0030-analysys_presentation_on_voip.ppt

IP Voice and Associated Convergent Services

15 March 2004

Agenda

2.30 Opening

2.35 David Cleevely: introduction

2.50 James Allen: the New Regulatory Framework and voice over IP

3.25 Michael Kende: the NRF and associated convergent services

3.45 James Allen: summary of issues arising from the study

4.10 Short commission presentation

4.25 Question and answer session

5.30 Close

Introduction

David Cleevely

Aims of the study

The study aims to identify and explain the important issues associated with the transition from the existing circuit switched PSTN to IP-packet switched networks in providing voice and associated convergent services:

these issues encompass: regulation, technology, economics, and the structure of the telecoms market

The target audience is staff within National Regulatory Authorities (NRAs) and governments

Introduction

Context

We are raising issues

We are working from the current legal position in each Member State (i.e. the NRF as transposed into national law is a given):

in keeping with the NRF, we are deregulatory in stance

The opinions expressed in this study are those of the authors and do not necessarily reflect the views of the European Commission

Introduction

“It's probably the most significant paradigm shift in the entire history of modern

communications, since the invention of the telephone.”

FCC Chairman Michael Powell

World Economic Forum in Davos, Switzerland 2004

Introduction

The transition to VoIP will take time

Equipment replacement cycles

Broadband access network deployment

Take-up of broadband Internet access byend-users

Attractiveness of the new VoIP service offers (strongly affected by existing competition within the voice calls market)

The impact of these factors will vary by country and region

Introduction

In January 1994, we asked ‘How long will it be before you can download a PBX from the

Internet?’

Source: VoiSpeed, 2004

Introduction

“Nothing less than the demolition of Japan’s telecom industry”

– Wired Magazine, August 2003

Source: http://bbpromo.yahoo.co.jp

Introduction

The New Regulatory Framework and Voice over IP

James Allen

Definitions

New Regulatory Framework

VoIP business models

Issues that arise from VoIP services under the NRF

Views of other regulators

Agenda

The New Regulatory Framework and VoIP

Internet protocol (IP) The protocol standards used by the Internet

(strictly, only the Internet networking protocol, but commonly used to include a whole related set of protocols)

The New Regulatory Framework and VoIP Definitions

Voice over Internet Protocol (VoIP) Used here as a generic term for the conveyance

of voice, fax and related services, partially or wholly over packet-switched, IP-based networks


Public switched telephone network (PSTN) A synonym for traditional circuit-switched

telephone networks offered by public telecommunication operators (PTOs), as well as integrated services digital networks (ISDN), and public land mobile networks (PLMN)

Source: ITU World Telecommunication Policy Forum report


Electronic communications service (ECS)


A service normally provided for remuneration which consists wholly or mainly in the conveyance of signals on electronic communications networks, including telecommunications services and transmission services in networks used for broadcasting, but exclude services providing, or exercising editorial control over, content transmitted using electronic communications networks and services; it does not include information society services, as defined in Article 1 of Directive 98/34/EC, which do not consist wholly or mainly in the conveyance of signals on electronic communications networks

A service available to the public for originating and receiving national and international calls and access to emergency services through a number or numbers in a national or international telephone numbering plan, and in addition may, where relevant, include one or more of the following services: the provision of operator assistance, directory enquiry services, directories, provision of public pay phones, provision of service under special terms, provision of special facilities for customers with disabilities or with special social needs and/or the provision of non-geographic services

Publicly available telephone service (PATS)


Public telephone network

An electronic communications network which is used to provide publicly available telephone services; it supports the transfer between network termination points of speech communications, and also other forms of communication, such as facsimile and data


Definitions






What is the regulatory framework?

