IP Telephony Regulation in Korea

1. Korea Information Strategy Development Institute IP Telephony Regulation in Korea Chong-Hoon Park & Osang Kweon Information & Communication Policies for the Digital Economy

2. Content KISDI Definition of IP Telephony I Analysis of IP Telephony Market II Policy Issues III Foreign Policy Trends IV Policy Direction V Korea Information Strategy Development Institute

3. Definition of IP Telephony Korea Information Strategy Development Institute

4. Definition Korea Voice telecommunication services provided through the Internet Reference ITU Definition VoIP : Use of Private Networks Internet Telephony : Use of Public Network IP Telephony : VoIP + Internet Telephony Japanese Definition Communication service using a packet switching system where voice is converted to IP packets and transmitted

5. Development Path IP Phone to IP Phone is mainly provided by SSP(type1, 2) 2000 Wireless IP Phone to Wireless IP Phone will be provided by whom? post 2003 Phone to Phone is mainly provided by SSP(type1) and FSP 1998 PC(Web) to Phone is mainly provided by SSP(type2) 1999

6. Characteristics 14.9%→ 20% Internet Telephony ① Characteristics of voice, data, fixed, mobile (under laws and regulations related to spectrum use) ② Service area boundaries of fixed telephony does not apply ③ Mobility from fixed services is possible

7. Positioning Service Type Fixed Mobile Internet Mobility Indoors (Fixed) Indoors and Outdoors (high) Indoors and Out (Dependent on type of internet access) Area Code Yes No No Content Voice Voice and some data Voice and Data Service Fees Low High Dependent on service type and internet access

8. Analysis of Market Demand Korea Information Strategy Development Institute

9. Market Statistics 2000. 12 2001. 12 2002. 6 2001. 6 2002. 8 2000.6 12,732 9,062 9,732 5,919 3,117 3,256 • Internet telephony traffic • dropped sharply after service • is charged since July 2001 • Share of L-Land L-Mtraffic became • similar with the technology • development of interconnection Unit: 1 million persons July 2001 Unit: 1 million persons • Revenue decrease is not as large • as traffic drop • As the share of L-Mcalls increased, • revenues have reached previous levels • Market size of 20 billion won at • the end of 2002 Data: KISDI Data : KISDI

10. Market Potential Demand Survey of Internet Phone Service (August 2003) Target Survey Method • persons between ages of 15~ 59 years old • Face to Face Interview Area Covered Collected Group/Sample size • Seoul, Busan, Daegu, Daejeon • Gwangju(5 major areas) • 13,684,008 persons /750persons Potential Demand: 3,196,584 I  Based on population at the end of 2002 Market Size: approx. 800 billion won II

11. Barriers Legal Barrier • service classification, number, • and interconnection rule is not clear Cannibalization Barriers • concern of taking away revenues of • voice telephony • taking away competitiveness from • Incumbent Carrier if new service • introduced Perceptions of Users • recognized as having lower call quality than • fixed telephony services • - recognized as a free service

12. Drivers Low Fees • reasonable fees compared to fixed telephony services Various Value-Added Services • internet/ video calls in • addition to voice Drivers Mobility • indoor/outdoor use based • on type of internet connection Reliable service in Emergencies • enhance service reliability in emergencies of • PSTN network

13. Policy Issues Korea Information Strategy Development Institute

14. Classification Issues • How should government classify IP Telephony? • Depending on classification, IP telephony service can be regulated • and service operators needs to go through licensing process • Government need to consider whether IP phone has the same • characteristics as voice telephony • Government needs to differentiate local/long/International of • IP phone. • - Government needs to know whether it can categorize • fixed and wireless.

15. Number Issues Are terminating numbers allowed for internet telephony services? Which is the best numbering system for IP telephony: local numbering system, identification numbering system (mobile numbering), ENUM? Up to how many numbers will be allowed including identification and subscriber numbers if identification numbering system is implemented? What are the possible barriers to the mobility of IP telephony, if the local numbering system is implemented? Is it technically possible? Would service providers be able to use the identification numbering system if local service providers are using the local numbering system? Can all types of IP phones receive terminating numbers regardless of QoS?

