The Ovum View: VoIP regulation - the big issues ahead

What’s happening to VoIP? VoIP and traditional telephony have always been uneasy bedfellows and the increasing capability of VoIP solutions is putting more strain on the relationship. Anyone with a broadband connection – DSL or cable – can subscribe to a VoIP provider and make phone calls to anywhere in the world at rates below those of an incumbent. The incumbent telco does not see the voice traffic in its circuit switched network and the service is largely unregulated. Were it not for the fact that DSL service usually requires a PSTN line DSL users could dispense with telco voice services entirely – in favour of VoIP.

Why the passion for new regulation? In the past, VoIP was categorised by most regulators as a sort of information service – a convenient definition that enabled the market to grow in the face of telco hostility. Now VoIP is maturing rapidly from its niche in toll bypass to be a fully-fledged alternative local telephony service. Most of the features you get from the PSTN are now also available in a VoIP over broadband solution (see, for example, Vonage).

That fact, and some agitation from Jeff Pulver in connection with the Free World Dialup VoIP service http://fwd.pulver.com, has led Public Utility Commissions (PUC) in the US to re-examine the classification of VoIP over broadband. In Minnesota, the PUC has just put forward some cogent arguments for classifying VoIP over broadband as telephony and has required Vonage to register as a telco if it wishes to continue operations there. Other states are mostly undecided or have pledged to keep a watching brief on VoIP. A federal ruling is urgently needed to clarify the regulatory position.

Something to learn from Europe? On a worldwide basis there are less than 200,000 VoIP over broadband users today and probably fewer than 20,000 in Europe. The new European regulatory framework for telecommunications is favourable to VoIP market development. It introduces few obligations on carriers and the most severe will apply to those operating services in which they are deemed to have “significant market power (SMP)”. Under this definition a non-incumbent carrier offering IP telephony is not going to be ruled to have SMP for some time given that there are over 130 million consumer PSTN lines in Europe. This situation provides a major opportunity for the early establishment of VoIP over broadband within Europe. Cable companies and independent VoIP providers should leverage the new framework and launch services. Regulators in the US might care to adopt the European framework approach to stimulate the VoIP market rather than strangle it.

Any other tricky issues? A variety of issues are being raised as stalling tactics by VoIP opponents but the only issue of significance is the future of Universal Service. Others, such as support for emergency service access, are essentially a sideshow. By the time VoIP over broadband is significant in the market it will be technically equivalent to the PSTN and in the interim concerned users can retain an old-fashioned telephone line for their peace of mind.

The real debate to come is about how Universal Service is funded. VoIP will soon be on a parity with other telephony platforms and able to meet any national definition of minimum service. Customers will be able to choose the minimum service from the PSTN, VoIP or mobile phone platforms. Why then should the obligations, costs and income for Universal Service continue to accrue solely to incumbents?

Voice over IP (VoIP) has been maturing since first proposed in the mid 1990s. It has been adopted by many businesses for voice trunking and increasingly for greenfield deployment for desktop voice. Ovum’s latest research into VoIP is: Voice over IP: strategies in the consumer market.