The new (2003) directives governing the regulation of electronic communications in Europe:

Framework

Authorisation

Access and Interconnection

Universal Service

Data Protection

The New Regulatory Framework and VoIP New Regulatory Framework

Under the NRF how a service is classified determines its regulation

PSTN-equivalentvoice

Data services e.g. IM and PM

Regulated as public electronic communications services

Regulated asPublicly Available

Telephone Services

Convergent services

Looks like data Looks like voice

Unregulated (not electronic communications services)

Public

Private

Regulated as private electronic communications services


Summary of the powers of NRAs

General conditions of authorisation for providers of:

Private ECS

Public ECS

PATS:

– PATS at a fixed location

– PATS providers which are USO providers


Summary of powers of NRAs beyond general conditions of authorisation

Certain ex-ante powers (e.g. under Article 5 of the Access directive) can be applied to a wide set of operators

A range of proportionate, ex-ante remedies can be applied to SMP operators in relevant markets:

the EC has a role in ensuring relevant markets and market definitions are appropriate

Ex-post competition law can be applied


Definitions






We divided VoIP into five business models

Self-provided ‘DIY’

Voice service independent of ISP – ‘Vonage’

Voice service sold by ISP – ‘Yahoo!BB’

Corporate internal use

Carrier internal use

The New Regulatory Framework and VoIP VoIP business models

Self-provided VoIP: DIY Software available to download from the Web:

might be ‘goods’ not services

Use a broadband connection to chat online:

Skype, ichatAV, etc.

Not simple to use: mostly hobbyists

Not a cost saving on mobile networks

‘Free’, but no interface to the PSTN:

however, 0800 numbers can now be called from Free World Dialup and others


Commercial model and implications

I carry my own costs, you carry yours

Traffic relies on the Internet access you already have

Small amount of revenue may disappear from the telecoms market


Voice service independent of ISP: Vonage

Software download or an ATA

needs broadband

Can provide interface to PSTN

Can provide extra services: virtual numbers,“Blast me”

Can cause big changes in tariffing:

flat-rate national calls

Hard to guarantee quality due to large numberof intermediate players



Economics depends on margin between retail voice calls and termination costs

Small, but growing (~100k in US)

Low barrier to entry

Very similar to indirect access in many ways


Voice service sold by ISP: Yahoo! BB

Service provider controls access network

Can guarantee QoS

With high bandwidth codecs, quality can be better than the PSTN

Typically bundles calls with Internet access

ATA is integrated into DSL modem

Yahoo!BB and Fusion in Japan are the best known examples (5 million lines)



Free on-net calls often offered

Cheap off-net calls (including to other VoIP users)

But why haven’t big European ISPs done it yet?

Not such a straightforward cost saving if there is vigorous PSTN competition



Could be self-provided or outsourced

Uses common IP network with data communications

Big opportunity through the PBX replacement cycle



Can be ‘goods’ rather than ‘services’

Now economic in greenfield sites

Early adopters are using it

Many users worried about resilience

Opportunity for non-traditional vendors:

IT services outsourcers

IP equipment manufacturers



Services continue as now

End-user is unaware of change:

does not necessarily use an IP device orget access to the Internet

Last mile is unchanged

Local concentrator, switch are utterly transformed

In mobile networks, depends on adoption of 3GPP releases



Motivation is cost savings:

one network rather than N networks

Capex required is very significant

May take ten years to complete

May take ten years before it starts!

Regulatory costing will change

Interconnection will be a major cause of disputes between operators


Definitions






The business models and how they are classified under the NRF [1]

‘DIY’ Maybe not a service, maybe private or public ECS

‘Vonage’ Public ECS, maybe PATS

‘Yahoo!BB’ Public ECS, maybe PATS

Corp. int. use Maybe not a service, maybe a private ECS

Carrier int. use Public ECS, likely to be PATS, possibly with SMP


The business models and how they are classified under the NRF [2]


Regulated as public ECS

Regulated asPATS

Vonage

Looks like data

Unregulated (not electronic communications services)

Public

Private

Regulated as private ECS

Yahoo!BB


DIY


Looks like voice

Two key questions

Which regulatory obligations will apply to VoIP service providers?

None / private ECS / public ECS / PATS / PATS at a fixed location /SMP in relevant markets

Specifically, when would service providers be providing PATS?


