February 2002

VoIP: Enabling Competition In A Global Market

BY JENNIFER CANNELL

[Go right to Views On An International Market]

The countdown to deregulation is exciting for emerging competitive long-distance carriers but often difficult. There are many decisions to be made and options to choose -- building a fixed network or deploying a VoIP network are two of those options.

Many emerging carriers, however, do not have the time or the capital needed to build expensive and obsolete fixed networks between the time a country announces deregulation to the time it actually deregulates. The fastest and least capital-intensive option is voice over IP (VoIP).

In recent years, deregulation in telecommunications has opened markets across the globe, allowing competitive carriers to compete in the domestic and international long-distance market. Countries like India and Brazil in 2002, and Bulgaria and Romania in 2003, are changing from a monopoly-based market to open market economies where consumer choice flourishes, where retail rates go down, where teledensity steadily increases, and where new opportunities through increased teledensity are prevalent. Bolivia is the latest country to go through this change and one local Bolivian carrier chose VoIP as its option.

As midnight approached on November 28, 2001, Bolivia�s local telecom service was handled by 14 telecommunications cooperatives, each a monopoly in its territory. The country�s national and international long-distance service was provided exclusively by Entel, the former state monopoly now half-owned by Telecom Italia. At the stroke of midnight, all those monopolies became competitors in each other�s territories and spheres of business.

Three carriers were ready to carry national and international long-distance when the regulatory gong sounded on November 28: Entel, AES, and Cotas/Teledata. Entel (Empresa Nacional de Telecomunicaciones) owns the only national fixed-line network in Bolivia -- a legacy of its monopolistic history -- and it continued to use that network after midnight on November 28. AES Bolivia, a partner of an investor in the largest of the 14 local cooperatives, has not completed the buildout of its fixed network but was operational in a portion of Bolivia. Cotas/Teledata, however, has taken the road less traveled. In fact, they�ve taken a road not traveled at all until now: For their long-distance service, they�re using voice over the Internet as their sole technology. They are the first established carrier in the world to do so.

The flash-cut from long-distance monopoly to competition was not without its bumps for all carriers. But Cotas/Teledata, who is partnering with a wholesale carrier that operates a global VoIP network, could point to real success. VoIP points of presence in Bolivia were established by collocating IP telephony gateways in five cities -- Santa Cruz, La Paz, Cochabamba, Sucre, and Tarija. That means that callers from outside Bolivia can reach any phone inside the country through the partnering wholesale carrier�s worldwide VoIP network, and 90 percent of the phones in Bolivia can use the network.

COTAS (Cooperativa de Telefonos Automaticos de Santa Cruz de la Sierra) is the incumbent local carrier in Santa Cruz de la Sierra and its department (Bolivia is divided into departments, corresponding to states or provinces). Teledata is its data communications subsidiary. Cotas is the second largest of Bolivia�s 14 telecom cooperatives, serving 120,000 access lines. Like the others, it is owned by its subscribers. Like the others, it is undercapitalized.

Unlike the others, Cotas/Teledata decided to provide its new, national and international long-distance service over the Internet using the global VoIP network of its wholesale carrier partner. Teledata holds the license for long-distance service; Heilsberg, a German-based company, provided the IP infrastructure in Bolivia; and the wholesale carrier operates the domestic and international long-distance service for Teledata. The new service is branded as 12Mundo (the prefix number that phone users must dial to make long-distance calls through Teledata is 1-2). All Bolivians now need to dial a prefix in order to choose any long-distance provider.

Typically, wholesale carriers who operate VoIP networks route calls between carriers from around the world over the Internet. The customers of those carriers make calls to people in other countries; the calls go to an IP telephony gateway where they�re translated into IP; the calls are then routed through the Internet to another IP telephony gateway in the destination country, where they are translated back into standard telephone protocol and are delivered to the calls� recipient as an ordinary telephone call.

What�s new in Bolivia is that the VoIP wholesale carrier is now responsible for all of the domestic and international operations of an established carrier�s long-distance network. On November 28, all but the Tarija PoP were operational. With those installations, the Cotas/Teledata network is essentially built without additional capital investment by Cotas/Teledata.

By contrast, Entel, AES Bolivia, and every other carrier that wishes to provide long-distance service without using the Internet, face a steep demand for capital. Entel has a network, but must update and expand that network to serve increasing traffic loads and to offer local service. AES Bolivia is building a completely new, fixed-line network for domestic and international long-distance service -- clearly, a tall order in a mountainous country with few good roads. There are also many carriers around the world that they will have to make agreements with to send and receive traffic.

