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VoIP Driving the Restruction of Telecommunications

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

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VoIP Driving the Restruction of Telecommunications

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  1. VoIP Driving the Restruction of Telecommunications Prof. Kaili Kan Beijing Univ. of Posts & Telecommunications ITU Future of Voice Workshop Geneva Jan. 16, 2007

  2. 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 ?

  3. Current Structure of Telecom Vertical integration: (OSI 7 layers) Network + Service History background: • Shortage of bandwidth • Single service:voice However, time has changed.

  4. 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

  5. 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 ……

  6. 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.

  7. 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

  8. 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”

  9. 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 over-built, ……too late.

  10. 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)

  11. Vision • Internet — “Of the people, by the people, for the people” • VoIP — restructuring telecom (a revolution) • Breaking telcos’ “network + service” vertical integrationequals to convergence

  12. 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

  13. Thank You kankaili@gmail.com

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