Definitions






Issues arising from VoIP

Definition of PATS and its interpretation

Why this matters:

Obligations of providers of PATS:

– Emergency service access

– Network and service resilience

Obligations of providers of PTNs

The New Regulatory Framework and VoIP Issues that arise from VoIP services under the NRF

Definition of PATS and its interpretation

Narrow view: any VoIP provider which does not offer access to the emergency services is not PATS, and any that does is PATS (which is clear and simple, but will lead to a disincentive to provide access to the emergency services)

Broad view: any VoIP provider that provides a service in direct competition with (and as a substitute for) the PSTN is PATS


Obligations of providers of PATS

Providers of PATS are subject to additional duties over and above providers of public ECS under the Universal Service Directive

These conditions include:

Article 23: All necessary steps to maintain proper and effective functioning of network and access to services (provided “at fixed locations” only)

Articles 26+27: National and single European emergency number access


There is a balance between users’ needs and disincentives to provide 112

In order to avoid becoming PATS, operators may exclude access to emergency services:

loss to end users: it may cause lives to be lost if a user has a “telephone” that cannot call 112

work-arounds like plugging into a PATS telephone line rather than a DSL ATA are not perfect

It is undesirable to remove the requirement within the definition of PATS for “access to emergency services”, because it would widen the PATS category too far


Location independence and quality of emergency service access [1]

IP access services break the link between network address and physical location:

mobile telephony services suffer in a similar way

End users will need to be educated that the quality of access to emergency services provided on a VoIP connection will be lower in some circumstances


Location independence and quality of emergency service access [2]

It seems feasible for VoIP service providers to provide a form of access to the emergency services that is at least as good at that provided by existing mobile networks

This ought to be acceptable as long as the reduced quality is made very clear to end users


Network resilience [1]

Providers of PATS at fixed locations are required to take measures to ensure the availability of services in the case of force majeure and catastrophic network breakdown


Network resilience [2]

VoIP service providers, particularly those using the public Internet (Vonage) or reliant on other operators access networks (a subset of the Yahoo!BB model), may not be able to do this:

a broad definition of PATS could place these operators in an impossible position

Seeking to claim IP voice is not provided “at fixed locations” as a get-out will have undesired consequences


Public telephone networks

Providers of public telephone networks are subject to similar, additional obligations over and above the obligations of providers of public electronic communications networks

The Universal Service Directive defines a public telephone network as “an electronic communications network which is used toprovide publicly available telephone services”

Thus, it matters to the underlying network providers whether the service provider is considered to be offering PATS


Definitions






Historic position of the Commission VoIP was not public voice telephony if it failed to

simultaneously meet each of the four elements of the Services Directive’s voice telephony definition:

voice telephony is offered commercially

it is provided for the public

it is provided to and from public switched network termination points

it involves direct speech transport and switching of speech in real time, in particular the samelevel of reliability and speech quality as produced by the PSTN

The New Regulatory Framework and VoIP Views of other regulators

Views of other regulators – Ofcom The UK regulator’s historic position is a VoIP

service should be regulated as PATS if any ofthe following apply. The service:

is marketed as a substitute for the traditional public telephone service, or

appears to the customer to be a substitute for the traditional public telephone service, or

provides the customer’s sole meansof access to the traditional circuit switched public telephone network

This is a “broad” view of the definition


Views of other regulators – FCC [1] Telecommunications Act of 1996 classifies two services:

Telecommunications:“[T]he transmission,between or among points specified by the user, of information of the user’s choosing, without change in the form or content of the information as sent and received.” (regulated)

Information services: “[T]he offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications.” (not regulated)

The FCC has not yet classified all types of VoIP services


Views of other regulators – FCC [2]

The FCC recently decided that Free World Dialup is an unregulated information service

AT&T has asked the FCC to rule that phone-to-phone VoIP is not subject to long distance access charges

Vonage has asked the FCC to rule that its service is an information service

The FCC has announced a Notice of Proposed Rulemaking regarding regulatory issues surrounding VoIP


The NRF and Associated Convergent Services

Michael Kende

Associated convergent services

Definitions

Examples

Regulatory jurisdiction

Issues


What is an associated convergent service?

A data service that is convergent with voice services because it:

uses common technologies and protocols (e.g. SIP, IP), and/or

has some of the elements of a voice call (transmits sound/speech, uses telephone numbers, etc)

Instant messaging is just one example


What is an associated facility?

