VoIP-News.com – Will VoIP Join The Telco Counterrevolution?

Interesting news on international call blocking…

Original Story


Voice over IP is clearly a revolutionary technology. It has the power to topple traditional technical, business, and regulatory models. Having the power and using it, though, are two different things. VoIP could just as easily become a tool of entrenched telcos, part of the status quo they’re trying to protect rather than the competitive turmoil they’re trying to prevent.

Which way it will go remains an open question. But the front line in this epic struggle between the established and the disruptive for control of a rapidly evolving technology will be efforts by telcos and other well-funded VoIP providers to block competitors’ VoIP on their networks. It’s a technically tricky and politically delicate task rife with contradiction.

VoIP blocking actually has a long and colorful history in much of the world. The blocking can be as blatant as closing a router port, or as subtle as forgetting to follow up on certain kinds of incident reports. It can be regulatory or technical, though regulatory blocking usually requires technical enforcement. Either way, it has long been a weapon by which established telecom companies tried to cripple VoIP’s potential to bring revolutionary change to their markets.

The U.S. is just beginning to thrash out how VoIP blocking might work and what impact it might have. Such questions are at the heart of the current network neutrality debate. But so far, most of the debate has been speculation about what might happen. For real-life examples, the debaters might want to look overseas. That’s where VoIP has done most to undermine old regimes, and VoIP blocking has done most to protect them — even when the old regimes are themselves VoIP operators.

The international VoIP insurrection dates back more than a decade. It has targeted telecom carriers hiding behind regulatory barriers that let them keep prices for international calls at levels akin to extortion.

But international VoIP is just the latest of several methods aimed at undercutting those prices. All of the methods played off the peculiarities and inconsistencies of the global telecom pricing system dating back more than a century. That system established officially negotiated per-minute prices, called settlement rates, for all calls between pairs of countries.

The carrier that originated a call in one country paid the carrier that terminated it in the other exactly half of the settlement rate, and kept the rest for itself. (In the postal system, by contrast, the originating carrier keeps all of the revenue, in the form of postage, for itself.)

When traffic was the same in both directions, the carriers owed each other nothing. But when traffic in one direction was significantly higher, the carrier originating most of the calls paid a lot of money to the one terminating them.

It was a great deal for termination-heavy countries. Often they were developing economies with a lot of citizens earning relatively high incomes overseas. And because the carriers were generally state-owned or -controlled, much of that money typically went straight into government coffers.

It was good incentive for them to keep settlement rates high. But it was less than great for the originating countries. After all, it amounted to one country paying serious sums to another for a product that both were jointly using.

It could also be bad for the originating carriers. As deregulation spread to their markets, competition often forced them to lower their international rates. That meant their take was not 50 percent of the official settlement rate, but a fraction of it, though they still had to pay the full 50 percent to the terminating carrier.

The system was also obviously bad for callers. Even if their own carrier had cut prices, they still had to pay more than half of the settlement rate, which often meant several dollars per minute. It all left a lot of people and telecom companies with an interest in getting around the official system if they could.

One of the earliest methods, dating back decades, of attacking protected pricing was callback. A person in a high-cost country could call a number in a low-cost country, where a machine would immediately call the person back at the lower rates. It would also dial the local number the caller was trying to reach, setting up what was essentially a two-hop call.

But as more markets began to deregulate, several ways emerged to bypass those carriers entirely. The most straightforward was direct interconnect, which involved setting up a high-capacity line into the country, and delivering calls through a gateway for termination by the local phone company. But that only worked where there was at least some degree of deregulation.

A sneakier approach was refiling. That meant routing a call to an expensive country through a carrier in a cheaper third country, which removed all identifying information so that the call looked like it originated there. Often the sum of the calls from say, the U.S. to South Africa and South Africa to Angola is less than the cost of a call from the U.S. to Angola, according to Patrick Christian, senior research analyst at TeleGeography.

International VoIP, the third bypass method, required nothing more than having a gateway in the country that connected to a fat IP pipe on one side and the local phone network on the other. The pipe could be either the Internet or a dedicated IP link.

Interconnect and refiling were good examples of conventional technologies used to drive the development of new business models. But international VoIP, with its decidedly non-conventional technology, had particular advantages. First, because authorities had trouble understanding its implications, in many countries it lived in what TeleGeography calls the “gray area” of international telecom regulation, neither clearly legal nor clearly illegal.

It could also be difficult to detect, especially in countries that had a lot of IP circuits run by different ISPs going in and out. According to Christian, some overseas telcos went so far as to have agents in the U.S. place calls via international VoIP providers, to see if they could trace the calls as they came into their countries. They found it nearly impossible.