Cotas/Teledata on the other hand does not have to make those agreements. The wholesale carrier already has the agreements and can send traffic to and from Cotas/Teledata without them having to get involved in pricing, billing, etc., with carriers around the world. It also took only five months for Cotas/Teledata to be able to compete because they use an outsource VoIP network.

Cotas/Teledata�s partner has even put the machinery in place to make sure the quality of service on the network is the highest possible. As it is, many of the partner�s regular clients are tier one carriers whose own customers don�t know their calls are traveling over the Internet, and couldn�t care less.

In this new project, the stakes will be higher and the expectations greater. For the first time, the wholesale carrier is remotely monitoring a domestic network of an established carrier from its network operations center (NOC) in the U.S. The wholesale carrier�s technicians monitor the Cotas/Teledata network 24 hours a day, seven days a week. The wholesale carrier is upgrading the reliability of its hardware and software -- turning up the pressure on its vendors to meet the higher standards required for managing such a network. It has provided dedicated monitoring and alarm tools designed especially for its Bolivian project, and is training Heilsberg�s personnel for in-country quality-of-service support.

For Cotas/Teledata and its partners, the opening of the Bolivian telecom market is heavy with opportunity and significance. This is the chance for them to grow from a regional carrier offering local service to a major national carrier. Its decision to use the Internet as the main technology allows it to skip the expensive and time-consuming task of building an entirely new network.

For the global marketplace, Bolivia is an example of how a carrier in a country whose telecom market is just making the transition from monopoly to competition can become operational in months with little or no capital investment. If the model works in Bolivia -- if the public Internet, aided by a VoIP carrier�s gateways, proprietary technology, and routing expertise, becomes a key part of ordinary voice communication -- then it will work in other deregulating countries like India, Brazil, Bulgaria, and Romania as well. c

Jennifer Cannell is corporate marketing specialist at ITXC Corp. ITXC Corp. is a global wholesale telephone company sending calls to and from over 136 countries. It operates one of the world�s largest voice networks, ITXC.net, and carries an average of over 6 million international long-distance minutes a day. For more information, please visit the company online at www.itxc.com.

[ Return To The February 2002 Table Of Contents ]

Every year around this time, in order to address our readers� interest in the international market for Internet telephony, I send a short questionnaire to several of the leading firms in the Internet telephony industry, asking their views and opinions on the state of the global market. With the current state of global financial markets, I was curious to know: �What is the state of Internet telephony in the International arena?�

I hope that this short Q&A feature sheds some light on what vendors who are �in the trenches� see as notable themes in the international market for Internet telephony.

� Greg Galitzine

International Internet telephony has surpassed all reasonable expectations over the course of the past year, with international VoIP penetration doubling and major Internet telephony providers such as iBasis and ITXC becoming top twenty global carriers. Even as the telecommunications sector and the overall economies in North America and Europe began to slump, Internet telephony moved decisively into the mainstream of global telecommunications, with Tier 1 carriers adopting VoIP for international service in every region of the world.

This year�s shift can be seen as a trend that began a couple of years ago. In 1998 and 1999, iBasis was among the first to provide commercial VoIP service to large carriers, focusing on providing service to Asia. Regulators in the region were quick to see the potential of VoIP and moved to offer VoIP licenses to both incumbent and competitive carriers. Within a year, many major carriers in the region had begun to outsource international traffic to VoIP providers like iBasis and ITXC, including China Unicom, China Mobile, China Telecom, China Netcom, Jitong Communications, NTT, The Communications Authority of Thailand, and Australia�s Telstra.

In 2001, Internet telephony�s momentum was perhaps most visible in Europe, where past concerns over quality and brand protection gave way to strong, strategic endorsements of VoIP by large European carriers, such as Cable & Wireless, Telenor, and COLT. With carriers convinced of both its quality and its potential for reducing transport costs, as well as the overall service support costs for international traffic, outbound international VoIP traffic from Europe grew 140 percent in 2001, led by the UK and France, according to Probe Research.

If 2001 was a bad year for Internet telephony stocks, and the North American and European economies, it has, nevertheless, been a good year for Internet telephony. According to both TeleGeography 2002, and Probe Research, VoIP penetration of international voice traffic doubled from 2000 to 2001. There are a number of factors behind this growth -- the relatively low cost and availability of carrier-grade VoIP technology, the completion of Tier 1 quality Internet telephony networks such as that of iBasis, and the imperative for traditional carriers to cut costs in today�s more competitive, challenging markets.