Associated facilities means those facilities associated with an electronic communications network and/or an electronic communications service which enable and/or support the provision of services via that network and/or service. It includes conditional access systems and electronic programme guides


IM and PM as an example of an associated convergent service

Instant messaging (IM) is aservice that can be used toexchange small, text-basedmessages not unlike email,but in near-real-time, allowingusers to chat informally

Both fixed and mobile versions of this service are available

Presence management underlies IM. It is a service for finding, retrieving, and subscribing to changes in the current status of other users


IM and PM within the NRF

It is not clear, but certainly arguable, that IM is a public ECS:

if there were a gateway between voice enabled IM and the PSTN, and access to emergency service, then it could be PATS

It is also arguable that PM, specifically access to the PM database, is an associated facility

The Commission has not defined a relevant market for IM and PM

Regulators have limited powers under the NRF


Powers regulators have(if they were to need them)

General conditions on providers of electronic communications networks, associated facilities, public ECS, or PATS

Using Article 5 of the Access Directive

Ex-ante regulation of players with SMP in a relevant market (e.g. via Article 12 of the Access Directive)

If there were a relevant market defined

Other measures, including standardisation

Ex-post competition law


Issues arising particularly from associated convergent services

What kinds of facilities are associated facilities?

Clarifying “control of access to end users”


What kinds of facilities are associated facilities?

Various regulators believe the DNS may be an associated facility

We have already argued that a PM database might be an associated facility

It would help if there were well understood procedures for designation of associated facilities


Clarifying “control of access to end users”

Article 5.1 of the Access Directive could be used to impose obligations on certain players even if they are not dominant (i.e. potentially all players), if they control access to end users

The question is whether associated convergent service providers (or operators of associated facilities) are undertakings that control access to end-users


Summary and Conclusions

James Allen

Summary of issues arising from the study [1]

Impact on national numbering plans

Impact of extraterritorial service providers

Impact on the relevant markets defined by the EC

Whether VoIP services on fixed networks are provided “at a fixed location”

Treatment of free services

Treatment of self-provided services

Impact on lawful intercept


Summary of issues arising fromthe study [2]

Interconnect to the PSTN

Interconnect to other VoIP service providers’ networks

The possibility of commercial barriers erected by access operators

Security issues

Effects on USO funding

Changes to regulatory costing


Impact on national numbering plans

The existing national numbering plans could prove wholly inadequate if VoIP users (and hence service providers) require significant additional volumes of geographic and other types of numbers

NRAs should consider the implications of such a development now


Extraterritoriality of service providers

VoIP makes it possible to provide domestic or EU-wide voice services (or components of those services) from other countries

this may make it hard for NRAs to take action as their jurisdiction may not apply

We recommend that the Member States and the NRAs consider whether this merits any change to current policy


Impact on the relevant markets defined by the EC

Presence management in combination with voice services could, in certain circumstances, create a link between the fixed and mobile wholesale markets for voice termination, or indeed between different networks (Markets 9 and 16 of the EC Recommendation):

the fixed and mobile termination markets would still be distinct in some circumstances (e.g. when the user is away from their desk or home)

This potential linkage will complicate the regulation of these relevant markets, because it means that the “monopoly of termination to customers on a network” may no longer exist


Whether fixed network VoIP services are provided “at a fixed location” [1]

Providers of PATS at a fixed location are subject to additional obligations

VoIP service providers could argue that the services are not provided “at a fixed location” because they are substantially location independent


Whether fixed network VoIP services are provided “at a fixed location” [2]

Regulators might seek to consider only some VoIP network architectures as “provided at a fixed location”. Such an approach is dangerous, as it will be very difficult to draw this distinction without causing distortions in the market

Consequently, all types of VoIP provided over fixed networks should probably be considered as provided “at a fixed location”


Treatment of free services [1]

It is unclear whether a ‘free’ service, such as AOL IM or Skype, is included in the definition of an ECS

Case law shows:

a bundle of services can be considered as provided for remuneration even if some of the services are ‘free’

the remuneration does not have to be paid by the end user of the service


Treatment of free services [2]

As a result,

AIM would probably be considered a service provided for remuneration, because it is provided to some users as part of a bundle of paid-for services

whereas it remains unclear whether a peer-to-peer application, which is truly ‘free’, is currently a ‘service’ at all


Treatment of self-provided services (DIY and Corporate internal use)

Though unclear, it seems very likely that a self-provided service is not a “service normally provided for remuneration” at all

If it is not a “service normally provided for remuneration”, then it is not subject to the NRF. For example, it would not be subject to general conditions of authorisation

The fact that paid-for equipment and software are used may be irrelevant as these are goods, not services


