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Is there reality behind the hype?
By Scott Bradner
IP telephony is the in thing these days. It seems like most pundits, other than the dyed in the wool 'the telephone companies are the answer, whatever your question might be' pundits, are now predicting an inexorable movement to running all possible telecommunication services over IP. As with many pundit predictions in the network area, this one has been made questionable by the mixture of frequent hand waving and an occasional clear misunderstanding of technology.
The two areas in which the most hand waving has been done are in the ability to provide a quality telephone product over the best effort Internet and in the possibility that providing telephone service over IP might be economically feasible.
Technologies to support the ability for an IP-based telecommunications provider to offer IP telephony services commensurate in quality to the traditional switched-circuit providers, or at least as good a quality as cell phone providers can offer, are now getting close to being finalized in the IETF. These technologies do still face a number of significant challenges, particularly in the user authentication and accounting areas before they will be ready for prime time but the direction seems clear.
Finding a concrete believable economic analysis that shows that an IP-based telephony company might have lower costs than a traditional telephone company has been very hard indeed. Most investigations of the issue seem to bog down when they start talking about effect of existing telecommunications regulations and fees. While it is clear that the existing telecommunications regulatory environment can provide a significant economic advantage to IP-based telecommunications providers, it has been far from clear if there would be any economic advantage to IP-based telecommunications if the regulations were changed to remove any differential advantages.
In an article in the August issue of Business Communications Review, Bart Stuck and Michael Weingarten undertake to provide just such an analysis. They assume a future in which all regulatory differences between IP-based and traditional circuit-switched telephone services have been eliminated. They also assume that the costs for sales and general administration would not change just because the transmission technology was different. They then analyze how the remaining major cost components, switching and transmission for both types of networks and interconnecting with the switched circuit network for the IP-based networks, change with the change in technology.
Their conclusion is that the switching and transmission costs for IP-based telephone networks are so much lower than for switched circuit telephone networks that the additional cost of the gateways that will be needed between the two telecommunications worlds do not bring the costs up to the same level as the costs for switched circuit telephone networks.
I had been assuming that there would soon be spirited competition between traditional and IP-based telephone providers but that was mostly based on the current baroque regulatory environment and the lethargy with which the traditional telephone providers react to technology changes but maybe there is some degree of economic pressure as well. Predicting the future of the traditional telephone companies is getting harder every day.
disclaimer: Harvard understands the concept of baroque regulatory environments but the above is my own understanding.