With the networks now in place, and service quality virtually indistinguishable from that of the PSTN, the challenge facing Internet telephony providers in 2002 will be to continue to manage their operations efficiently, while keeping pace with the rising demand for services. Maintaining a strong focus on efficiency and quality will enable the Internet telephony sector to ride out the telecom storm, and become the transport of choice for all voice traffic within the next ten years.

Ofer Gneezy is president and CEO of iBasis.

Internet telephony is going through an important refocusing phase. This highly competitive sector, where most players have seldom and often unperceivable product differentiations, needs to rethink their entire approach. The qualitative and stability aspects (packet loss) of the past left many early adopters with a deep-rooted negative impression.

Overcoming these negative perceptions will require a reevaluation of the entire market with a focus on the potential opportunities unfolding outside North America. The task at hand will surely be a difficult one to tackle, what with the standard American approach and distribution channels being of little assistance in many Asian and European states.

It is often not enough to have a name; for instance some European and North American industry leaders just can�t cut it in key Asian markets. While some may try for years at the cost of millions, some others are instant winners only because they were introduced by the right people. While most think they adapt easily to various business procedures they fail to pay basic attention to linguistic and cultural specifications -- with potentially devastating consequences.

At VoiceAge, we are paying close attention to the emergence of all wireless and wireline applications in Asia. 3G standards for both narrow and wideband will redefine the way we communicate by enabling true platform bridging.
We also think that the industry will set the record straight by finally offering packetization products that are specifically designed for Internet telephony applications. The result will greatly enhance the quality of the experience by increasing packet loss capacity from its current three percent tolerance to 10 percent without having to change network infrastructure.

It is obvious that the industry will approach this latest undertaking with the utmost vigilance, the room to maneuver will be virtually non-existent but those few that will make it, will make it big.

Paul Goulet is marketing communications manager for VoiceAge Corporation.

The market for VoIP and the enhanced subscriber services it requires is already strong outside the United States and shows signs of rapid growth worldwide in the next two to three years. China and a number of other nations are in the early stages of government-driven efforts to replace outdated telephony technologies. Many countries are pushing aggressively to bring the first broadly available telephone service to some regions. The fastest solution is to deploy wireless networks interconnected by VoIP. With wireless, there�s no need to hardwire houses or businesses, which is often impractical in densely populated cities. Simply erect towers and deliver cell phones. VoIP is the most economical and practical way to deploy wireless and connect it to the broader telecomm infrastructure, including domestic long-distance and international access.

The ability to send and receive e-mail is also receiving a great deal of attention. This is where the Voice E-mail feature of IPeria�s ActivEdge system becomes a powerful advantage. The Voice E-mail feature allows subscribers to use any telephone to create and send Voice E-mail -- a standard e-mail with a recorded voice attachment. The recipient can play the audio back over PC speakers, a headset, or access the message using a telephone and listen to the voice playback. Subscribers can also use Voice E-mail to have e-mails read to them over any telephone -- no PC required. When the subscriber accesses the account using a PC, all sent and received voice and text messages are displayed on-screen just like e-mails -- because they actually are.

VoIP brings dramatic cost advantages and improved quality for telephony. However, the real value of VoIP for many nations is the ability to deploy advanced services that would otherwise be delayed for years. Making e-mail universal and portable is a great advance for much of the world�s population and one of the driving forces behind bringing together the telephone and the Internet in the new network.

Stevan Vigneaux is vice president of Corporate Marketing at IPeria, Inc.

Internet telephony represents a major aspect of the broader market of converged communications. Polycom is an international company focused on providing voice, video, and integrated data communications solutions for converged networks. We view the overall opportunity associated with IP telephony as international in nature. Currently 30 percent of our revenues are international in our voice communications line of business at Polycom (Voice Communications). However, as the IP telephony part of our business is in this early market, we are just getting started internationally, as most of today�s business is in North America.

There are interesting and diverse factors that affect the international market. As the overall IP telephony market is entering a growth phase, the projections by region do vary. IP telephone unit shipments are expected to exhibit approximately a 100 percent growth rate in Europe, for example, over the next five years (according to IDC). Yet, there are still hurdles to overcome. The issues commonly cited are interoperability, reliability, QoS, and cost. These are driving towards satisfactory levels, but many who consider the solution for their business will want to see more validation that these issues are being resolved -- to some extent the success of the IPBX market in North America is the proof case.

