VoIP: Current Trends and Future Evolution

Phillippa Biggs, Economist, ITU TeleEvo 2006 Radisson SAS Slavyanskaya Hotel Moscow, 25 October 2006
TeleEvo 2006, Moscow, 25 October 2006
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Agenda
1. 2. 3. 4. 5. Market drivers Defining VoIP regulatory treatment VoIP market Future Evolution Conclusions

TeleEvo 2006, Moscow, 25 October 2006

Agenda
1. Market drivers: - IP as a key enabler NGN - Development of the broadband market - Price reductions (operators & consumers) 2. Defining VoIP regulatory treatment 3. VoIP market 4. Future Evolution 5. Conclusions
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1. Market drivers: IP as a key enabler

Multimedia Services

Telephony

Television

Internet

Telephony

Television

Evolution from multiple separate networks (each optimized for one service) to a unified IP-based multi-service network
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Internet

Control layer IP-based network

IP-enabled Next Generation Networks (NGN) ITU Workshop What Rules for IP-enabled NGN? 23-24 March 2006 - Policy and regulatory implications - Market developments - Issues surrounding interconnection and universal service
TeleEvo 2006, Moscow, 25 October 2006 http://www.itu.int/osg/spu/ngn/
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The transition towards NGN

Old World (PSTN telecom) New World (IP-based Internet)

Circuit-switched Interconnection Capacity-based QoS guaranteed Cost orientation, focus on marginal cost Calling Party Pays (CPP)

Packet-based, based on IP P2P peering arrangements Quality of Service (QoS) class (best effort) Bundled offers: marginal costs near zero Unclear Bill and Keep? (Scott Marcus background paper and WIK Institutes workshop on this subject). Unlicensed bands, spectrum trading, competition policy, emergency service
TeleEvo 2006, Moscow, 25 October 2006 Edge-centric - intelligent nodes at

Key issues asymmetric regulation (numbering, universal & emergency service) Network-centric control & intelligence

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Forces driving VoIP (contd)

Consumers cheaper, single provider, simplicity of flat-rate billing. Operators: - Reduced costs of new & legacy networks - Tapping into growth in new markets; - Alliances with service and content providers, in new, converged business models - Growth in broadband networks.
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Increasing availability of broadband

180 160 140 120 100 80 60 40 20 0 2002 2003 2004 2005 Source: ITU World Information Society Report. 2006 81 113 133

Number of countries with broadband commercially available

145

166

Source: ITU
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At faster speeds
Growth in max. broadband speed available
2003 40 35 30 25 20 15 10 5 0 More 256 512 768 1024 1280 1536 1792 2048 2304 2560 2816 3072 3328 3584 2003 2005 2005 2006

Number of countries

2006

Speed (kbps)

Source: ITU.
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Growth in broadband in subscribers & share

Internet subscribers worldwide, in millions 500 400 300 200 100 Fixed-line narrowband 0 1995 1997 1999 2001 2003 2005 Mobile broadband

Fixed-line broadband

Source: ITU
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TeleEvo 2006, Moscow, 25 October 2006

International voice traffic (bn mins)

200 175 150 125 100
Source: ITU.

VoIP PSTN As % of total 15.5% 13.1% 11.8% 0.2% 1998 1.6% 1999 4.8% 2000 7.4%

75 50 25 0 2001

2002 2003

2004
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Falling price (& revenue?) in intl voice traffic

60 55
Source: ITU World Telecom. Indicators Database

63

58

51 44 39 35 32

50 45 40 35 1998 1999 2000

Revenue (US$bn) Price per minute (US cents) 2001 2002 2003 2004
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Transition to VoIP: incentives for operators

Incentives in the Development of the Market (figurative)

100%
Competitors

80% 60% 40% 20% 0% 1995

Costs Profits

??

1997

1999 Time 2001

2003

2005
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But beware: price reductions for consumers!

70 60 50 Cost (USD) 40 30 20 10 0
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Average cost of ICT s worldwide 2003-2005

$60.74

broadband ($/100 kbps) -20% p.a.

2003 2005
mobile basket -12% p.a.

20 hours' Internet access -12.5% p.a.

