Transformation of Voice Services: Implications for Future of Regulation

1. Transformation of Voice Services: Implications for Future of Regulation Tomas Lamanauskas Deputy Director Communications Regulatory Authority LITHUANIA

2. Outline of the presentation • When voice becomes data…Implications for: • Technologies • Services • Identification systems • Business models • Regulatory response to the changing environment

3. 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 What does it means? Does voice have any future? Traditional telephony is dead! VOIP is killing Traditional telephony ! The phone call is dead! Traditional telephony has had its day ! The end of the line

4. 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…

5. IP-basedNetworks Applications Access 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 Today and Tomorrow • one – service optimized networks • PSTN, GSM networks… • Terrestrial TVR broadcasting, Cable TV networks… Source:ITU.

6. When voice becomes data… Services Yesterday Today and 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

7. When voice becomes data… Identification systems Yesterday Today and Tomorrow Fax.: +370 5 2105664 ENUM! E-mail:tlamanauskas@rrt.lt Tel.: +370 5 2105627 Tel.: +370 5 2105627 • While traditional telephony takes account of geography, distance, and state boundaries,VOIP shatters all three…

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

9. When voice becomes data… Consumers choice • Personalization • Interactivity • Accessibility • Mobility Consumers want Communication experience adapted to their lifestyles Any services, anytime, anywhere Enterprises want Communication that increases productivity, improves efficiencies and reduces costs • Productivity • Simplicity • Security • Reliability Efficient communications

10. When voice becomes data… When voice becomes data… Consumers choice For end users and business users VoIP offers: • 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. 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

11. When voice becomes data…  Does voice have any future? Definitely yes, voice remains to be the main revenue source for operators… …the rapid development of VoIP suggests the death of traditional pricing and business models, rather that the real death of traditional telephony …people are going to make calls and communicate in a traditional way and voice services seams to remain as a basic utility still for a long time …voice still remains the king with another clothes only … ARPU growth hypothesis for Western Europe Source:IDATE  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…

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

13. 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

14. 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?

15. 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.

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

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

18. 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 usersutility 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.

19. 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…

20. Thank you ! Tomas Lamanauskas Communications Regulatory Authority, Algirdo 27, Vilnius, Lithuania Phone: +370 5 210 5627 e-mail: tlamanauskas@rrt.lt