The European Commission s Approach to Voice over IP: Frequently Asked Questions

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1 MEMO/05/46 Brussels, 11 February 2005 The European Commission s Approach to Voice over IP: Frequently Asked Questions How does VoIP work? The technology called Voice over Internet Protocol (VoIP) allows you to make voice calls using a broadband Internet connection instead of a phone line. The underlying mechanics of VoIP are very similar to the ones you use when you send or instant messages. VoIP converts the voice signal from your telephone into a digital signal that travels over the internet and then converts it back at the other end. You may use VoIP via a telephone or microphone directly connected to your computer, or via a standalone device like a Pocket PC or even via your conventional telephone by using a special adapter. VoIP is only one of many communication applications that work over the internet. There are several flavours of VoIP. Some offer a user experience very similar to a conventional telephone. Some offer other functionalities such as nomadicity the ability to move around with your VoIP phone, connecting to any internet access point. Being nomadic allows you to use VoIP on your wireless internet at home, at the office or at any public wireless hotspot like in the airport for instance. What is the economic potential of VoIP? VoIP has the potential to radically change the existing structure of the electronic communication markets. IP technology is a hugely important building block for the expected convergence of voice and data networks. At the moment, estimates say that there are around 4.9 million Voice over IP customers in Japan and 1 million in the United States, compared to only in Germany, in France and in the United Kingdom. One of the major drivers for the take-up of VoIP is the expected cost savings from the use of IP technology within the existing telecommunication networks. Internet technology applied to the provision of voice telephony promises enhanced services and cheaper phone calls. The roll out and widespread use of new services like VoIP will in turn encourage competition between internet carriers of telephone traffic and traditional telephone networks, cutting dramatically the cost of telephone services for all business and private users. Also new types of service, of which VoIP will only be one element, will emerge. Converged offerings will all offer more choice to consumers. In addition it will not be the traditional telephone companies alone that will provide this service, but also new entrants who were not in this market before.

2 Why is VoIP an issue to be tackled by the European Commission? It is a longstanding objective of the European Union to promote open and competitive electronic communications markets in Europe. In the context of the revised Lisbon agenda and the Commission s action plan for growth and jobs, the potential of the information and communications technologies plays a key role. In particular broadband penetration currently at 6.5 per cent on average in the EU 25 will only be increased substantially if interesting new services such as VoIP are made available to the consumer at attractive prices. The EU regulatory framework for electronic communications of 2002 was deliberately designed with inbuilt flexibility and openness to new services and market participants. As new technologies develop, the Commission has identified a need to clarify the application of the EU-wide rules and to cooperate closely with national regulators to achieve legal certainty and avoid fragmentation of the internal market for electronic communication services. With regard to VoIP, the biggest regulatory challenge is to ensure that throughout the EU, these services are not stifled at their birth by heavy-handed regulation. For this, the Commission calls for a common procompetitive approach to VoIP, shared by all regulatory authorities in the 25 Member States. What is the Commission s position on regulating VoIP? The Commission favours an EU-wide light touch approach to Internet telephony as the best way to encourage competition between internet carriers of telephone traffic and traditional telephone networks. As the market develops, the European Commission intends to ensure, jointly with the national regulators, that throughout the EU, the roll-out of new IP-based services will not be hindered by regulatory hurdles. It is in the interest of Europe s businesses and citizens that new technologies should be able to flourish and deliver better services at lower cost. Could old public service telephone network based rules & paradigms be an impediment to future development in the telecommunications sector? The old way of thinking about telephone networks usually evokes the idea of the traditional copper wire based fixed network that runs to every household and business. This type of network is associated with reliable voice and data services, once it is put in the ground. The major cost is upfront, in the installation phase. The digital revolution, along with mobile communications, has called into question the business models of traditional circuit-switched telephony networks and services. So, it would be counter-productive and most likely commercially disastrous to assume that voice calls will always be routed through this type of network, even if incumbents argue that circuit-switched networks offer better reliability, quality and security. The telecommunications sector has already evolved into an electronic communications sector because the services on offer are now more than just telephone services. For example, we can receive s on some home telephones and mobile handsets; and more and more of us are accessing data services and the internet from our mobile phones. The reason we can have these services relates to investments made in the underlying transmission technology. Even the old copper networks have the potential to provide these new services, if the appropriate investment is made. 2

3 One way of encouraging this investment is to encourage competition in the development of new services, such as VoIP. Are there great differences in the Member States approaches to VoIP? In each Member State, the national authorities must apply the provisions of the EU regulatory framework for electronic communications under the overall supervision of the Commission. Where Member States have accurately transposed the EU directives into national law and follow the interpretative guidance given by the Commission, serious differences between regulatory approaches in the Member States should not occur. Some differences are permissible due to national implementations but there should be no fundamental differences of approach. With regard to VoIP, there have been tendencies of divergent approaches by the national regulators with regard to submitting these new services to regulation. While some authorities may have taken a more interventionist approach to these services than others, all of them are now conscious of the importance of sending the right signals to the market and of encouraging these new services. Overall most Member States seem determined to take a light touch -approach to VoIP services. What is the importance of today s common position of the European Regulator s Group (ERG) on VoIP? In their common published statement adopted today, the national regulators, gathered in Brussels in the European Regulators Group, have jointly recognised the importance of ensuring that there are no regulatory hurdles to the roll out of these kinds of innovative services. This is a positive first step to an EU-wide light touch approach to VoIP on which the Commission intends to build in its further work on this issue. What will VoIP mean for the individual consumer? From the point of view of the individual consumer making voice calls, several possibilities emerge: (1) if the consumer chooses to do nothing, he/she will see no change because the incumbent s eventual upgrade to IP technology will be invisible; or (2) if the consumer chooses to use VoIP services in addition to his fixed and mobile telephone services, he/she will probably make long distance calls without paying the traditional per minute long distance charges; (3) if the consumer chooses to route all voice calls over IP, he could drop the fixed line connection, then he/she will eliminate the monthly rental charges and the cost of any long distance calls paid to the incumbent. Many subscribers in practice will keep their fixed connection for broadband services. Moreover, the technology can deliver more than just cheaper voice calls. VoIP has the potential to offer more choice and lower prices to the consumer. What about telephone numbers for VoIP users? Technically speaking, any phone number can be allocated to a subscriber of VoIP services. It is actually the national regulator who determines which numbers can be used by VoIP providers. Just like you get a phone number when you subscribe for mobile phone services, you will get a number from your VoIP provider. 3