There are regions where the overall opportunity is paced by the fact that they do not have legacy infrastructure to be replaced (i.e., the deployment of all new infrastructure carries with it the assumption that it will carry telephony). This is true for many areas, including parts of Eastern Europe and Asia. Here some people will never have communicated on circuit switched networks, but will start with IP and go from there. This is an exciting concept, where people will have the ability to have telephony, plus the richness of video conferencing and data sharing at their disposal from the start of their communication experience. The ability to do more will become apparent in the times ahead.

Gordon Simmons is vice president of Strategic Relationships at Polycom, Inc.

Adir Technologies markets IP network platform management services in North America, Asia, and Latin America. We also have a beachhead in Europe. Approximately 60 percent of our revenue comes from outside North America, although the percentage can vary markedly from quarter to quarter.

Unlike the substantially homogenous IP data market, where bits are bits and a router is a router, VoIP products marketed internationally must be customized to meet the regulatory and market requirements unique to each region. Dial plan requirements are a simple example of that rule, and many products developed for North America cannot support the wide range of subscriber number formats required to serve international markets.

In order to effectively do business outside of North America, both in-country employees and integration partners are required. The integration partners provide the customer relationships, understanding of local feature requirements, and local-time technical support that�s required to effectively market VoIP geographically. In order to maintain share of mind with the integrator, however, Adir maintains a regional manager who serves as a back channel to our product management organization, ensuring that customer needs are accurately represented.

Of course, reconciling the myriad requirements of different regions is a constant challenge, as is coping effectively with cultural differences. Working with integration partners is also challenging. Your goals and theirs must be well aligned so that the customer gets a consistent view of the solution. Staying aligned requires constant maintenance, which results in substantial travel on the part of senior sales, marketing, and executive management.

International markets provide terrific opportunities for VoIP vendors, however, particularly Asia and Latin America. Compared to North America and Western Europe, where teledensity measures about 80 lines per 100 people, in Southern and Central America teledensity is merely 8 lines per 100 people and the incumbent access providers have not moved aggressively to satisfy demand. In fact, in Mexico, more homes have access to cable television service than telephones, and cable system operators there are eager to offer voice over cable solutions, unlike their North American counterparts.

As carriers build out their backbone infrastructures, they want to install only one technology: IP, which allows them to efficiently offer voice, video, and data services. Thus we see companies like China Unicom building very large VoIP networks because it is both more cost effective and future proofs their network.

Michael R. Rich is president and chief operating officer of ADIR Technologies, Inc.

Unlike the United States, which has been a major source for IP telephony calls going to other countries, regions such as Asia Pacific, Africa, and even to a certain extent Latin America view IP telephony as a more than viable alternative to circuit-switched voice. Many countries do not enjoy the level of communication infrastructure common in the U.S. For those countries, it is easier and cheaper to deploy IP networks than to extend insufficient or build-out new circuit-switched networks. For the end user consumer, this means the ability to take advantage of cost-effective voice and data service bundles. Consumers are willing to sacrifice quality for availability and lower costs.

In our experience, the demand for solutions to take advantage of IP telephony has been heavily dependent on government regulations within each country. As an example, with the creation of the Internet-based voice and/or data license in Singapore the demand for IP telephony service solutions soared. In less than six months more than 70 companies had been licensed to provide IP telephony services. Both wholesale and resale models offer attractive scenarios for local operators. The Asia Pacific region as a whole is rife with opportunity as more and more providers enter the IP telephony service market.

When Digiquant established its presence in the Asia Pacific market, the company discovered how incredibly important it was to work closely with local business partners. Digiquant also found that its domain expertise in telecommunications in general -- and IP/IP telephony specifically -- made the software infrastructure provider a valuable resource for both operators and emerging providers looking to launch IP services throughout the Asia Pacific region.

Unlike many software solution providers founded in the U.S., Digiquant has a large international footprint. The company began its operations in Europe, expanded to Asia Pacific, and then entered the American market.

To date, many of the major operators in Asia Pacific are using Digiquant�s solution to manage IP telephony and data service bundles, including China Unicom, Telekom Malaysia, SingTel, TOT, HTE, CAT, and Indosat among others. In the U.S. where carriers use IP telephony transparently to offer cheap international and long-distance calling, Digiquant�s IMS solution is actually used as the foundation for many carriers� international calling card services.

Throughout the international community more and more operators are positioning for the competitive boom expected in various countries as deregulation opens individual markets in the coming months of 2002.

Morten Seifert is global product manager for IP Telephony at Digiquant.