Download The Internet

Internet Telephony
A Broader Business Perspective of
Delivering Telephony Service
over Internet
Arya Satriananta
Unit Bisnis Internet - Divisi Regional V
PT. Telekomunikasi Indonesia
Presented on the “VoIP Seminar”
Universitas Diponegoro Semarang, 14th December 2000
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Agenda
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Infocommunication Industry Convergence
Internet Telephony Applications
Cheap and Treathening
Current Customer Views
Implications for Developing Countries
Strategic Impact on ISP
Strategic Impact on PTO
Market Opportunities
Internet Telephony Business Model
TELKOM Internet Telephony Business
Main Sources
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Infocommunication Industry
Convergence
Integrated
DATA, VOICE, &
VIDEO
Ÿ
Ÿ
Ÿ
Ÿ
Multimedia (DVV)
Broadband
Interactive
Multiservice
+ Voice
+ Video
+ Voice
Start with
DATA
+ Video
+ Data
+ Data
Start with
VOICE
Computer
Industry
Telecom
Industry
Start with
VIDEO
Television/
Broadcasting/
Entertainment
Industry
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Internet Telephony Applications
Segmenting the Market
• PC-to-PC
Local
Telephone
Network
Multimedia PC
Local
Telephone
Network
IP Network
Internet Service
Provider
Internet Service
Provider
Multimedia PC
• PC-to-Phone
Local
Telephone
Network
Multimedia PC
IP Network
v
Internet Service
Provider
Local
Telephone
Network
Telephone
VoIP
Gateway
• Phone-to-Phone
Local
Telephone
Network
Telephone
IP Network
v
v
VoIP
Gateway
VoIP
Gateway
Local
Telephone
Network
Telephone
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Cheap and Threatening
Why is the Internet Telephony so cheap?
1. Technically efficient
– The Internet: runs over packet-switched network.
– The PSTN: runs over circuit-switched network.
2. Greater capacity utilization
– The Internet: engineered to meet average loads, and the typical
utilization over an extended time period is around 60-70% of
network capacity.
– The PSTN: engineered to meet the business peak hour and thus
network components are in use for, perhaps, less than 20% of time.
3. The international accounting rate system bypass
– The PSTN: PTOs bill the call according to its duration and
destination, and the time of day or week when the call is made, and
making traffic-based settlement payments (accounting rate system)
to other PTOs for terminating or transiting the call.
– The Internet: there are no accounting rate systems.
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Cheap and Threatening
Settlements-based traffic
PTO A
Collects
traffic
Delivers traffic
Pays settlement fees
Collects
revenues
User 1
User 3
PTO B
Retains
revenues
Terminates
traffic
User 4
User 6
User 2
User 5
Country A
Country B
A direct bilateral relationship is established between the origin and
termination operators. Intermediate transit operators are compensated
from the accounting rate, which is usually split 50:50.
PTO B retains net settlement.
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Cheap and Threatening
Internet Telephony traffic
INTERNET
IXP X
IXP X
Peering
ISP B pays
for capacity
ISP A pays
for capacity
ISP B
ISP A
Collects
revenues
Collects
traffic
User 3
User 1
Terminates
traffic
May collects
local call fee
User 6
User 4
User 2
User 5
Country A
Country B
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Cheap and Threatening
Why is the Internet Telephony so cheap?
4. Economies of scale
The Internet, like the PSTN, is a network of many, many network. An
ISP, even a small one, can take advantage of the externalities provided
by the interconnection of many networks. Nevertheless, there are
differences between the two:
– The PSTN would look like a dense mesh of connections in that
many of the nodes in the network are connected to every other
node or, if they lack a direct connection, could be connected by just
one intermediary.
– By contrast, a picture of the Internet would look much more like an
airline route map in which a small number of hubs are connected to
each other and are each surrounded by a star-shaped network of
local peering arrangements.
– A typical international voice telephony call would pass between the
hands of two or perhaps three carriers; a typical Internet telephony
call would pass through many more hops and multiple carriers.
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Current Customer Views
1. Corporate customer views
In general, enterprises will not take the risk of replacing their current
telephony technology until and unless they are convinced that:
– The new technology is at least as good.
– The replacement can be done without affecting quality, service
levels or operational considerations (e.g., the numbering plan).
– No wholesale end-user retraining is necessary.
– They can continue to benefit from their (mostly already written off)
investment in telephony equipment (e.g., PBXs and telephones).