Impact on lawful intercept Lawful intercept of voice telephony using IP could

take place at a variety of locations within the network

We recommend that some form of common approach between legal interception agencies (e.g. location of intercept, format of intercept) would help minimise the cost to service providers, in particular, pan-national service providers). This would help reduce barriers to entry in providing voice services

We note that the usefulness of lawful intercept may be decreased once VoIP calls use strong end-to-end encryption


Interconnect to the PSTN

We expect NRAs will be drawn into difficult arguments about:

interconnect SLAs and pricing

costing for operators who are dominant and are undertaking major network transformations

These are just part of the normal operation of telecoms regulation

VoIP affects these arguments because it is the cause of the major network transformations, and can cause increased competition


Interconnect to other VoIP service providers’ networks

Analysys expects three models for interconnect:

via the PSTN

VoIP peering (free of payment, with conditions)

VoIP termination (paid-for)

At this stage, we recommend that regulators need only monitor the emergence of the new forms of interconnect, bearing in mind that interconnect disputes are almost certain to arise


The possibility of commercial barriers erected by fixed access operators

Operators who have a vested commercial interest can make VoIP commercially unattractive

Fixed broadband access providers cannot do this given the very low incremental price per bit on almost all wholesale broadband tariffs, and the nature of the relevant market (which means it is very likely to be ex-ante regulated)


The possibility of commercial barriers erected by mobile access operators

Mobile operators do not generally offer flat-rate pricing for data services with access to the Internet. Consequently VoIP over mobile networks rarely offers a substantial cost saving for end users (which suits the mobile operators)

Competition should ensure a wide range of competitive mobile data tariffs and services, although we do not expect these to lead to widespread take-up of VoIP on mobile networks except for carrier internal use


Security issues End users expect their calls to be secure and their bills

accurate

This is not just a matter for those operators providing PATS; providers of ECS are also obliged to have accurate bills, end-user data privacy is protected by national data protection laws, and, in particular, the Directive on Privacy and Electronic Communications (2002/58/EC)

Regulators will need to support efforts to build a service that meets users’ needs and expectations for privacy, and may also have a role in educating the public about the security of the system


Effects on USO funding [1]

Changes to the telecoms market arising from VoIP will change the net cost of providing universal service. Three effects contribute to this:

long-distance and international voice call profits will be reduced

access network costs will be spread over fewer lines

there will be a loss of revenue as a result of ‘free’ services


Effects on USO funding [2]

Regulators will need to monitor these effects, all three of which are relatively small in Europe. In the medium term, these effects will gradually increase pressure on the funding of USO


Changes to regulatory costing IP-based voice technologies may change the underlying

costs of providing certain regulated telecoms services (e.g. voice termination):

this implies that in cases where the costs are used to set regulated prices (e.g. as a result of long-run incremental cost (LRIC) models), a forward-looking costing based on modern equivalent assets could, in some cases, use IP technologies

In Analysys’s view this is not a new issue, although it may create considerable work for the regulators’ economists


Overall conclusions [1]

A transition to IP voice and associated convergent services is taking place

The NRF is suitable for handling this transition, but it would be best to address a number of issues before they become significant blocks to future market development


Overall conclusions [2]

The most significant issue is whether – and under what circumstances – VoIP is classified as PATS (with all the attendant obligations, of which the most important are access to emergency services and network integrity):

early clarification of the policy in this area would be useful


Matters that merit further consideration [1]

It may not be possible to provide the location of a caller making an emergency call using VoIP:

Is this acceptable?

How should users be made aware of this?

What other steps are needed to provide such location information?

VoIP services may not be as robust as the existing PSTN voice service:

To what degree is a VoIP network carrying voice calls expected to be available?



The existing national numbering plans could prove wholly inadequate if VoIP users (and hence service providers) require significant additional volumes of geographic and other types of numbers:

NRAs should consider the implications of such a development now



VoIP makes it possible to provide domestic or EU-wide voice services (or components of those services) from other countries:

we recommend that the Member States and the NRAs consider whether this merits any change to current policy


Commission Presentation

Question and Answer Session

James Allen, Michael Kende, David Cleevely, Margaret Hopkins

Analysys Consulting Limited

24 Castle St

Cambridge CB3 0AJ

www.analysys.com

[email protected]

[email protected]

[email protected]

[email protected]

0030-analysys_presentation_on_voip.ppt

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