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April  2000


Minute By Minute: VoIP Has Become A Reality


Now that we are well into the year 2000, you�re probably wondering why all your voice calls aren�t being carried over IP. Wasn�t Voice over IP (VoIP) supposed to have taken off by now? Some naysayers are still proclaiming VoIP is not ready for prime time and the technology is incapable of matching the quality of plain old telephone service (POTS). Reading their articles, you might think VoIP was still in its infancy, experiencing all the growing pains characteristic of a new technology. In reality, as we begin the 21st century, VoIP is maturing, and in many places, is being actively deployed.

It would be easy to evangelize equipment vendors� stories describing how IP telephony interoperability issues are being taken care of and how IP voice quality is supporting 99.999 percent reliability. But does this really prove that VoIP is being widely accepted and deployed? What quantitative measuring stick should we use to best assess the use of VoIP technology today and where it is headed? Would the number of ports shipped give us a fair assessment? How about revenue figures? Maybe minutes traffic?

For well over 100 years the phone industry has been measuring traffic in billable minutes. Phone users� perceptions of use have always been in minutes. Minutes have been, and for the foreseeable future will be the universal currency for measuring phone use. The revenue of an Internet Telephony Service Provider (ITSP), for example, is based on the minutes that originate on, terminate on, or transit the ITSP�s network. Thus, the measure of minutes is the most viable means for coming to any conclusions about the use of IP telephony.

IDC is projecting that IP telephony minutes will grow to 2.7 billion minutes in 1999 from 310 million in 1998. IDC also forecasts that IP telephony minutes will nearly triple in 2000 to reach 9.6 billion. By 2004, IP telephony minutes will reach 135 billion for a 1999�2004 CAGR of 119 percent. How many VoIP minutes were passed over the Internet in 1996? Almost none. This astonishing growth rate points to the fact that VoIP technology has caught on and will further develop to be the way of the future.

When examining global telecommunications use, we normally see a usage increase in minutes; factors such as population growth, increases in phone infrastructure, and price elasticity lead to yearly increases in PSTN calling. Total global PSTN phone-calling minutes (including local and domestic long distance) are projected to increase to 9.1 trillion minutes in 2005 from 6.4 trillion in 1998 (Probe Research). This represents a five-percent increase in CAGR over a seven-year period. A five-percent increase may not sound like much, but when you look at it from a minutes perspective, that is an increase of well over three to four hundred billion minutes per year!

With the explosive growth of Internet traffic over the last five years, most of the focus has been placed on data transport. Just recently, a senior executive at a well-known networking giant was quoted as saying, �People are getting confused about convergence being driven by telephony, but it�s not. It�s being driven by data � telephony works okay for telephone calls, but not for the amount of data being moved over the public infrastructure.�

Obviously the amount of data traffic passing through the Internet infrastructure is growing at a faster percentage rate than the amount of voice traffic, but when looking at the numbers, voice minutes are increasing at an astronomical rate. ITXC, a wholesale Internet telephony company, reported its carrier customers sent it around 1.5 million minutes of call traffic on Christmas Day for completion over the Internet. What does this tell us about convergence? It is spelling out the fact that the hype is giving way to truly converged services � voice traffic is immense and will remain a primary communications tool used by people worldwide for years to come.

While there are a variety of companies experimenting with flat-rate pricing structures for voice, the vast majority of traffic is still measured in minutes. Minutes mean big business. Telephone companies are some of the biggest revenue generating businesses on the planet, passing billions of minutes over their networks every year. When you take the minutes volumes of the existing carriers, and then apply the percentages that are expected to come from minutes transported over IP telephony, the growth of traffic that should travel over IP telephony networks is tremendous.

To date, VoIP�s biggest selling point has been the promise of huge savings in voice and fax transport, especially for international routes. Businesses currently using this technology have typically cut their long-distance charges in half. PC-to-phone and phone-to-phone calling over IP provides as much as 50�70 percent savings over rates of traditional U.S.-based long-distance carriers, and as much as 95 percent savings for calls originating outside the US (IDC Report).

Ease of use has also contributed to the popularity of VoIP. In the early days of the technology, one of the few ways to pass voice over the Internet was by using PC-to-PC communications. This put a real constraint on the end user; in many cases the caller needed the same hardware and software as the receiving party or the voice quality was very poor in the PC client software. Today, with IP telephony-based prepaid calling card applications, customers can dial a local number from a regular telephone to reach the ITSP�s network, enter a PIN, the number they are calling, and they will be connected to the destination phone. Furthermore, single-stage dialing has already been implemented with certain telecommunications service providers in South Korea, Taiwan, the US, and a number of other places around the world. IP telephony can also be completely transparent to the user; in many cases today, wholesale long-distance carriers are routing voice traffic over IP without customers even knowing it. Single-stage dialing can be implemented by way of a group of access features within the PSTN known as Feature Group D (allowing customers who pre-select a long-distance carrier in the US to have their call routed over IP telephony), or by integration with Signaling System 7 (SS7/C7) systems.

VoIP is rapidly emerging as the transport of choice for large-scale minutes exchange. Carriers with access to high-quality bandwidth and large volumes of telephony minutes are finding that the migration of trunking and core network services to IP-based transport are resulting in lower costs, faster network infrastructure deployment, and a time-to-market advantage in offering IP-based services to customers. Large volumes of multi-million-minute-per-month contracts are already in place among major carriers.

What will drive the VoIP market when the economics of toll bypass begin to change towards price equalization? One of the biggest drivers for VoIP will be the development of enhanced services, based on the unification of data and voice on one network. Some examples of enhanced services that are currently available or under development include:

  • Unified messaging,
  • Web-enabled call center services,
  • Facsimile,
  • End user control features (call forwarding, follow me/find me), and
  • Internet call waiting.

The expansion of IP telephony into new geographies will have a profound effect on IP voice traffic over the next few years. The deregulation and privatization in regions such as Latin America and Eastern Europe will make room for a multitude of new carriers and providers. The mere potential of offering new revenue generating services will compel carriers to adopt some type of IP telephony strategy.

The telecom industries in countries such as China and Russia are currently experiencing dramatic change not only in deregulation, but also infrastructure development � newer IP networks can be less expensive to install and easier for carriers to manage than traditional circuit-switched networks.

The proliferation of broadband networks such as cable, DSL, and wireless will also serve as a future driver for IP telephony traffic. An abundance of residences and small offices with broadband access will soon be able to have IP telephony service over the local loop, creating an end-to-end IP voice solution. This will prove very valuable to residences and small businesses by providing low-cost long distance, second-line phone service, and VPNs.

The number of ITSPs passing VoIP minutes is growing at an incredible clip every month. As these ITSPs use VoIP to fuel a major transformation in the types of new services incorporated into the PSTN and Internet, watch for IP telephony to quickly garner a significant share of the worldwide voice minutes.

Josh Benveniste is marketing manager for Clarent Corporation. Clarent is a premier provider of scalable, IP telephony products to carriers and Internet service providers around the world. Clarent�s intelligent architecture and the Clarent Command Center enable Clarent products to route, manage, inter-connect and terminate high volumes of calls for service provider customers including the world�s largest long-distance telecommunication companies. For more information, visit the company�s Web site at www.clarent.com.

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