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 1
Agenda 1. Market drivers 2. Defining VoIP regulatory treatment 3. VoIP market 4. Future Evolution 5. Conclusions TeleEvo 2006, Moscow, 25 October 2006 2
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 TeleEvo 2006, Moscow, 25 October 2006 3
1. Market drivers: IP as a key enabler Multimedia Services Television Internet Telephony Television Internet Telephony Control layer IP-based network Evolution from multiple separate networks (each optimized for one service) to a unified IP-based multi-service network TeleEvo 2006, Moscow, 25 October 2006 4
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 5 http://www.itu.int/osg/spu/ngn www.itu.int/osg/spu/ngn/
The transition towards NGN Circuit-switched Interconnection Old World (PSTN telecom) Capacity-based QoS guaranteed Cost orientation, focus on marginal cost Calling Party Pays (CPP) Key issues asymmetric regulation (numbering, universal & emergency service) Network-centric control & intelligence New World (IP-based Internet) 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 Institute s workshop on this subject). Unlicensed bands, spectrum trading, competition policy, emergency service Edge-centric - intelligent nodes at edge TeleEvo 2006, Moscow, 25 October 2006 6
Forces driving VoIP (cont d) 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. TeleEvo 2006, Moscow, 25 October 2006 7
Increasing availability of broadband 180 160 140 120 100 80 60 40 20 0 Number of countries with broadband commercially available 81 113 133 145 166 2002 2003 2004 2005 2006 Source: ITU World Information Society Report. Source: ITU TeleEvo 2006, Moscow, 25 October 2006 8
At faster speeds Growth in max. broadband speed available 40 2003 2005 2006 Number of countries 35 30 25 20 15 10 5 2006 2005 2003 0 256 512 768 1024 1280 1536 1792 2048 2304 2560 Speed (kbps) 2816 3072 3328 3584 More Source: ITU. TeleEvo 2006, Moscow, 25 October 2006 9
Growth in broadband in subscribers & share 500 Internet subscribers worldwide, in millions 400 Mobile broadband 300 Fixed-line broadband 200 100 0 Fixed-line narrowband 1995 1997 1999 2001 2003 2005 Source: ITU TeleEvo 2006, Moscow, 25 October 2006 10
Source: ITU. International voice traffic (bn mins) 200 175 150 VoIP PSTN As % of total 125 100 13.1% 15.5% 75 11.8% 50 7.4% 4.8% 25 0.2% 1.6% 0 1998 1999 2000 2001 2002 2003 2004 TeleEvo 2006, Moscow, 25 October 2006 11
Falling price (& revenue?) in int l voice traffic 60 Source: ITU World Telecom. Indicators Database 55 50 45 40 63 58 51 44 Revenue (US$bn) Price per minute (US cents) 39 35 32 35 1998 1999 2000 2001 2002 2003 2004 TeleEvo 2006, Moscow, 25 October 2006 12
Transition to VoIP: incentives for operators Incentives in the Development of the Market (figurative) 100% 80% Competitors 60% Profits 40%?? 20% Costs 0% 1995 1997 1999 Time2001 2003 2005 TeleEvo 2006, Moscow, 25 October 2006 13
But beware: price reductions for consumers! Cost (USD) 70 60 50 40 30 20 Average cost of ICTs worldwide 2003-2005 2003 2005 mobile basket -12% p.a. $16.81 $12.94 20 hours' Internet access -12.5% p.a. $37.44 $28.20 $60.74 broadband ($/100 kbps) -20% p.a. $34.28 10 0 TeleEvo 2006, Moscow, 25 October 2006 14
Incentives with price reductions 100% Incentives II (Taking into account declining costs) 80% 60% Profits Competitors 40% Costs 20% 0% Costs 1 2 3 4 5 Time 6 7 8 9 10 11 TeleEvo 2006, Moscow, 25 October 2006 15
Agenda 1. Market drivers 2. Defining VoIP - ITU work and working terminology - Country definitions - Regulatory treatment 3. VoIP market 4. Future Evolution 5. Conclusions TeleEvo 2006, Moscow, 25 October 2006 16