$37.44 $28.20 $34.28

$16.81 $12.94

Incentives with price reductions

Incentives II (Taking into account declining costs)

100% 80%
Competitors

60% 40% 20% 0% 1 2 3

Costs

Profits

Costs

Time 7 6

10

11
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TeleEvo 2006, Moscow, 25 October 2006

Agenda
1. Market drivers 2. Defining VoIP - ITU work and working terminology - Country definitions - Regulatory treatment 3. VoIP market 4. Future Evolution 5. Conclusions
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2. Defining VoIP ITU Internet Report 2001 IP Telephony IP Telephony carriage of voice over IP-based networks irrespective of ownership Voice over Internet Protocol (VoIP) voice traffic carried wholly or partly using IP over broadband networks competing with incumbent operators
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2. Defining VoIP: Country definitions

Definition Selected countries QoS, now replaced India, Japan by Functionality Hong Kong Numbering system Japan, Taiwan-China Netwk. Architecture Israel, Saudi Arabia Degree over PSTN Israel, Jordan & terminals used India, Japan, Malaysia, Spain Service Users Egypt, Barbados, Indonesia, Italy, Jordan, UK, United States. Australia, Chile, Tunisia October 2006 TeleEvo 2006, Moscow, 25
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Regulatory status of IP Telephony, 2005

100% 3 80% 13 9 3 4 6 3 1 2 3 No policy for IP Telephony Prohibited 60% 12 40% 2 20% 10 2 Africa Americas 4 2 5 5 7 8 1 1 Arab States Asia-Pacific Europe/CIS Full Competition 3 33 Partial Competition 7 Restricted

0%

Note: Based on responses from 149 economies. Prohibited = no service is possible. Restricted = only licensed PTOs can offer service. Partial competition = non-licensed PTOs may use either IP networks or public Internet. Full competition = anyone can use or offer service. 19 TeleEvo 2006, Moscow, Source: ITU World Telecommunication Regulatory Database (2005 questionnaire).25 October 2006

The spectrum of regulatory treatment of VoIP, 2006

If in doubt, License required hold a Public Explicitly Consultation (26 countries+) banned (at (22 countries +) least 23 Explicitly deregulated countries) Yet to be and/or light regulatory made touch (19 countries+) legalUnder Explicitly legal Twilight consideration by (57 countries +) Zone of govt/regulator (30+). regulatory ambiguity
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& Russia? Directive on Telematic Service

Source: http://www.minsvyaz.ru/site.shtml?id=3075
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Agenda
1. Market drivers 2. Defining VoIP regulatory treatment 3. VoIP market - Subscribers & distribution - The problem of the missing millions - Revenues 4. Future Evolution 5. Conclusions
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3. VoIP market - strong growth

Worldwide VoIP Subscribers
300 250 14 VoIP subscribers (millions) VoIP share of total mainline subscribers 18 16

Millions

200 150

12 10 8

100 50

6 4 2

0 2005 2006 2007 2008 2009 2010 2011

Source: IDATE.
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Distribution of VoIP subscribers

Distribution of VoIP subscribers, mid-2005
Italy 5% Korea 2% Neth. 1% Sweden 1% Norway 0%

Germany 2%

France 11%

North America 16%

Japan 62%

Source: Point Topic.

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But how to measure the missing millions?

Household VoIP in the UK (1.8 million)
300,000 BT 17%

150,000 8% Wanadoo Orange

Difficult to estimate!
Skype/ Vonage 1.35m 75%

Source: OFCOM

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Agenda
1. 2. 3. 4. Market drivers Defining VoIP regulatory treatment VoIP market Future Evolution - Market projections - Voice in bundles - The transition to flat-rate pricing 5. Conclusions
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4. Future Evolution: Market projections

Estimates of international VoIP traffic 50 45 Tarifica ITU

% of total int'al minutes

40 35 30 25 20 15 10 5 Yankee Gp. 1999 0 1996 Delta Three White Paper Analysys Delta Three WP Yankee Gp. Telegeography /PriMetrica 2002 2005 2008

Source: ITU et al. (ITU estimate refers to IP Telephony) Pink line

Telegeograhy

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Voice included in bundles (UK)

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Shift towards flat-rate pricing

Evolution in Pricing Strategy
180 160 Data Both 133 Time Flat-rate 166 145

Number of countries

140 120 100 80 60 40 20 0

68%

75%

81%

Source: ITU

2004

2005

2006

Data: billed by data downloaded or time spent online or combination both.

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5. Conclusions
VoIP is a growing reality for operators, consumers and regulators, with strong growth by all metrics. Opportunity or threat? A bit of both! Despite regulatory uncertainty in many countries, it may still be best to engage: Operators early mover advantage; Consumers benefits in cost reductions; Governments help shape/develop a stable market, instead of holding it back.
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Thank you very much

Phillippa.biggs@itu.int

www.itu.int
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