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VoIP for companies in Belgium

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    VoIP for companies in Belgium VoIP for companies in Belgium Document Transcript

    • 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
    • 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!!!
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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. URL: https://secure.skype.com/store/buy/skypeout.html 49 Skype (Consulted 2005 27 April), LOGON. URL: https://3ds-par-ab.fortisbanking.be/PAReq.asp 50 Skype (Consulted 2005 27 April), SIGN. URL: https://3ds-par-ab.fortisbanking.be/pareq.asp 27
    • 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 1.2.0.48), SkypeTM eiblinmatthys. 52 Skype (Consulted 2005 28 April), My Skype Account Overview. URL: https://secure.skype.com/store/myaccount/overview.html 53 MSN Messenger (MSN Messenger version 7.0), MSN Messenger. 28
    • 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 generated traffic. 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. 29
    • 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. URL: http://www.cirilium.com/company.html 57 Cirilium (Consulted 2005 1 May), Cirilium Home. URL: http://www.cirilium.com/solution/net_diagram.html 58 Cirilium (Consulted 2005 1 May), Cirilium Home. URL: http://www.cirilium.com/solution/carrier_network.html URL: http://www.cirilium.com/solution/enterprise_network.html 30
    • 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 company. 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. 31
    • 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 Scalable Viruses Cost Savings Resulting From Regulatory CIMS 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. URL: http://www.fcc.gov/voip/ 60 Bellen.com (2005 18 January), Bellen via het internet. URL: http://www.bellen.com/div/document.asp?id=9073&taal=nl&land=nl 61 Wikipedia, the free encyclopedia (Consulted 2005 1 May), Voice over IP. URL: http://en.wikipedia.org/wiki/VoIP 62 Cirilium (Consulted 2005 1 May), Cirilium Home. URL: http://www.cirilium.com/solution/esp.html 63 Cirilium (Consulted 2005 1 May), Cirilium Home. URL: http://www.cirilium.com/solution/cims.html 64 Cirilium (Consulted 2005 1 May), Cirilium Home. URL: http://www.cirilium.com/solution/web_voice.html 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. 32
    • 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. Security 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). Redundancy A synchronized database, when the redundant server can not access the master server, the control switches over to the redundant server. URL: http://www.cirilium.com/solution/nat_proxy.html 33
    • 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. Interoperable equipment 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 eiblinmatthys@skype.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. URL: http://www.cirilium.com/solution/web_phone.html 68 NetworkWorldFusion (Created 2002 25 February, Consulted 2005 1 May), IP phone interfaces. URL: http://www.networkworld.com/gif/2002/siemens_conference.gif 34
    • 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. URL: http://www.cheap-wireless-accessories-nokia.com/101cellphone_1697_2921775.gif 70 Marconi (Consulted 2005 1 May), Home. URL: http://www.marconi.com/Home/press_office/News%20%26%20Events/News% 71 Intelligent Home Solutions (Consulted 2005 1 May), website intelligenthomesolutions. URL: http://www.intelligenthomesolutions.ca/images/web%20phone.jpg 72 Glasbergen, Randy (2004, Consulted 2005 23 March), Cartoon. URL: http://www.glasbergen.com/images/g109.gif 35
    • 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. 1. Players 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 does. 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). 36
    • 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 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) the city. 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). 37
    • The different players in their market 1.3. VoIP 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. 1.4. Regulators 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. URL: http://www.voipproviderslist.com/country/voip-belgium/voip-providers-belgium/2/ 74 This is a computer that connects to the internet via a telephone line using a modem. 75 Thuraya, Satellite Internet and VSAT (Consulted 2005 5 May), Belgium Proximus Mobile VoIP solutions. URL: http://english.thuraya.pl/voip.php?country=Belgium%20Proximus%20Mobile 38
    • 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). 39
    • 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 Fixed (lines) Mobile (masts) Internet (lines) Bargaining power Bargaining power suppliers customers Telephony IP phones manufacturers Individual customers Hardware suppliers Fixed/mobile Professional customers Software suppliers Danger of substitutes VoIP IP telephony 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 40
    • 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. 41
    • 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). 2.1.4. Substitutes 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. 42
    • 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. Strengths Weaknesses Cost reduction The quality is not always supreme Possible to plug in on traditional Good internet connection needed network Added services Integration with other data services Opportunities Threats Added value for customers Regulation can change things One integrated platform for voice, vision, data Substitute the present infrastructure Lacking of regulations Table 5.2. SWOT analysis of the VoIP technology. 2.2.1. Strengths Cost reduction 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 43
    • 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. Added services 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. 2.2.2. Weaknesses 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. 2.2.3. Opportunities 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. 2.2.4. Threats Regulation can change things 44
    • 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 regulated technology). A competitive analyse for the phoning industry Type Presence in Technological Regulating Added Perceived provider the market capacities position services price Fixed with ***** ***** * ** *** infrastructure Fixed without ** ***** ** ** **** infrastructure Mobile with ***** ***** * *** * infrastructure Mobile without ** ***** ** *** ** infrastructure 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 45
    • 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 46
    • 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 phone call. 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). 47
    • 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 77 Glasbergen, Randy (2002, Consulted 2005 23 March), Cartoon. URL: http://www.glasbergen.com/images/g554.gif 48
    • 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. 1.1. Definitions 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. 49
    • 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: b(ne); 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 50
    • 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 HOVE, 1999a). 79 The critical mass is pointed out on the migration path that is depicted in chapter 5, subparagraph 2.2.1. 51
    • 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. 1.3.4. Compatibility 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. 52
    • 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 professional users). 53
    • 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 deeper analysis. 2. Standardization 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 differentiated. 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? URL: http://www.etsi.org/about_etsi/5_minutes/home.htm 82 ETSI (Consulted 2004 16 April), Want to know about ETSI? URL: http://www.etsi.org/about_etsi/5_minutes/home.htm 54
    • 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). 2.1. Interoperability 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. 2.2. Coöpetition 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! 55
    • Security issues 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. 56
    • Security issues 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 & Voice Service Applications High protection of According to call Same access control Confidentiality call data records protection level like other systems (privacy) Same voice quality High protection of Same integrity like Integrity 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 11). 57
    • Security issues 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! 58
    • Security issues 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 84 Glasbergen, Randy (2002, Consulted 2005 23 March), Cartoon. URL: http://www.glasbergen.com/images/g638.gif 59
    • 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) 60
    • 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. 61
    • 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 system. 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 62
    • 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 phoning industry. 63
    • Conclusions 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 64
    • Conclusions get the strange situation where the mobile phone could go onto the internet to use VoIP to phone somebody. 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. 85 A RBOC is a Regional Bell Operating Company. 65
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    • Annexes Annexes 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 for telecommunications). 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 69
    • Annexes 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 systems. 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 forth. 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- 70
    • Annexes 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 fixed telephones. 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 irritation). 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 another. 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. 71