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 TeleEvo 2006, Moscow, 25 October 2006 17
2. Defining VoIP: Country definitions Definition Selected countries QoS, now replaced by Functionality Numbering system India, Japan Hong Kong Japan, Taiwan-China Netwk. Architecture Israel, Saudi Arabia Degree over PSTN & terminals used Service Users Israel, Jordan India, Japan, Malaysia, Spain Egypt, Barbados, Indonesia, Italy, Jordan, UK, United States. Australia, Chile, Tunisia TeleEvo 2006, Moscow, 25 October 2006 18
Regulatory status of IP Telephony, 2005 100% 80% 60% 40% 20% 0% 13 12 2 10 2 9 4 2 5 7 3 6 5 1 1 Africa Americas Arab States Asia-Pacific Europe/CIS 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. TeleEvo 2006, Moscow, 25 October 2006 19 Source: ITU World Telecommunication Regulatory Database (2005 questionnaire). 3 4 7 3 8 3 1 2 3 33 No policy for IP Telephony Prohibited Restricted Partial Competition Full Competition
The spectrum of regulatory treatment of VoIP, 2006 Explicitly banned (at least 23 countries) Yet to be made legal- Twilight Zone of regulatory ambiguity If in doubt, hold a Public Consultation (22 countries +) License required (26 countries+) Under consideration by gov t/regulator (30+). Explicitly deregulated and/or light regulatory touch (19 countries+) Explicitly legal (57 countries +) TeleEvo 2006, Moscow, 25 October 2006 20
& Russia? Directive on Telematic Service Source: http://www.minsvyaz.ru/site.shtml?id=3075 TeleEvo 2006, Moscow, 25 October 2006 21
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 TeleEvo 2006, Moscow, 25 October 2006 22
3. VoIP market - strong growth Worldwide VoIP Subscribers 300 250 VoIP subscribers (millions) VoIP share of total mainline subscribers 18 16 14 Millions 200 150 100 12 10 8 6 50 0 2005 2006 2007 2008 2009 2010 2011 4 2 0 Source: IDATE. TeleEvo 2006, Moscow, 25 October 2006 23
Distribution of VoIP subscribers Distribution of VoIP subscribers, mid-2005 Germany 2% Italy 5% Korea 2% Neth. 1% Sweden 1% Norway 0% France 11% North America 16% Japan 62% Source: Point Topic. TeleEvo 2006, Moscow, 25 October 2006 24
But how to measure the missing millions? Household VoIP in the UK (1.8 million) 300,000 17% BT 150,000 8% Wanadoo Orange Skype/ Vonage Difficult to estimate! 1.35m 75% Source: OFCOM TeleEvo 2006, Moscow, 25 October 2006 25
Agenda 1. Market drivers 2. Defining VoIP regulatory treatment 3. VoIP market 4. Future Evolution - Market projections - Voice in bundles - The transition to flat-rate pricing 5. Conclusions TeleEvo 2006, Moscow, 25 October 2006 26
4. Future Evolution: Market projections % of total int'al minutes 50 45 40 35 30 25 20 15 10 5 0 Estimates of international VoIP traffic Delta Three White Paper Yankee Gp. Tarifica Analysys Telegeography /PriMetrica ITU Delta Three WP Yankee Gp. 1996 1999 2002 2005 2008 Source: ITU et al. (ITU estimate refers to IP Telephony) Pink line Telegeograhy TeleEvo 2006, Moscow, 25 October 2006 27
Voice included in bundles (UK) TeleEvo 2006, Moscow, 25 October 2006 28
Shift towards flat-rate pricing Evolution in Pricing Strategy Number of countries 180 160 140 120 100 80 60 40 20 0 Data Time 166 Both Flat-rate 145 133 81% 75% 68% 2004 2005 2006 Source: ITU Data: billed by data downloaded or time spent online or combination both. TeleEvo 2006, Moscow, 25 October 2006 29
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. TeleEvo 2006, Moscow, 25 October 2006 30
Thank you very much Phillippa.biggs@itu.int www.itu.int TeleEvo 2006, Moscow, 25 October 2006 31