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This edition of “What is..?” considers VoIP, otherwise known as Internet telephony or IP telephony. VoIP, which stands for “Voice over Internet Protocol”, refers to the transmission of voice telephone calls over the Internet or any other IP-based network. VoIP systems use packet-switched networks to route and transmit voice calls, rather than the circuit-switching systems used by “traditional” voice telecommunications services.

This article provides an introduction to VoIP, including how it differs from traditional telephony services, and considers some of the regulatory issues raised by providing voice telephony over the Internet. While today VoIP might appear to be a niche product, it is in fact threatening to change the structure of the telephony industry, and is evidence of convergence between the Internet and telecommunications.

Understanding circuit-switching and packet-switching networks

To understand how VoIP works, it is first necessary to understand how it differs from traditional telephony services. While “plain old telephone services”, or POTS, relies on the PSTN circuit-switched network, VoIP makes use of Internet Protocol (IP) networks that rely on packet-switching technology.

(Bear in mind that the following description is somewhat simplified, as explaining the full intricacies of the relevant technologies would be a lengthy post in itself.)

The core of the traditional telephony system is circuit switching. Circuit switching networks require there to be a dedicated connection (called a “circuit” or “channel”) between two nodes (the users) before they may communicate. For the duration of the communication between those two nodes, that connection may be used only by those nodes, and when the communication has ended the connection must be explicitly cancelled. The name of the network created by the world’s circuit switching networks is the Public Switched Telephone Network (or PSTN).

By contrast, at the center of VoIP networks is packet switching. Packet switching, which defines communications over the Internet, refers to the process in which “packets” (pieces of information) are individually transmitted between nodes. In contrast to circuit switching, the data links used may be shared by multiple nodes simultaneously. The data making up a single transmission is broken up into multiple packets, each of which contains information regarding their origin, destination, and position within the original (complete) file. Each packet may travel via a separate data link, but is then joined together at the point of destination. This method is used for a variety of applications, including email, Web browsing, and file transfer, and is at the core of Internet Protocol (IP) networks.

Since a dedicated route is not necessary (as in circuit-switched networks), packet switching maximizes the use of available bandwidth and reduces the amount of time it takes to transmit data. In addition, the system is more robust than (for example) the transmission of data over a single dial-up modem line, as the packets will be retransmitted over different routes until they reach their destination.

The main advantage to users of using a packet-switched system is cost. Bypassing the circuit-switching network means avoiding either some or all of the termination charges, which represent a large component of circuit-switched call tariffs.

Types of VoIP services

Any IP network may be used for VoIP communications. Depending on the nature of the connection, a VoIP call may use packet switching for either all or just part of the transmission.

As observed by the Australian Government’s Department of Communications, Information Technology and the Arts (DCITA), there are four possible types of VoIP services:

1. Computer-to-computer (peer-to-peer): allows users to make voice calls over a broadband connection to the Internet, completely independent of the PSTN. Such calls are typically made from a personal computer with a headset and microphone. This type of connection is usually “free” to the user; ie, there may be no charge for the call in addition to the cost of broadband access. An example of this type of service is Skype.

2. Computer-to-PSTN: allows users to call from a computer via a broadband connection to a public telephone number (called “SkypeOut” by Skype). This type of connection is not “free”, as the call is terminated on a public network and thus incurs a fee from doing so. It is, however, considerably less expensive than a pure circuit-switched call, particularly to overseas locations, as a large proportion of the call takes place over IP networks, and is diverted to a PSTN node only when termination of the call takes place.

3. PSTN-to-computer: it is increasingly possible to place a call from a telephone on the PSTN to a computer, so long as the computer user obtains a special telephone number identifying that computer. This type of service is slowly becoming available, although it is still in the early stages of development.

4. Any-to-any connectivity: allowing users to make calls between any type of telephone, whether on a PSTN or IP network. This type of service is not yet available.

The United States’ telecommunications agency, the Federal Communications Commission (FCC), has provided some useful information about the workings of VoIP.

VoIP providers

There are a number of providers of VoIP services around the world. In the United States, providers include Vonage, 8×8, and Delathree. In Australia: engin and Freshtel. In Japan: Yahoo BB. In the Netherlands: Skype.

While some of these companies focus on the personal users (and concentrate on peer-to-peer services), others serve primarily businesses (providing handsets that look like traditional phones but are directly linked to an IP network). Integrating circuit-switched and packet-switched networks is a challenge for both types of firms. For peer-to-peer providers, the location of the service (and its users) is not particularly important; for example, Skype’s users are scattered throughout the world.

