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The significance of VOIP for directory
publishers
Joel
Bernstein, partner, Halprin Temple, USA
a. The past
Those of you who think VoIP is not a threat to the local exchange industry, eBay just bet $2.6 billion that you are wrong. There is a great deal of confusion about what VoIP is. I hope to clarify that for you today. Back in the dark ages of technology, Internet telephony was not much more than a hobby. The sound was terrible and there were delays. Internet telephony was only available from PC to PC. People like the idea of being able to talk for free but the limited number of accessible people and poor quality and reliability relegated Internet telephony to a select few computer hobbyists.
b. The present
Broadband penetration changed all that. In the US, for example, residential broadband Internet subscribers now outnumber dial‑up Internet subscribers. The bandwidth and speed of broadband combined with the relatively low barriers to entry has made real VoIP possible.
a. Different guises
One of the confusing aspects of VoIP is that it means different things to different people. When you make any phone call today from any phone, there is a possibility that you could be using some sort of VoIP. Most telecom carriers use VoIP for call completion and routing. This is simply a packet switched transport method that is more efficient than using the old circuit switched network. New networks are built using packet switched platforms and not circuit switched platforms. This is often used as a form of bypass. For example, in Europe this year, international callers will spend $31 billion using VoIP bypass. Some companies are using VoIP for call completion, others as a replacement for landline services.
b. PC to PC
PC to PC communications is my favourite form of VoIP. All you need is a computer, broadband connection, microphone, speakers and the downloadable software service, such as Skype or Pulver’s Free World Dial‑up. It takes about two minutes to set up. I do not call my parents any more using my landline phone. I either call them on my cell phone or I Skype them. Much like Google, Skype will become a commonly used verb now that eBay has paid $2.6 billion for it. Skype has advanced online searchable directory, so it is fairly simple to find other people that you want to Skype. Most importantly, the baseline PC to PC Skype and Pulver Free World Dial‑up Service is free, at least for now.
c. Voice instant messaging
The next flavour of PC to PC communications is voice instant messaging. Most instant messaging services now have a voice icon on the screen. If both PCs have microphones, you can click on the icon and talk instead of type. My daughter prefers typing because it allows her to have five or six simultaneous conversations and not tie up the phone line.
d. PC to phone
PC to phone communications is another form of bypass. In this case, the consumer bypasses the outgoing part of the public switch telephone network. Consumers use their computer to dial public switch telephone numbers. As there is inter‑connection to the PSTN and termination, there are costs involved. This is currently offered as a fee service and is available from Skype, Google, Yahoo, AOL, MSN, Net2Phone and others. The sound quality and reliability are good and the costs usually significantly less than using traditional carriers.
e. Landline telephony
Next is the flavour of VoIP that is a serious threat to the local exchange industry and creates the most difficulty for directory publishers. This VoIP looks and works just like a regular telephone service. Here, a customer plugs a terminal adapter into a router connected to the Internet via a broadband connection. He or she then connects a phone to that terminal adapter. Customers can make outgoing calls and receive incoming calls using PSTN assigned phone numbers. To the end user, it is nearly the same as using a landline telephone. Minor differences include the inability to use existing analogue phones and existing jacks and, in some cases, the lack of directory assistance or connection to emergency services. The US Federal Communications Commission has mandated that all VoIP providers offer direct connections to enhanced emergency services. This mandate goes into effect in November. There are also special VoIP‑ready phones the customer can purchase that will connect directly into existing jacks. You can hook these phones to any broadband connection in the world. You could be in Australia, but to your client it looks like you are still in the office.
a. Personal users
The most aggressive VoIP provider in the US is Vonage. Vonage offers dial‑tone service for as low as $15 (€12) a month. This includes 500 local and long‑distance minutes throughout the US, Canada and Puerto Rico. For another $10 (€8), customers can have unlimited local and long‑distance calls. The service includes enhanced features such as voicemail, caller ID, call forwarding, call waiting and three‑way calling. Vonage also offer steep international calling discounts. For example, a call to Sweden from the US on Vonage costs about 6 cents (6 cent) a minute. In the US, most VoIP providers obtain their telephone numbers from competitive local exchange carriers (CLECs). CLECs will sell blocks of numbers to the VoIP providers to assign to end users. Vonage and others have filed a petition at the Federal Communications Commission to get a waiver to allow those companies to obtain blocks of numbers directly from the North American Numbering Plan administrator allowing a VoIP provider to choose numbers from either a CLEC or directly from the North American Numbering Plan. Under current US law, without a waiver only registered local exchange carriers can obtain numbers directly from the North American Numbering Plan administrator.
b. Business customers
Vonage is also targeting business customers. It is easy to connect several phone lines through a business’s existing Internet router. Vonage offers services to smaller firms with small business plans, which include local and long‑distance calling, dedicated fax lines, enhanced features, online billing and significantly discounted international rates at $50. In the US, this is extremely inexpensive for a business line. One of the key selling points of VoIP is that it makes location irrelevant. Customers can have multiple area codes coming in at the same telephone. Some services even allow international area codes. Vonage offers area codes throughout the US and Canada and select area codes in the UK and Mexico City. Skype can today provide customers with local phone numbers in the US, Hong Kong, Sweden, Finland, Denmark, France, Poland and the UK. This means a small business located in, for example, Nebraska, in the middle of the US, can have a local phone number in New York, Chicago, London, Stockholm all ringing at the same location. Customers calling those local numbers do not realise they are being connected to Nebraska and there is no additional per call cost for those calls.
