From Geneva:
VoIP Speaks Up
Transport gives way to applications as IP telephony challenges the status quo
Vesna Tomic, Contributing Writer
Incumbent and competitive facilities-based carriers throughout Europe complain that Internet telephony-based upstarts are cream-skimming their customer base. Yet regulators appear to be in no hurry to impose rules that could slow IP telephony's development.
In fact, new forms of IP-based transport and applications are emerging that could prove more lucrative than the already burgeoning IP telephony and fax communications.
These include IP and Internet telephony communications via wireless handsets, and virtual private networks (VPNs) via the Internet, which would let corporations route voice and data more cheaply than leased lines.
The focus of IP telephony-at least according to industry analysts-is also changing from transport, or merely carrying voice signals over the Net, to applications, which apply digital intelligence to those signals. Regardless, IP telephony takes one of three forms: PC to PC, which uses only the Internet network; phone to PC, which uses the network and an Internet gateway; and phone to phone, which also uses the network and a gateway to bypass the public switched telephone network (PSTN).
Though voice over the Internet was initially considered a dubious commercial service, the European market is now booming as companies capitalize on the technology.
"Wholesale charges to western Europe are now under a dime per minute," says David Greenblatt, chief operating officer at Net2Phone Inc. (Hackensack, N.J.) a voice over IP (VoIP) provider. Significant drops in telephone tariffs also have helped companies like Net2Phone, VocalTec Communications Ltd. (Herzliya, Israel) and Delta Three Inc. (Jerusalem) gain a foothold in the European marketplace. Other players include Premiere Technologies Inc. (Atlanta), Shadowtel Communications Inc. (Mississauga, Ontario), CallWare Technologies Inc. (Salt Lake City) and NetCentric Corp. (Beford, Mass.). All this activity, however, hasn't been without challenges and some roadblocks.
Barriers Don't Stop Progress
In eastern Europe, for example, there are plenty of challenges. Finding resellers is difficult, landline facilities are scarcer and obtaining digital lines is no easy trick. There are problems in western Europe as well. Net2Phone has been unable to integrate its Click2Talk product because phone directories are considered private property in most countries. Privacy laws protect consumers from Internet service providers (ISPs) that have access to their addresses and other personal information. Users in the United States can locate a name on a directory on the Internet and then use the Click2Talk icon to contact that person.
The Revenue Picture
Despite these challenges and others, IP telephony is roaring ahead. It may eventually threaten the domestic and international revenue bases of incumbent carriers, as well as new entrants, according to various consultancy groups.
For example, AT&T is expected to lose $350 million, Kokusai Denshin Denwa Co. Ltd. (KDD, Tokyo) about $300 million and Deutsche Telekom AG some $160 million, according to several market researchers.
Incumbents recognize this threat, but their responses vary from doing nothing, to embracing IP telephony to just thinking about it. Some, like Sonera Ltd. (Helsinki), started offering IP telephony services in late 1996. Others, such as France Telecom, are investigating its significance.
Deutsche Telekom responded quickly to a dramatic wake-up call. One year after competition started in 1998, the PTT had lost almost one-third of its share in the long-distance and international market-more than BT lost in a decade of competition in the United Kingdom.
So Deutsche Telekom spent $48 million to acquire a 21 percent strategic interest in VocalTec, and agreed to purchase $30 million of VocalTec's range of IP and server gateway systems on a quarterly basis.
Economies of Scale
Buying in isn't only a fast way to get into IP telephony, it is also cheaper than building in. A traditional network costs 27 times more to build than a new IP network, VocalTec executives estimate. Networks using IP platforms are also less expensive and easier to maintain. And entrepreneurs can enter a country and set up VoIP capabilities in a relatively short period.
The market is quite lucrative, especially across the Atlantic. The European continent accounts for one-third of a $1 trillion global market for telecom services and equipment, according to the International Telecommunication Union (ITU).
The worldwide market for IP telephony gateways has increased from $250 million in 1998 to $500 million in 1999, and is expected to reach $2 billion in 2001, according to Frost & Sullivan (Mountain View, Calif.).
And IP telephony traffic could reach $10 billion by 2001, accounting for 25 percent of international calls, says Sven-Christer Nilsson, CEO of L.M. Ericsson AB (Stockholm).
Challenges Ahead
These very market changes may cause regulators to seek greater control of the IP market, however.
For one, the bottom-basement prices for VoIP are expected to last only in the short-term because business users will ultimately seek higher quality. Yet IP telephony carriers are expected to continue winning a substantial amount of traffic and revenue from incumbents. At the same time, some large Internet service providers (ISPs) are applying for telephone licenses so they can receive interconnection payments directly.
Although this strategy may work for some, others may not wish to invest millions of dollars in switching equipment or setting up points of presence (POPs). A significant amount of traffic would be needed to justify such an investment.
Nevertheless, the ISPs' assertiveness forces the issue: When will regulatory bodies find themselves compelled to intervene?
Although telecommunications regulation is under the auspices of the Directorate Generale XIII of the European Commission, member states also have their own national regulatory bodies.
In addition to VoIP, high Internet usage costs and national barriers to entry in several areas-taxation, access and data protection, to name a few-are among the issues that the commission must address. "The big debate now is whether voice over IP is a proper voice service," says Nicholas Lansman, head of secretariat at the European Internet Services Providers Associaton (EuroISPA, Brussels).
The commission does not yet view VoIP as a normal voice call because of the inferior quality of Internet telephony. Yet some industry analysts believe that VoIP will become the dominant method for transmitting calls as the computer becomes more of a communications device.
EuroISPA is keeping a close watch on the situation because its mandate is to challenge the European Union and member governments anxious to impose regulations on the Internet. It consists of 11 member states and represents more than 500 ISPs, which cover 70 to 80 percent of Europe's dial-up market.
Given incumbents' political and economic power, EuroISPA knows that it must be vigilant to maintain a competitive environment. |
