Transcript presentation

VoIP Driving the
Restruction of
Telecommunications
Prof. Kaili Kan
Beijing Univ. of Posts & Telecommunications
ITU Future of Voice Workshop
Geneva Jan. 16, 2007
Is VoIP Killing Telecom ?
Telcos’ claim:
• VoIP is IT invading telecom
• VoIP robs voice revenue from telcos
• VoIP takes a “free ride” of telcos’ hard-built
network infrastructure
• ……
• “The Martians are coming !”
Telecom sector in turmoil: WHY ?
Current Structure of Telecom
Vertical integration: (OSI 7 layers)
Network + Service
History background:
– Shortage of bandwidth
– Single service:voice
However, time has changed.
Surplus Optical Bandwidth
• Bandwidth — telcos’ core product
• Cost of bandwidth:
– Infinite bandwidth over fiber
– Cost approaches zero: cross-Atlantic <
USD$0.0001/min. (ITU 1996)
• Price of bandwidth:
– Redundancy: Each telco builds its own fiber
cables for vertical integration
– Price to be driven to zero even faster than cost
The Killer
Law of Economics:
oversupply kills supplier
Telcos killed themselves by oversupplying
bandwidth
Why blame it on VoIP ? Nothing to do with
VoIP, except ……
Telcos’ Options for Survival
Option #1: Break “network + service” vertical
integration:
– Build less, use more: open cable capacity to
service providers
– Telcos become “hollow pipes”
Option #2: Insist on “network + service”
vertical integration: squeeze revenue/profit
out of inefficient usage of bandwidth,
Fact: many telcos chose Option #2.
Telcos’ Strategy to Survive
• Voice: transmission (no “service”)
– Small bandwidth
– Lack of price elasticity
• Broadband data/video:
– Large bandwidth
– High price-elasticity
Strategy: high-price for narrow-band voice,
low-price for broadband data/video
Classical case of 3rd class price-discrimination:
Price reversely proportional to elasticity
Conditions for Price-Discrimination
• Shortage of supply
– True before: copper, 1G, 2G, etc.
– NOT true now: fiber, 3G, Wi-Fi/ WiMAX
• Insulation of markets: no “cross-border
smuggling”
Role of VoIP
• Breaks insulation: “Smuggles” voice into
low-priced broadband market
• Eliminates price-discrimination of voice vs.
data/video
• Forces telcos to go back to Option #1:
–
–
–
–
Service providers share telcos’ fiber cable
Telcos become “hollow pipes”
Vertical network-service integration broken
However, with fiber cables already overbuilt, ……too late.
Future of Telecom
Internet/IP technology:
– Independent of physical network
– Terminator of vertical integration by nature
Vertical integration broken:
– Networks: bandwidth, access
– Services: liberated
Telcos:
– Fixed network telcos: degenerate into “hollow
pipes”
– Mobile operators: extinction (VoIP + Wi-Fi/
WiMAX)
Vision
• Internet — “Of the people, by the people,
for the people”
• VoIP — restructuring telecom (a revolution)
• Breaking telcos’ “network + service”
vertical integration equals to convergence
China at a Crossroad
Background:
– Telcos — State Owned Enterprises (SOEs)
– “National security” issue
VoIP situation:
– Officially “illegal” nationwide
– 4 “experiments” by Telecom and Netcom in
own territory since mid-2005
– Proliferation in underground / gray market
VoIP deployment: only a matter of time
Thank You
[email protected]