a. A ‘killer application’
VoIP is a significant threat to local telephony. Analysts have called VoIP the killer application that will drive broadband deployment and penetration. Now in the US, there is a race to provide customers with a triple service: voice, video and data on the same line. Unlike most countries, in the US cable modem subscribers outnumber DSL subscribers. In fact, cable has an almost 60% market share in the broadband market. Cable also has 83% of the market share in video, with satellite at about 17%. The broadband penetration offers cable the ability to provide VoIP to a significant number of its customers. Barriers to entry into VoIP are low and the regulatory requirements minimal.
b. Local exchange companies fight back
In an effort to retain customers, US local exchange companies are starting to offer naked DSL. Prior to this offer, the only way to get DSL was to buy a dial tone from the local telephone company. Now, phone companies are allowing customers to purchase just the DSL from them and either use the wireless or VoIP phone to get their voice service.
c. The rise and rise of VoIP
More than 150 million have downloaded the free version of Skype. How many will use the SkypeIn and SkypeOut service now that eBay has bought it is yet to be seen. Vonage continues to add customers in the US at the rate of 15,000 per week. It recently announced plans to raise $100 million (€80 million) to take the company public. US cable companies Cablevision and Time Warner Cable each have more than 500,000 VoIP subscribers in the US. Comcast, the largest US cable company, continues to roll out its VoIP product and will be available to 40 million cable customers in 2006. US VoIP penetration in telephony to telephony is likely to break 4 million by year’s end. In the US, the growth of VoIP and wireless has had the dual effect of driving down minutes of use on the public switch telephone network and decreasing the number of landlines. In the US in 2000, there were nearly 567 billion interstate switched access minutes of use. In 2004, that number dropped to 422 billion minutes, the fourth year of decline. The number of lines served by incumbent local carriers and CLECs dropped from a high of 192 million to 183 million in 2003, the latest year that numbers are available. Quarterly reports of US phone companies continue to show these figures dropping by the millions. Much like minutes of use, the number of lines has declined every year since 2000.
d. VoIP: a worldwide product
In some third world countries, they are no longer building circuit switch networks. Instead, telephone systems are being built solely on a packet switched basis. VoIP technology is being used to leapfrog over the old, worn out circuit switch network. VoIP traffic continues to grow in every corner of the globe. In February 2005, the European Regulators Group (ERG) issued a common statement on VoIP regulatory approaches. The statement welcomed VoIP as a competitive service and stated that the group were committed to creating a regulatory environment where VoIP could flourish. At the time of this statement six months ago, VoIP had an abysmal penetration rate in Europe. For example, there were only 10,000 VoIP subscribers in Germany, 220,000 in France and 50,000 in the UK. This has increased over the past six months. Compare this to the 4 million VoIP subscribers in the US and more than 8 million in Japan.
e. The cable threat
Many telecommunications analysts believe that in those areas in which cable provides broadband, there is a greater chance of customers leaving the traditional telephone network. The US and Canada both have more broadband penetration than DSL. Many European countries, such as the Netherlands, Denmark, Switzerland, Belgium, Sweden, the UK, Austria and Portugal have a significant amount of cable broadband penetration compared to DSL. These countries will see much greater VoIP penetration. VoIP will only be as good as broadband penetration. ERG recognises that VoIP can help drive broadband penetration and vice versa. Overall, European broadband penetration is still under 10%.
a. No relationship between publishers and VoIP providers
Publishers want to maintain a complete and accurate set of listings for their book’s publishing area. The advent of VoIP makes this difficult. The biggest challenge is that directory publishers are not used to dealing with VoIP providers and vice versa. As noted before, most VoIP providers obtain their telephone numbers directly from CLECs. Several VoIP providers filed waivers to get numbers directly. CLECs had a history of dealing with incumbent telephone companies. The relationship between directory publishers and CLECs was built on the foundation of dealing with the incumbent telephone company. While it is not perfect in the US, this works well most of the time. There is, however, no relationship between the VoIP provider and the incumbent telco or its directory publisher. VoIP providers have minimal regulations and low barriers to entry. It may be nearly impossible to find all the VoIP providers in a single market. Unlike incumbent telephone companies and CLECs, VoIP providers do not have to register with state public utility commissions. When a CLEC gives a VoIP provider a batch of phone numbers, neither the ILAC nor the CLEC has any idea who the end user is. The Yellow Pages Association, the sister organisation to EADP, has opened up a dialogue with Vonage to work with the publishers to maintain customers’ listings. On its service ordering website page, Vonage now asks if you would like to have your Vonage CLECs number listed in a directory database. This is only a small step in the right direction.
b. ‘Scoping’
Another major issue is directory scoping. How does a directory publisher deal with a listing when the address and listing do not match and where the subscriber has multiple phone numbers listed with multiple area or country codes but only a single physical presence? Businesses that move to VoIP may have difficulty maintaining a Yellow Pages presence. Once a business leaves the incumbent provider for a VoIP provider, the business's phone number will drop out of the database. Unless proactive measures are taken by either the VoIP provider or the business itself, the listing could be lost for one or more directory cycles. This could be devastating for the business, result in lost revenue for the directory publisher, or even worse, litigation.
VoIP is not going away. It will only get more popular. Analysts in the US predict VoIP penetration to climb as high as 10% in five years. More customers will move off the local exchange network, especially where competitive broadband is available. It is important to remember that VoIP providers want the customer to have a seamless transition to the VoIP. Directory publishers want to maintain as complete a directory as possible and not to lose advertising revenue. This will require VoIP providers and directory publishers to work together.