Regulatory issues

The regulatory treatment of VoIP is potentially very complicated. Should the standards of the telecommunications industry apply to an entire call, even if IP networks are being used for all or part of it? Or should standards developed for the Internet or a sui generis regime apply instead?

So far, VoIP has been left more or less unregulated in Australia and the United States, except for some key issues, including emergency number availability.

In the United States, it was initially impossible to call 911 (the number for emergency services) from a VoIP system. However, on 3 June 2005, the FCC adopted rules requiring VoIP service providers to enable connections with the PSTN to supply access to the 911 service, including enhanced 911 (E911). Access to E911 is allowed under the rules through any technological means, including indirectly through a third party. Access to E911 is being required due to public safety concerns. Providing access to E911 presents some problems for VoIP systems, particularly as it may be difficult (if not impossible) for emergency services to know the location of a user calling via a VoIP connection. But as at least one commentator has remarked, applying PSTN standards to VoIP was an inevitable development, and one that is good for consumers.

In Australia, the importance of being able to call 000 and 106 emergency numbers over VoIP has also been identified. Although no legislation has been drafted specifically dealing with VoIP issues, the federal Government has considered its regulatory approach.

In October 2004, the Australian Communications Authority (now the Australian Communications and Media Authority (ACMA) released a discussion paper considering regulatory issues associated with Internet telephony in Australia. This paper considered a range of issues, including the ease of market entry into VoIP services, numbering options for VoIP services, quality issues, access to the emergency call service, and privacy. A number of submissions were received in response to the discussion paper.

On 22 November 2005, Senator Helen Coonan, the Minister for Communications, Information Technology and the Arts, announced the release of a VoIP policy framework from DCITA. In its report the Government found that there was no “immediate need for any changes to the regulatory framework”, although it did recommend some small adjustments with respect to numbering, emergency services, and customer service regulations. The Government also announced that a new range of numbering will be made available for VoIP services, to allow for non-location specific VoIP services; both traveling business customers and residential customers moving home will benefit from this new numbering range.

Other recommendations made by DCITA include:

— ensuring that the services provided by telecommunications companies under the Universal Service Obligation is available to VoIP customers, including emergency calling;
— monitoring competition with regards to VoIP services; and
— making consumers aware of the differences between VoIP and switched-circuit telephone services, including the application of customer service standards.

A number of interests should be considered when evaluating regulatory possibilities for VoIP (as well as other “non-traditional” uses of IP networks). While the needs of users and consumer protection are important, regulators should be mindful that commercial and technological innovation is encouraged in relatively unregulated markets. Telecommunications incumbents, faced with a low-cost competitor, may seek heavier regulation of VoIP; however, regulators should be careful to regulate in order to protect consumers and competition – rather than competitors. Privacy issues have also been raised by the adoption of packet-switched networks for voice services. As with data connections, both encryption and surveillance technology may be incorporated into soft switch technology used for voice transmissions; these possibilities have implications for both privacy and anti-terrorism laws.

Market implications

VoIP is a significant development in the telecommunications industry. By separating voice communications from the costly circuit switching network, and enabling voice calls over IP networks, this technology has lowered entry barriers and increased competition. Broadband providers are now in a position to compete with incumbent telecommunications companies for voice calls, and the telecommunications firms are starting to alter their business models to address this threat.

The industry trend appears to be the adoption of IP networks even by “traditional” telecommunications providers, and the replacement of Alcatel’s Class 5 switches with “soft switches” which substitute circuit-switching with packet-switching technology. As early as 1998, Australian incumbent telecommunications provider Telstra had committed to replacing its PSTN with a digital IP network by 2004. While this has not yet happened, Telstra aims to complete its core IP network in the next two years (over which data, voice, and video will be transmitted), and to replace its 116 Class 5 switches with 10 “soft” switches. These soft switches not only route calls through the IP network (and switch between IP and circuit-switched networks when necessary), but also perform billing, call services, and other functions.

VoIP has introduced new possibilities, as eBay’s acquisition of Skype suggests. (In that case, eBay appears to be betting that online auction participants for big-ticket items will want to communicate through voice calls.)

In addition, VoIP is just one way in which the media and telecommunications industries are increasingly converging, with the ultimate result that voice, data, and entertainment will travel along the same route to the ultimate customer. The capacity of broadband has already made it possible to use the same broadband connection to receive Internet access, make and receive VoIP calls, send and receive email, and browse the Web.