– The new system can be implemented universally throughout the
company so that there is no need to support two different
approaches simultaneously.
– It can be effectively managed to maintain the current high level of
uptime.
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Current Customer Views
2. Individual / residential customer views
In general, individual / residential customers are less demanding with
regard to quality, and more price sensitive. So:
– They will likely accept the new technology as long as it can show
significant cost reduction, and the call is still interpretable.
3. Service provider views
They are currently very much interested on the technology.
– The newly competitive environment is forcing existing and potential
voice carriers to look at ways of offering services that compete with
traditional carriers’ services by capitalizing on lower cost packet
networks or the Internet.
– Traditional carriers that see the potential threat from increased
competition are also planning for increasing levels of network
integration. Their goals are to reduce operational costs, increase
efficiency and productivity, and expand both their service offerings
as well as their service coverage.
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Implications for Developing Countries
Dilemma for the Incumbent PTOs
Internet Telephony presents a dilemma for developing
countries, especially for their incumbent PTOs.
• On the one hand, it promises to reduce the price of international
telephone calls, for instance:
– enabling their residential customers to make calls to relatives living
abroad that might otherwise be too expensive;
– enabling their business customers to participate more effectively in
the global marketplace.
• On the other hand, Internet Telephony could be viewed as a
Trojan Horse, which:
– threatens to undermine the pricing structure of the incumbent PTO
and undercut its profitable business in originating and terminating
international calls;
– might threaten the ability of the PTO to invest in extending the
domestic network and meeting its Universal Service Obligations
(USOs).
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Implications for Developing Countries
Distinction between Originating and Terminating Calls
In understanding the issues, it is useful to draw a distinction
between call origination and call termination:
• For the business of originating international calls, the
arguments are weighted on the side of encouraging the
development of Internet Telephony.
– Developing country markets tend to be much more price sensitive
and less demanding with regard to service quality. Thus, low-cost
international call could be just the “killer application”
– The traffic generated is likely to be a net addition, that is, it would
not necessarily substitute for calls that would otherwise have been
made directly on the PSTN.
– Furthermore, insofar as substitution does take place, it likely to be
of the services of other discount calling offers, such as call-back or
calling card services, not necessarily the PTOs core business.
– Routing a percentage of outgoing calls via the Internet would also
help to reduce the local PTO’s commitments to making settlement
payments to foreign PTOs.
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Implications for Developing Countries
Distinction between Originating and Terminating Calls
• For the carriage and termination of incoming international
calls, the arguments are more mixed.
– If a substantial portion of incoming traffic arrives via the Internet,
and is then patched onto the PSTN, either within the borders of the
developing country or in a neighboring country, with a more
liberalized regime, with whom it has a low settlement rate or a
‘sender-keeps-all’ agreement for international traffic, then this could
have the effect of reducing incoming net settlement payments.
– An incoming international telephone or fax call would bring with it a
settlement payment, in some cases of one US dollar or more per
minute. By contrast, an incoming Internet call which is patched to
the PSTN might bring only sufficient revenue to cover the cost of a
local call; a few US cents at most.
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Strategic Impact on ISP
• ISPs seem to be in the best position to benefit from Internet
Telephony:
– They already connect to data networks;
– The only change needed is to install VoIP gateways which would
patch signals from telephone calls into the Internet and vice versa;
– If two users are satisfied with using computers on both ends, no
modification is needed.
• ISPs could effectively target:
– Their own subscribers who, by definition, already have computers;
– Telephone users, which implies that phone gateways would need to
be installed at the ISP;
– Fax users who wish to reduce their transmission costs.
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Strategic Impact on PTO
• For PTOs, the potential to win and the potential to lose with
Internet Telephony exist in equally large and frightening
proportions:
– They could be hurt by the rise of Internet telephony, no matter from
where it comes, since it would threaten their own customer base;
– They could also benefit from the rise of Internet activity since they
lease the lines that connect to the Internet.
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Strategic Impact on PTO
PTO responses to the Internet Telephony
1. Protection through regulation
– The government of Pakistan requires ISPs to write a clause in their
contracts forbidding customers from using Internet Telephony;
– The government of China applies three-layer regulation:
• First layer: the content
From within China, websites can be accessed only by a proxy servers,
which are computers that receive all data coming into and moving out
of the network. Civil servants for the Chinese government can use
these computers to check any website downloaded into China.
• Second layer: the ISP
Some ISPs are government-owned and even private ISPs must acquire
a license and undergo regular inspection by government organizations.