4 Geographic numbers allow you to some extent to determine to what region in a country a number will be completed or from which calls originate. For instance in Belgium 02 numbers are traditionally reserved for the Brussels region. Note that not every country attaches a geographic significance to numbers. In the future the geographic significance of a number is likely to diminish. Non-geographic numbers are used for such things as free-phone and shared revenue services. But mobile numbers too have no geographic significance, and are thus also non-geographic numbers. The EU regulatory framework for electronic communications provides that when companies need numbers to provide their services, such as for VoIP services, the procedures for acquiring the right to use these resources must be open, transparent and non-discriminatory. There are many different types of VoIP services out there. Some look very similar to your traditional telephone service. And some providers may even allow you to take your existing number of your traditional telephone and port it to your new VoIP service. Other VoIP services work more like instant messaging, and do not need phone numbers. Are there security risks associated with using the Internet for voice communication? It would be wrong to assume that the internet is per se less safe than traditional telephone networks. The internet was designed essentially by the military to survive attacks, taking out major parts of its infrastructure. The disaster of 9/11 proved that Internet Protocol (IP) based systems continued to work where traditional telephone systems failed. Of course, with any new technology, there are new challenges. When cars were introduced, we needed better roads. When net-based telephony (VoIP) was introduced we needed better networks and better security. Just as you use an architect to build your house and not a garage mechanic, you should take care when building and using net-based telephony (VoIP) solutions. So, networks need to be sufficiently advanced and robust in order to cope with new technologies like VoIP. The Commission, in close cooperation with national regulators, will monitor these developments and ensure that potential security concerns are addressed speedily by the providers. What about access to emergency services? The Commission attaches high importance to the possibility of every citizen having access to emergency services via the communications networks and the EU-wide emergency number 112 and to route the caller to the nearest emergency services. When VoIP is used from a fixed location, just like a traditional telephone service, access to emergency services generally presents no problem. In the current state of technological and market developments, it is not always possible for VoIP providers to offer the same functionalities for emergency access as the traditional Public Service Telephone Network. Technology wise, if the caller is nomadic, it is difficult to know where the VoIP caller actually is. It is similar to a user accessing a website from anywhere in the world: there is no way that the website can know (or in this case the emergency centre) where the user is from. 4

5 Rather than imposing strict obligations, the Commission encourages market players to work together on possible solutions. At present, Publicly Available Telephone Service (PATS) suppliers are obliged by the provisions of the EU s Universal Service Directive which is part of the EU regulatory framework for electronic communications to provide access to emergency services, but Electronic Communication Service (ECS) suppliers are not, and until the practicalities of call routing and handling are resolved by the market, it could be disproportionate to impose such an obligation. The Commission considers that any automatic imposition of PATS obligations on ECS providers would impinge impermissibly on the commercial freedom of these undertakings to provide the services of their choice and would not be consistent with the intentions of the Authorisation Directive to encourage undertakings to enter new markets and to invest in innovative services. A couple of years ago, mobile phone providers could not provide an indication where a user was located either. In the meantime this initial problem has been solved. It would be disproportionate to prevent a good technology from entering the market, because it cannot address this issue at this moment in time. Mobile phones have not been banned and they provided good service overall to the general public. Does VoIP threaten the infrastructure investments made by historic operators? The EU regulatory framework for electronic communications is neutral and does not seek to choose winners or losers or to favour any particular technology. It is up to the market players to prove what they are worth and let the consumers decide. That said, it is indeed not unlikely that the existing incumbent operators will be challenged by new entrants that make use of VoIP. However, the incumbents can be expected to make use of this technology themselves and some of them have already started to make substantial investments in VoIP. Such upgrades are in their own commercial interest. The world is moving towards IP technology, and the Internet protocol provides a common data carrier for any information stored in digital form, including voice. What are the next steps for the Commission to promote VoIP? The Commission intends to build on today s statement of the European Regulators Group (ERG) and the results of the Commission s VoIP consultation conducted in 2004 with the intention of ensuring that Internet telephony is able to deliver its considerable potential for enhancing innovation and competitive market entry in the electronic communications sector. Next steps may include Guidelines on the regulatory treatment of VoIP, which could be issued before the end of VoIP could also become an issue in the context of the review of the EU regulatory framework for electronic communications in In addition, the Commission s light touch approach to VoIP will inspire Commission practice regarding the application of the EU regulatory framework for electronic communications in the 25 Member States. 5