16. Interconnection & QoS Issue • Are IP telephony operators ‘free riding’on broadband subscriber lines? • If it is free riding, what would be the impact on settlement? • If it is free riding, what would be the impact of settlement? • Is there a method to calculate cost based on the amount of usage • of the subscriber networks? • Can the current telephone and data networks be added to IP • telephony networks? Issue Can the concept of QoS guarantee be introduced to the internet based on Best Efforts? Are regulated operators responsible for QoS of IP networks? Should QoS of IP telephony be announced for the protection of IP telephony users?

17. Foreign Policy Trends Korea Information Strategy Development Institute

18. U.S.A. Market Increase of broadband subscribers (13 million subscribers as of the end of 2002)and greater interest in IP Telephony - Significant increase of subscribers for IP telephony operators Vonage and Net2Phone Plans by CATV operators to offer IP telephony services in 2003 - AT&T Broadband, Comcast, Time Warner Cable, Cox Communications - Criticism on IP telephony positioning (Primary-line, and Secondary-line) Roll-out of IP telephony is expected to be at current levels in the second half of 2004 Regulation Continued growth in unregulated environment; currently FCC and PUC are re-examining classification of IP Telephony - Minnesota PUCdesignated Vonage’s VoIPservice as a telecommunication Service in August 2003 Current position of the FCC on IP Telephony - contribute to public interest by leading the emergence of IP telephony through international and access charges - examine each case if two-way telephone terminals have characteristics of telecom services

19. Japan Market Rapid increase of IP telephony subscribers along with internet subscribers - broadband subscribers increased from 65 thousand in 2001 to 10 million in June 2003 - 5 million subscribers of IP telephony; 3 million using IPphone with terminal 9 million : total wireless voice service of 11 IP telephony operators with terminating number of 050 Softbank and KDDI are leading the expansion of IP telephony; NTTplans to offer IP telephony services based on FTTH in the later half of 2003 Regulation IP Telephony is considered ‘voice’ in Japan where telecom services is classified as voice, data, and dedicated lines 050 system allowed for wireless voice services to 11 operators in the same year in May 2002 - Numbering system: 050-ABCD-XXXX (11 numbers) - Same numbering system for different telecom service operators 3 levels of call quality based on R value (A; 80, B; 60, C: 50) Numbering is granted only if call quality is above C level

20. Australia Market Rapid expansion of the broadband market (112% growth in 2002) Switch to voice services from PABX to internet for large financial institutions Comindico established an All IP based telecom network and acquired a carrier license to become an IPtelephony wholesaler and B2B operator Regulation ACA, ACCC service policy: “Technology Neutral” - IP telephony was classified as other voice services Investigating the impact of mid-long term changes of the current regulatory framework (ACIF) in consideration of NGN Studying the ENUM numbering system for a connecting method between internet and existing telecom services (ACA) Examining the interconnection relationship between voice and data networks (ACIF)

21. Policy Direction Korea Information Strategy Development Institute

22. Policy Direction • Examine the plan for IP telephony introduction • as a way to develop the telecom market Introduce new services to stimulate growth in the telecom market Modify legal framework including numbering systems and interconnection Consider the impact of other related systems 

23. Classification & License Service Class Classify IP telephony service as ‘telecommunication services’ and differentiate between“international” and “long-distance” License Special service provider or Facilities-based service provider license is needed depending on ownership of network

24. Number & QoS Numbering System Apply the identification numbering system for terminating numbers of IP telephony Ex.) 0N0 – XXXX – XXXX ※ Examine the views of service operators with local service licenses on the use of unallocated numbers Quality of Service Establish minimum standards for call quality in terms of regulations - Create new standards for call quality for IP telephony

25. Interconnection Interconnection • Apply Long-Run Incremental Cost • Need for improvement in current interconnection standards • ※ Account settlement for backbone networks • Need for detailed fee structure for between data networks, • between data and telephone networks, interconnection and • user costs • Examining the establishment of “IP telephony networks” • ※Account settlement for subscriber networks • Settlement principles based on a fixed amount

26. Policy Objective • Establish an appropriate system in response to • the paradigm change to facilitate the • development of the telecom market  Build a NGN, Ubiquitous environment through improvements in current systems including service classification, numbering system, call quality and interconnection • Stimulate growth in the telecom market through • developments and expansion of new services Establish a cyclical relationship between existing and new markets

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