Either way, international VoIP was a big success. Traffic volumes grew at triple-digit rates between 1997 and 2001, according to TeleGeography. It was almost a case study in how a new technology and business model can demolish the old. But international VoIP growth fell significantly after its initial spurt, Christian says — mainly because of its success. By offering a way around the conventional carriers in protected markets, it forced the carriers to lower their prices to compete.

Ironically, when they did, they often found their call volumes skyrocketing. Many of them, deciding to join rather than fight, also began openly terminating incoming VoIP traffic, according to Christian. In short, the new competition forced conventional carriers to learn new ways to hang onto their business. And the growth rate for international VoIP dropped to 26 percent in 2003.

Still, In-Stat principal analyst Keith Nissen notes that international VoIP, up to and including the free type running over the Internet, has brought a fundamental shift in caller thinking. “It’s generating a different kind of calling behavior,” he says. “At three to five dollars a minute, you’re only going to make a two-minute phone call. With Skype, you’re going to talk for two hours.”

And the revolution continues to spread. Even now, developing and/or still-regulated countries in places like Africa, Asia, Eastern Europe and Latin America remain hot markets for VoIP bypass, according to TeleGeography.

Overall growth is picking up again, too. In 2004 and 2005, international VoIP’s growth rate crept back towards 40 percent, three times higher than that of switched telephone traffic, according to TeleGeography. And last year, VoIP accounted for more than 16 percent of all international phone traffic last year, the research firm estimated.

One thing about international VoIP traffic is decidedly non-revolutionary: most of the calls still originate and terminate on the PSTN. While this might on the surface make the entire business seem like little more than running voice traffic over an IP backbone, the mere fact that it’s IP makes a significant difference when trying to get traffic into and out of countries.

Many of the carriers that drove the early growth were wholesalers such as iBasis and the former ITXC (now a part of Indian national carrier VSNL) doing cheap international call completion. Others were retailers offering cheap overseas calling rates via prepaid cards. And many were combinations of the two types.

Recently, however, dedicated IP telephony providers like Vonage and Lingo, as well as the cable MSOs, have begun to account for increasing amounts of traffic (often through the wholesalers). That fact may account for the growth uptick over the last couple of years. It certainly makes for more imaginative — and telco-threatening — services.

But despite VoIP’s success in opening up many international markets, VoIP blocking has been successful in keeping others closed. Many Middle Eastern countries still have a single government-owned or -controlled carrier, and have managed to keep international VoIP traffic to near nothing. They can do so partly because they control their entire domestic networks, and partly because VoIP-detecting technology has improved.

But the most striking example of VoIP blocking is in China, which is itself also a VoIP pioneer. After receiving a license to offer VoIP services in 1999, China Telecom was by 2004 delivering 60 percent of its international traffic, and much of its domestic long-distance calling, as VoIP, according to TeleGeography.

Chinese carriers do terminate international VoIP traffic from major wholesalers, Christian says. But China is also serious about restricting VoIP traffic that doesn’t work to its advantage for one reason or another. Last November, for example, an unnamed Tier 1 Chinese telco bought Verso Technologies software for blocking Skype and other peer-to-peer VoIP communications.

And in April, Shanghai Telecom ordered an IP traffic monitoring system from Narus that will let it block “rogue” VoIP traffic on its network. In short, at least two top Chinese carriers were unabashedly determined to use VoIP blocking to prevent competition to their own VoIP services from running over their networks.

A leading South Korean ISP, Dacom, has similarly threatened a number of times, including in late June, to block “illegal” VoIP services, though it has each time backed down. U.S. service personnel stationed in the country were big users of the services in question.

Such attitudes would never fly in the U.S., where the FCC has made clear that it won’t tolerate any deliberate VoIP blocking by network operators. But what actually happens may depend on what your definition of the word “block” is. If it means “inadvertently” making it hard for someone else’s VoIP traffic to get through with good voice quality, or even failing to make it easy, it will be hard to stop.

The big question, says In-Stat’s Nissen, will ultimately be whether the network operator or the provider of the service running over it is responsible for figuring out why the service is performing poorly. In a way, though, it doesn’t matter. As long as it is performing poorly, it opens the opportunity for the network operator to offer its own VoIP service, with quality guaranteed to be high, but revolutionary potential likely to be low.

And that may be as effective a way to protect big-carrier VoIP services — and thus traditional telco models — as any deliberate blocking in China. More effective, in fact, because there’ll be no way to argue whether it’s justified — or even that it’s happening.

It’s something to keep in mind as the era of video-over-broadband, with all the bandwidth and quality issues that implies, comes into being.


One Response to VoIP-News.com – Will VoIP Join The Telco Counterrevolution?

  1. herrychessla says:

    I really appreciate what you have mentioned in your post. VOIP market is getting increases day by day, i don’t think it would be blocked.
    business voip systems

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