Voice over Internet Protocol, or VoIP in short, is one of the most contentious issues now facing regulators as we enter 2005. Much of the debate revolves around whether to define VoIP as an "information service" or a "telecommunication service", according to ITU’s report Trends in Telecommunication Reform 2004/2005: Licensing in an Era of Convergence, released at the Global Symposium for Regulators held in Geneva in December 2004. The term "voice over Internet Protocol" has been used widely as a generic name for the transport of voice traffic using Internet Protocol (IP) technology. VoIP is one example of a cross-sector convergence technology that utilizes packet-switched networks (often, the Internet) to make voice telephone calls. By sharing bandwidth with other data or Internet applications, VoIP providers offer these telephone calls at often cheaper rates than conventional telephony. Consumers are increasingly moving to the Internet to make cheap calls. VoIP poses a challenge to incumbent carriers, some of which still retain exclusive rights to offer voice service in their countries.

Trends in Telecommunication Reform 2004/2005 highlights three broad phases in the development of VoIP telephony markets. For the better part of its history, VoIP has been either largely left unregulated, such as in the European Union (EU) and the United States, or banned completely, particularly in countries where a telecommunication monopoly of the international gateway existed. In countries where VoIP services were unregulated, it essentially implied that VoIP services were mainly provided in an environment where VoIP operators were not given the same rights and obligations as traditional public switched telephone network (PSTN) operators. While that approach was functional at a time when VoIP services were provided to a niche market, VoIP’s gradual entry into the mainstream is making it increasingly difficult to maintain a regulatory distinction between public voice services provided over IP networks and voice services provided over PSTN.

Globally, there are more countries that prohibit VoIP today than those that allow it. Results from the annual ITU Telecommunication Regulatory Survey indicate that a total of only 49 ITU Member States have unambiguously declared VoIP legal (see Figure 1).

Figure 1— IP Telephony: Who can do what, where? Responses to the 2004 ITU Regulatory Survey concerning the regulatory status of IP Telephony (by region) Note — The analysis is based on 132 ITU Member States that responded to questions on IP Telephony in the 2004 Regulatory Survey. Responses are shown by percentages of ITU Member States in each region that responded to the question, but the figures in the chart show the actual number of Member States in each category.

No policy for IP Telephony: The respondent did not answer this specific question, or indicated that there was no current policy, or that a new policy is currently being formulated.

Full competition: All public telecommunication operators (PTO), whether licensed or not, may use both IP-based networks and the public Internet for the conveyance of voice calls.

Partial competition: Non-licensed PTOs may use either IP-based networks or the public Internet for the conveyance of voice calls.

Prohibited: All PTOs (even licensed ones) are prohibited from using IP-based networks or the public Internet for the conveyance of voice calls.

Restricted: Only licensed PTOs are able to use IP-based networks or the public Internet for the conveyance of voice calls.

Source: ITU World Telecommunication Regulatory Database.

The growth of VoIP
Flashback

Today, the market offers what might be termed "voice over broadband" (VoB), widening the appeal for VoIP. Broadband networks have become popular. And broadband Internet access continues to grow worldwide. At the start of 2004, there were more than 102 million broadband subscribers in about 100 countries where broadband services were available. Users who have broadband access to the Internet generally experience fewer quality-of-service lapses than those who, in earlier days, experimented with IP Telephony* over slow-speed, dial-up access. Almost 30 per cent of Internet subscribers have broadband access at speeds ranging from 256 kbit/s to 100 Mbit/s and more. In terms of penetration rate, the Republic of Korea was the leading economy at the start of 2004, with 23.3 broadband subscribers for every 100 inhabitants. In terms of absolute number of subscribers, the United States was the largest single broadband market at the start of 2004, with over 25 million subscribers. But that might not hold true much longer. China added 11 million new broadband users in 2003 to reach 13.5 million, and at current rates of growth, it was expected to overtake the United States by year-end 2004 as the economy with the most broadband users. China had already overtaken the United States in terms of fixed lines in 2002 and mobile phones in 2001.

Companies marketing voice over broadband have tended to focus more on domestic long-distance and residential access rather than international calling. Vonage and Skype are some of the companies that are active in the VoB market. Vonage markets a flat-rate calling plan (unlimited calls in North America for USD 24.99) per month and international virtual numbers which allow for international calls to and from the United States at local call rates. Skype offers free and flat-rate calling plans based on a peer-to-peer network architecture, and claims over one million users. This new generation of voice services may well be integrated into instant messaging or chat services. Now regulatory concerns are less about whether or not to allow VoIP, but rather about how to regulate it.

VoIP services began to be offered in direct competition to public switched services between the mid-1990s and the peak of the "dotcom bubble" in 2000, using privately owned IP-based networks in addition to the public Internet. Companies such as DialPad, Genuity, iBasis, ITXC, Net2Phone or VocalTec, provided these new VoIP services, allowing users to make low-cost calls to and from ordinary telephones. The asset values of these companies collapsed with the global economic slowdown that began in 2000. Some of the companies were acquired by traditional public telecommunication operators (PTO), which were busy developing their own IP-based networks. This phase saw regulators in developed country markets lobbied to exempt Internet services from regulation. In developing country markets, VoIP continued to be restricted or prohibited.

The articles on VoIP have been adapted from Trends in Telecommunication Reform 2004/2005: Licensing in an Era of Convergence, written by a team of external authors and ITU staff composed of Doreen Bogdan-Martin, Susan Schorr, Nancy Sundberg, Tim Kelly and Eric Lie. More information on this sixth edition of Trends in Telecommunication Reform and on other ITU regulatory activities is available at www.itu.int/ITU-D/treg/

At the very beginning of Internet telephony services in the early-to-mid-1990s, the public Internet was generally used to provide these services. Companies such as Free World Dial-up, Firetalk and PhoneFree flourished during this period. Many of these companies promoted PC-to-PC applications that did not compete directly with public switched telephony providers. Some of these applications were inconvenient to use because they did not involve the use of normal telephones. Regulatory pressure to prohibit these services came mainly from monopoly PTOs in high-price locations who felt they were losing money through price arbitrage.

While many have argued that the absence of regulation in the past fostered the deployment of VoIP, there is also the possibility that public VoIP services would now stand to benefit from regulation relating to, among other things, interconnection, access to numbering resources and essential facilities access.