one could wonder whether or not the
traditional internet could cope a victory over the traditional telephone operators? Can they
expand to the necessary bandwidth to serve all these potential users? The present internet
will certainly have to restructure to survive a victory over the traditional telephone operators.
And finally you can wonder whether or not traditional telephone operators themselves will
move their traffic to the internet and build there own network or make arrangements to lend
network bandwidth from internet providers?
This can also be translated to the intranet in a company: the same limits of growth will pose
problems here (that is why outsourcing with scalable solutions can be attempting).
Conclusive I just want to state that we now live through some interesting and challenging times.
The boundaries between different communication technologies blur, leaving us with a lot of
questions, but also with a lot of possibilities if handled well. A company can use VoIP to gain,
not only by cutting costs, but also by enabling a strengthened IT system to gain strategic
importance in the company and competitive advantages in the market.
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Annex 1: Glossary of all abbreviations
ADSL Asymmetric Digital Subscriber Line (ADSL) is a form of DSL and enables
faster data transmission over copper telephone lines than a conventional
modem can provide. ADSL has the distinguishing characteristic that the data
flows faster in one direction than in the other (asymmetric in available
bandwidth). This makes ADSL interesting for people who want to download
fast from the internet and who do not want to upload much.
BIPT The Belgian regulatory body for postal services and telecommunication.
CCPC The Civil Communications Planning Committee.
CEPT Since 1992 the European Conference of Postal and Telecommunications
Administrations has been solely occupied with subjects of a regulatory nature.
Within CEPT two committees have been established: CERP (for the postal
regulation) and ECC (subdivided in ERO for radio communications and ETO
CIO The Chief Information Officer is the title for the manager responsible for IT
within an organization.
CLI Caller Allocation Information used by the emergency authorities to send,
among other things, ambulances.
DSL Digital Subscriber Line (DSL) is a family of technologies that provide a digital
connection over the copper wires of the local telephone network. A digital
signal can be transmitted over unused frequency spectrum, so a phone line can
provide digital communication without blocking access to voice services.
ETSI The European Telecommunications Standards Institute was set up in 1988 to
produce technical standards with respect to telecommunications. The Institute
unites 617 members from 56 different countries and with different interests:
administrations, operators, manufacturers, service providers, universities,
research bodies and users.
EU The European Union (EU) is a working together of twenty-five European
countries, amongst which is Belgium. It is not an institution that replaces
existing states, but a part of these members sovereignty is delegated to the EU
so that decisions on specific matters of joint interest can be made
democratically at a European level.
FMSC The Frequency Management Subcommittee.
GPRS The General Packet Radio Service (GPRS) is a packet switched data
transmission protocol which was added into the GSM standard in 1997. It is
backwards compatible with systems that use standards from before 1997.
GUI The Graphical User Interface is a method of interacting with a computer
through more then texts, but also by direct manipulation of graphical images.
HLR The Home Location Register (HLR) is a central database that contains details
of each mobile phone subscriber of an operators network.
IETF The Internet Engineering Task Force.
INTELSAT The International Telecommunications Satellite Organization, founded in
1964, is the owner of a global satellite communications system that offers
capacity in over 200 countries and territories for telephone services, services
for private and corporate networks and also for audiovisual services and
Internet via satellite. The BIPT participates whenever regulatory issues are
discussed, such as the liberalisation of the telecommunications sector or
compliance with competition rules by operators of satellite communications
IP The Internet Protocol (IP) is a data-oriented protocol used by hosts for
communicating data across the internet. Data are then sent in blocks referred
to as packets. Thanks to this protocol no setup is needed between the sending
and receiving host before data (packets) is send.
IRG The Independent Regulators Group has been established in 1997 by European
regulators to allow them to share their experiences and their opinions on issues
of common interest such as interconnection, prices, universal service, and so
ISDN Integrated Services Digital Network (ISDN) is a sort of circuit switched
telephone network system, designed to pass digital transmission of voice and
data over ordinary telephone copper wires.