• Third layer: the user
The user must sign a pledge of allegiance to the interests of the state. It
is called the “Net Access Responsibility Agreement” and commits an
individual not to threaten state security or reveal state secrets and not
read, reproduce, or transmit material that is considered dangerous or
obscene.
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Strategic Impact on PTO
PTO responses to the Internet Telephony
2. Modify pricing structure
– PTOs could raise their local call prices, which would reduce the
price advantage that Internet Telephony users enjoy.
– They could also introduce usage or time-sensitive pricing, if it is not
already applied.
– Since one of the most attractive features of Internet Telephony is
the affordability it offers for long distance and long duration calls,
PTOs would do well to consider moving towards distanceindependent call set-up charges as well as raising more from fixed
charges.
– For international calls, which face the most substantial threat from
Internet Telephony that bypasses the international accounting rate
system. In response to this, PTOs must reduce their international
rates, which probably implies withdrawing from accounting rates
and moving towards a regime based on call termination charges.
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Strategic Impact on PTO
PTO responses to the Internet Telephony
3. Join in the fray
– In passive way, PTOs can profit from local call revenues, leased lines
revenues and from revenues from the provision of second lines to
residential consumers for dedicated tasks (i.e., data telephony,
regular telephony, etc.).
– PTOs might benefit more from competing directly, which may bring
risks, especially in the short-term:
• customers may prefer Internet telephony over regular (PTSN) telephony;
• PTO may end up undermining its existing customer base, and
cannibalizing its own revenue stream.
– They could buy out the very building blocks of the Internet, e.g.:
• the companies who manufacture routers, servers and other network
equipment, including companies who produce xDSL technologies;
• the ISPs who provide Internet Telephony or other companies who
develop software.
– Testing the viability of Internet Telephony, and perhaps eventually
deploying it broadly, is probably, from the PTO point of view, the best
of a bad set of alternatives.
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Market Opportunities
World Internet Telephony Market
1997
VoIP calls - 198M min/year
(220% annual growth)
End 1999
$600 million VoIP market
End 2001
$1.89 billion VoIP market
14,000
12,000
10,000
8,000
Source: Forrester Research
6,000
4,000
2,000
0
1997 1998 1999 2000 2001 2002 2003 2004 2005
Consumer & Small Business
Enterprise & Institutions
Wholesale
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Internet Telephony Business Model
Traditional / Bilateral Model
Iceland
Canada
Belgium
USA
France
Spain
Korea
Japan
Indonesia
N = M(M-1) / 2
N = Number of bilateral agreements
M= Number of parties
3 ISPs = 3 bilateral agreements
4 ISPs = 6 bilateral agreements
8 ISPs = 28 bilateral agreements
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Internet Telephony Business Model
Multilateral Model
Global Settlement
and Clearinghouse
Canada
Iceland
USA
Belgium
France
Spain
Korea
Japan
Indonesia
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Internet Telephony Business Model
Clearing House Financial Model
IP Network
Originating
Operator
Network
Calling
user
VoIP
Gateway
v
Clearing
House
VoIP
Gateway
Telephone
SP fee
Wholesale rate
Retail rate
Telephone
v
Terminating
Operator
Network
Originating
service provider
CH
fee
Term.
Fee
Clearing house
Term.
fee
Terminating
service provider
Called
user
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TELKOM Internet Telephony Business
The Plan
• Network deployment – start October 2000
• Services deployment – start January 2001
• TELKOM Internet Telephony services will include :
– Internet Telephony service
• Phone-to-Phone
• Brand name :
– Domestic Clearing House
• Settlement function
• Brand name :
– IP Value Added Services
• Voice VPN
• PC-to-Phone
• Unified Messaging Service (fax-SMS-email-voicemail)
• Internet Call Waiting (Phone-to-PC)
• Virtual Personal Phone
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Main Sources
• Arya Satriananta (1999). Internet Futures and the Implications
for Telecommunications Companies (With Special Reference to
Developing Countries). Bath (UK): University of Bath.
• Philip Lakelin, Katrina Bond, & Karin Sherwood (1999).
Competitive Strategies for Internet Service Provision.
Cambridge (UK): Analysys Publication.
• ITU (1999). The Yearbook of Statistics: Telecommunication
Services 1988—1997. Geneva: ITU.
• ITU (1999). Challenges to the Network: Internet for
Development. Geneva: ITU.
• ITU (1997). Challenges to the Network: Telecommunications
and the Internet. Geneva: ITU.
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