Transformation of Voice Services:

Implications for Future of Regulation

Tomas Lamanauskas
Deputy Director
Communications Regulatory Authority
LITHUANIA

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Outline of the presentation

• When voice becomes data…Implications for:

•Technologies
•Services
•Identification systems
•Business models
•Regulatory response to the changing environment

2
When voice becomes data…
“A seismic shift is underway in the telecommunications world where Voice over Internet Protocol
has begun to make its inevitable move from the consumer realm into the mainstream as an
enterprise service, and is beginning to consign traditional telephony to the dustbin of history.”

- Can there be any future for traditional telephony?

“It was the industry’s bread and butter for over a century. But the end is now in sight for traditional
telephone services, which will soon be overtaken by voice-over-internet calls in terms of usage, and
displaced by broadband internet access as the core revenue- earning service offered over fixed
lines by telecoms firms.”

- The end of the line !

d ead
ony is
ph
tele
l
d i t iona l telepho
ny !
Tr a rad it iona
killing T What does it
VOIP is
The phone call is dead! means? Does voice
Traditional tele
phony has had
have any future?
its day !
The end of the
line

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When voice becomes data…
• For 100 years, telecommunications has been carried on a
closed proprietary network, highly stable but limited in its
applications, and connected to tens of millions of telephones.
• As voice over IP grow, telecommunications are changing to
become open and extensible, capable of supporting new
applications, carried on a public network, connected to complex
and vulnerable multitasking end points (usually computers).
• It is important and stunning, that VoIP is switching over
naturally, driven by market forces, not a bureaucracy or political
decisions. It is just happening.
• With VoIP, phone conversations move around the world in the
same way that e-mail, videos, IM conversations, as little
packets of bits. Seams that voice will no longer be voice. It is
becoming to be data…
• It is a cultural and infrastructural shift from plain old telephone
service, POTS, to VoIP, which are deeply challenging ingrained
customs of consumers, services providers and regulators…

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When voice becomes data… Technologies

As VOIP service relies on software, rather than the traditional physical telephone
infrastructure, this leads to significant changes in the entire telecoms industry…

•Technology transformation – from "single" service networks to IP-based service architecture

Yesterday
Yesterday Today
Today and
and Tomorrow
Tomorrow

•one – service optimized networks IP-based

Networks Applications
Access
–PSTN, GSM networks…
–Terrestrial TVR broadcasting,
Cable TV networks…

Source:ITU.

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When voice becomes data… Services
Yesterday
Yesterday Today
Today and
and Tomorrow
Tomorrow
•clearly distinct services
–Voice calls mobile
–Radio listening
–TV watching
–Text typing, calculation
•one – service providing devices
–Simple radios and simple TV sets
–Simple phones
–Earlier generations of PCs

Source: Alcatel, Surf-com

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When voice becomes data… Identification
systems
Yesterday
Yesterday Today
Today and
and Tomorrow
Tomorrow

Fax.: +370 5 210 5664

E-mail: tlamanauskas@rrt.lt ENUM!

Tel.: +370 5 210 5627

Tel.: +370 5 210 5627

• While traditional telephony takes account of

geography, distance, and state boundaries,VOIP
shatters all three…

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When voice becomes data… Business modes
Yesterday
Yesterday Today
Today and
and Tomorrow
Tomorrow

Pipe provider Converged provider

• The provider of voice services does not need to have
Typical business model – incumbent telco: its own access infrastructure.
• Voice services • Bundled services - the transition to IP would create
• Basic connectivity new applications and business models for voice,
which would often be bundled with other services in
flexible combination.
Service provider • The "per minute" model is disappearing, and the
Typical business model – ISP concept of minutes and distance is "losing the
meaning."
• E-mail
•Three pre-requisites voice service providers would
• Internet content need for their future success:
• Other services • quality,
• interoperability, and
• flexibility

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When voice becomes data… Consumers choice

Consumers want Communication •Personalization

experience adapted to •Interactivity
their lifestyles
•Accessibility
•Mobility

Any services, anytime, anywhere

Enterprises want Communication that •Productivity

increases productivity,
•Simplicity
improves efficiencies
and reduces costs •Security
•Reliability