IT Information Technology (IT) or Information and Communication Technology
(ICT) is the technology to process information (convert, store, protect,
process, transmit, and retrieve) trough using computers and software.
ITU The International Telecommunication Union is an intergovernmental
organisation in which the public and private sectors collaborate to realise
developments in telecommunications and harmonisation in
telecommunications policy in member states. She helps to prepare norms for a
new worldwide information infrastructure and facilitates and stimulates the
development of telecommunications worldwide.
LCR Least Cost Routing.
MGCP The Media Gateway Control Protocol.
NAT Network Address Translation rewrites the source and/or destination addresses
of IP packets as they pass through a router or firewall. Normally it is used to
enable multiple hosts on a private network to access the internet using a single
public IP address.
NATO The North-Atlantic Treaty Organization.
NCA The National Competition Authority.
NRA The National Regulatory Authority.
NRF The New Regulatory Framework.
OECD Since 1961, the Organization for Economic Cooperation and Development s
objective has been to strengthen the economy in its member states, improve
their efficiency, stimulate the market economy, develop free trade and
contribute to growth in industrialised and developing countries.
PABX A Private Automatic Branch eXchange (PABX) is a full automatic telephone
switching centre that is owned by a private business (a company that has intern
lines). When a PABX is used the company does not need to connect all
telephones separately to the public telephone network. A PABX can convert
analogue voice to digital data.
PDA A Personal Digital Assistant (PDA) is a handheld device that was originally
designed as a personal organizer, but became much more versatile over the
years. A basic PDA usually includes a clock, date book, address book, task list,
memo pad and a simple calculator. One major advantage of using a PDA is its
ability to synchronize data with desktop, notebook and desknote computers.
PATS Publicly Available Telephone Service.
POTS The Plain Old Telephone Service (POTS) is the traditional network of fixed-
line analogue circuit-switching telephones.
PSTN The Public Switched Telephone Network (PSTN) is the network of fixed line,
circuit switching telephones and is almost entirely digital (except for the final
link from the local telephone office to the user) and includes mobile as well as
PTN Public Telephone Network.
QoS The term Quality of Service (QoS) refers to the probability of a packet (voice
or data) getting to its destination (also used to measure whether or not a
network meets a given traffic contract). Such a packet transfer can suffer
different problems as dropped packets, delayed arrival, unordered packets
delivery or even no delivery at all. If video, telephone and data flow over one
network then voice packets have to be prioritized as problems as a delay in
conversation is not acceptable (a little delay in your e-mail system will urge less
RBOCs Regional Bell Operating Companies.
RPT The Real-time Transport Protocol defines a standardized format for delivering
audio and video over the internet.
SIM A Subscriber Identity Module (SIM) is a smartcard securely storing
information about the mobile subscriber such as its current location area and
securely storing information for the mobile subscriber such as text messages
and a phone book. This SIM card can be easily moved from one handset to
SIP The Session Initiation Protocol.
SMP A company is said to have Significant Market Power (SMP) if, either
individually or jointly with others, it enjoys a position equivalent to dominance
(a position of economic strength thanks to which it can greatly act
independently of competitors and customers). SMP is normally only
considered where the market share exceeds 40%. Where the market share
exceeds 50%, SMP is presumed to be present.
VoIP Voice over IP (VoIP) allows you to make telephone calls using an IP enabled
network. The voice signal is converted into a digital signal that travels over the
internet and is converted back to a voice signal at the receiving end.
VPN A Virtual Private Network is a private communications network usually used
within a company communicating over a public network. VPN message traffic
is carried on public networking infrastructure such as the internet using
standard protocols. If cryptography is used, secure VPNs provide the
necessary confidentiality, sender authentication and message integrity.
VSL A Virtual Second Line.
WAN A Wide Area Network is a computer network covering a wide geographical
area, involving a lot of computers (for instance the internet).
WTO The World Trade Organization deals with the trade rules between nations. The
WTO agreements form the legal basis for international trade and trade policy.
The three primary objectives are to promote free trade to maximum effect, to
gradually continue the dissemination of liberalisation through negotiation and
to introduce an approach to settle disputes.