VoIP for companies in Belgium

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VoIP for companies in Belgium

  1. 1. 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 Eiblin Matthys Promoter Prof. Dr. L. Van Hove
  2. 2. Acknowledgement Acknowledgement 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!!!
  3. 3. Table of contents Table of contents ACKNOWLEDGEMENT ................................................................................................................ 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 I
  4. 4. Table of contents CHAPTER 5: THE DIFFERENT PLAYERS IN THEIR MARKET .........................................36 1. PLAYERS....................................................................................................................................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 BIBLIOGRAPHY ..........................................................................................................................66 ANNEXES .....................................................................................................................................69 ANNEX 1: GLOSSARY OF ALL ABBREVIATIONS ..................................................................69 II
  5. 5. Introduction 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. 1. Scope 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 providers5. 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. URL: http://en.wikipedia.org/wiki/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 end. FCC Federal Communications Commission (Consulted 2005 1 May), Voice-Over-Internet Protocol. URL: http://www.fcc.gov/voip/ 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. URL: http://europa.eu.int/abc/index_en.htm 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. 1
  6. 6. Introduction 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 services. 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. URL: http://en.wikipedia.org/wiki/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). 2
  7. 7. Introduction 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 telephony market. 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. URL: http://www.cartoonstock.com/lowres/ksm0792l.jpg 3
  8. 8. Introduction 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. 2. Structure 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 VoIP. 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 not? 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 solutions. 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 market. 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 phoning technologies. 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. URL: http://searchnetworking.techtarget.com/sDefinition/0,,sid7_gci214316,00.html 10 Coopetition is the simultaneous behaviour of cooperation and competition (DAGNINO & PADULA, 2002, p.2). 4
  9. 9. Introduction 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 11 Glasbergen, Randy (2001, Consulted 2005 23 March), Cartoon. URL: http://www.glasbergen.com/images/g350.gif 5
  10. 10. Definitions 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) 1.1.1. POTS 12 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 telephones. Wikipedia, the free encyclopedia (Consulted 2005 1 May), Plain old telephone service. URL: http://en.wikipedia.org/wiki/Plain_old_telephone_service 6
  11. 11. Definitions 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, Slide 7). 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 satellite). 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. URL: http://en.wikipedia.org/wiki/PABX 7
  12. 12. Definitions 1.1.2. PSTN 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. URL: http://en.wikipedia.org/wiki/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. URL: http://en.wikipedia.org/wiki/ISDN 8
  13. 13. Definitions 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 foreign provider. 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 infrastructure. 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. URL: http://en.wikipedia.org/wiki/ADSL 20 Wikipedia, the free encyclopedia (Consulted 2005 3 May), GSM services. URL: http://en.wikipedia.org/wiki/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. URL: http://en.wikipedia.org/wiki/SIM 22 The Home Location Register (HLR) is a central database that contains details of each mobile phone subscriber of an operators network. 9
  14. 14. Definitions 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. URL: http://en.wikipedia.org/wiki/HLR 23 SearchNetworking.com (Consulted 2005 3 May), PSTN public switched telephone network. URL: http://searchnetworking.techtarget.com/sDefinition/0,,sid7_gci214316,00.html 24 Glasbergen, Randy (2001, Consulted 2005 23 March), Cartoon. URL: http://www.glasbergen.com/images/g320.gif 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. URL: http://en.wikipedia.org/wiki/GSM_services 10
  15. 15. Definitions 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 video conferencing. 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 the neighbourhood you can always connect through the mobile network. 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. URL: http://en.wikipedia.org/wiki/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). URL: http://en.wikipedia.org/wiki/Hotspot_%28wifi%29 11
  16. 16. Definitions 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. Internet Protocol 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) 1.3.1. VoIP 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). 12
  17. 17. Definitions 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.). 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) 13
  18. 18. Definitions 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 VoIP. 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. URL: http://www.voip-calculator.com/forum/voip/thread.htx?thread=2967 29 FCC Federal Communications Commission (Consulted 2005 1 May), Voice-Over-Internet Protocol. URL: http://www.fcc.gov/voip/images/voip_HowItWorks_0203v2.jpg 14
  19. 19. Definitions 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). 15
  20. 20. Regulation 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 not? 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 this market. 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. 16
  21. 21. Regulation 1.1. History30 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: Strategic tasks 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. Regulatory tasks 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. Operational tasks 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 de-mergers. 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. URL: http://www.bipt.be/IBPT/ 31 (EIU ViewsWire, 2003). 17
  22. 22. Regulation Comparative advertising on the other hand is legal thanks to an amendment to the Law of July 14th 1991. 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 telecommunications worldwide. 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 32 BIPT (Consulted 2005 13 April), Institut belge des services postaux et de télécommunications. URL: http://www.bipt.be/IBPT/Relationsinternationales/ 18
  23. 23. Regulation 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. European Union 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 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). 19
  24. 24. Regulation 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. 2.1. History 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). 20
  25. 25. Regulation 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 rolled back. 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 notification documents. 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 versus 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). 21
  26. 26. Regulation 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 possess SMP. 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 established. 22
  27. 27. 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). 1.1. Skype 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. URL: http://www.skype.com/company/ 23
  28. 28. 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. URL: http://www.skype.com/download/ 38 Skype (SkypeTM version 1.2.0.48), SkypeTM - Getting Started Wizard. 39 Skype (SkypeTM version 1.2.0.48), SkypeTM - eiblinmatthys. 24
  29. 29. 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. URL: https://secure.skype.com/store/myaccount/overview.html 41 Skype (SkypeTM version 1.2.0.48), SkypeTM - eiblinmatthys. 42 Skype (SkypeTM version 1.2.0.48), Sophie Deprez (Online) SkypeTM Chat. 25
  30. 30. 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% 36 9% rate > 0,1 en <= 0,2 48 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 28% rate > 0,5 en <= 1 website) should give you a better view on how 123 31% rate > 1 much operators ask on an average. There are 396 operators in total! Figure 4.8. SkypeOut Rates. 43 Skype (SkypeTM version 1.2.0.48), SkypeTM Receiving file 36% completed. 44 Bellen.com (2005 18 January), Bellen via het internet. URL: http://www.bellen.com/div/document.asp?id=9073&taal=nl&land=nl 45 Skype (SkypeTM version 1.2.0.48), SkypeTM eiblinmatthys. 46 Skype (Consulted 2005 27 April), SkypeOut Rates. URL: http://www.skype.com/products/skypeout/rates/ 47 Skype (Consulted 2005 27 April), SkypeOut Rates All Destinations. URL: http://www.skype.com/products/skypeout/rates/all_rates.html 26

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