Efficient communications

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When voice becomes data… Consumers choice
For end users and business users VoIP offers:
VoIP adoption, thousands of users
Source:IPC
Estimates say that in the beginning of
2005 there ware around:
• 4.9 million VoIP customers in Japan;
• 1 million in the USA;
• 110.000 in Germany, 220.000 in France
and 50.000 in the UK.
Source: EC
– Cost savings
 VoIP made available cheaper calls all around the
world;
 As competition becomes fiercer across all
industries, enterprises are pressured to control –
if not decrease – costs. VOIP has already shifted
from an emerging technology to a critical
business solution, which offers significant cost
savings from reduced network maintenance.
– Greater flexibility and advanced features
that IP-based telephony supports
 Voice goes along with other services, such as e-
mail, videos, IM conversations and ect. Consumers
get “all together now”.
 By business users the move to converged IP
networks has also been facilitated by
improvements in quality of service and by the
broader shift from circuit-switched to IP-based
systems in the telecommunications industry.
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When voice becomes data…
100%

90%
2,1 2,8 3,7 4,7 6,2 6,9 6,4
 Does voice have any future?
6,8 7,6 8,6
80%
Definitely yes, voice remains to be the main
70%
revenue source for operators…
60%

50%
31,6
…the rapid development of VoIP suggests the
27,9 27,1
40%
28,4 26,8 26,3 24,8 24,3 23,8 23,3
death of traditional pricing and business models,
30% rather that the real death of traditional telephony
20%

10% …people are going to make calls and

0% communicate in a traditional way and voice
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
services seams to remain as a basic utility still
ARPU Voice ARPU Data for a long time
ARPU growth hypothesis for Western Europe
…voice still remains the king with another
Source:IDATE
clothes only …

 The real value of VoIP is that it allows voice to become nothing more than another
application in the data network. Therefore we should start thinking of voice services (no matter
how they are provided) as a regular ICT service…and apply the same common regulatory
principles…
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Regulators response to the changing environment -
principles

 No barriers to entry
IP has already lowered barriers to
For appropriate response to undergoing changes
entry, enabling broader and
we (regulators) have to answer the main question:
stronger competition, therefore the
 do we have to try running on the neck of
regulatory regime should be the
the market changes? or
one that not disturb, but encourage
 do we have to revise our thinking about
the trends…
this high-tech market dynamism?
Adopt general authorisation regime for
I prefer the second option:
services
 the issue is not the changes, but our
 Easy access to the market
attitude to any changes…
 are we – regulators - open?  Ensure the consistency and neutrality
 non-discriminatory? of regulation over any technology
 walls’ removers?
 Neutrality of the framework
 legal certainty providers?
 or … do we think, we are better  Remove restrictions based on
experts than the market? establishment
 Cross border services

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Regulators response to the changing environment -
principles
 Effective competition
 Some telecoms carriers, realizing their
vulnerability to VoIP, as voice accounts for
over 80% of their revenues, are currently
building next-generation networks based
on internet technologies to be able to offer
VoIP services themselves, bundled with
other offerings. The others try to push for
traffic differentiation for certain service
providers, thus trying to subsidize access
costs and to preserve their power in
service markets though access provision.
 The real separation of access and other
services together with full tariff
rebalancing, even if this cause the growth
of access prices, is the main contributor to
development of competitive voice services
markets.
 Another important contributor is -
promotion of real/ infrastructure competition
in access markets, supported by applying
basic principles:
• Sufficient access to the inputs,
administrated by the state (esp. radio
frequencies)
• Regulatory neutrality and certainty
• Appropriate remedies to the market
failures
• Appropriate pricing regulation,
providing for the right signals to the
market and promoting ladder of
investment while decently employing
economies for scale and scope for
general benefit
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Regulators response to the changing environment -
principles
 Competition neutral universal services
VoIPocalype encourages us to rethink social
issues, such us universal services and their
compensation mechanisms, accessibility of
emergency services…
Traditionally, access and services have
been provided together. But with VoIP it is not
necessary the case.
Today ubiquitous universal service provider
usually is the market player which has SMP in
access markets. Is it still viable and for how
long?…
 Ideally the universal services should be a
part of common social payouts and
compensations policy
…everyone could decide what is the most
important to him/her,
… government shows the advantages of choices
 But if it is really necessary - the
universal services compensation
mechanisms should be
…neutral in the context of competition
development, i.e. no competitive advantage to
anyone.
…implemented on demand side, i.e. allowing
consumers to decide which service by which
service provider supplied is necessary and the
most beneficial for him/her
 Accessibility of emergency services
Is it still a feasible obligation for service
providers? Or maybe it should be implemented
by access providers or emergency centers
themselves?
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Regulators response to the changing environment -
principles
Proprietary platforms versus open platforms
 Incentives to creativity  Just a few examples:

 Service convergence, vertical integration

between transport and content, triple or even
quadruple play bundles are increasingly
common around the globe... What this really
means:
• Move beyond mere pipeline operator…
• Creation of “walled garden”…
• Discrimination of traffic…
• or just costs (thus and prices)
minimisation and new innovative services
to users?
 Probably it is consumer choice, which
makes certain business models and
platforms more successful than others…
 Therefore regulation should
 react to market failures but not to
build barriers for creativity straight from
the birth of the idea;
 create incentives for interoperability
among networks, technologies,
equipment, devices and services.

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Regulators response to the changing environment -
principles

 Ubiquitous identification systems

VoIP expansion: The information society is becoming a
“ubiquitous” information society - more
has not only undermined the business and and more a part of our everyday lives,
pricing models of industry making most of its where everyone can be connected with
money from voice calls, everything whenever and wherever;
made available cheaper calls all around the In this context, ubiquitous identification
world… systems (less linked to geographical
but has also raised the “diffusion of nationality of location) are becoming more and more
resources” issue as well... important:

VoIP make a mockery of geographical  Managing and balancing

conventions such as area codes… between users identity and privacy
The move from number portability to
identificators, owned by users and
separated from services and service
provider probably is another consequent
step forward

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Regulators response to the changing environment -
principles

 Users trust
Ensuring trust in digital space:
 Protection of economic rights, including
For many years VoIP was considered too right to information
unreliable for general use by all but a few
 Privacy and data protection
early adopters…
 Network and information security and
VoIP is a subject to all (maybe even more) protection against cyber-crimes and
the risks and vulnerabilities that affect Internet cyber-terrorism
data networks, therefore privacy, security and
trust is becoming a crucial issue.
Education and awareness rising
 We can create the most competitive and
Rapid development of ICT and
innovative ICT markets, but nobody will
globalisation also lessens regulators
benefit from them without users capacity and
possibilities to protect every user
willingness to use ICT.
directly, therefore evolution of
educated and selective user
seams the only true way out.

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Choice of appropriate approaches

 Technological neutrality
For service regulations it does (should) not matter what is the technology behind a
service. The “technology neutral” approach to all infrastructure is the only way to
encourage companies to engage in infrastructure-based competition for the delivery of
competing services.
Otherwise we will (if will) have regulatory enforced ICT’s, but not users utility
maximising ICT’s. Regulatory regime should allow technologies to evolve and regulator
to respond where and when it is necessary…

 International – global approach

With globalisation and convergence we cannot address the situation in a piecemeal and
national fashion. As market players expand their business boundaries and makes their
markets more global, regulation cannot be geographically isolated.

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Choice of appropriate approaches

 More reliance on market

The development of VoIP is driven by market forces, it is the choice of market and we
can not deny its success. Therefore we, regulators, probably should place more
reliance on market decisions – allow more self-regulation processes and care about
the transparency in the market rather than being involved in direct regulation.
While analyzing voice services market trends, technology developments, trying to
predict the future and to chose the best regulatory instruments, it sometimes seems
that we've forgotten that the purpose of the telephone call, internet call, e-mailing and
ect. is to allow people to communicate. It is a simple goal and it is necessary for us to
make it happen in a way that market needs…

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 Thank you !

Tomas Lamanauskas

Communications Regulatory Authority,

Algirdo 27, Vilnius, Lithuania
Phone: +370 5 210 5627
e-mail: tlamanauskas@rrt.lt

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