by Brian
Chang
Stanford University, CS99I,
Professor Gio Wiederhold, Winter 2000
Last Updated: March 10, 2000
CONTENTS:
With the emergence and popularity of the Internet in the past couple of years, much of the focus and media coverage has been concentrated on how the Internet will redefine commerce. But the Internet has the potential to not only change the way we do business, but also the way we talk, interact and communicate with each other. One such Internet technology that has the promising future of revolutionizing traditional industry is Internet telephony, any means of transmitting the human voice (real time or close to real time) over the Internet, and VOIP (Voice Over Internet Protocol) Internet Startups and major telecommunications players such as AT&T, MCIWorldcom, and Lucent have entered into this arena. The Internet has a wide variety of applications and the convergence of voice and data onto the same transport mechanism will revolutionize the idea of a phone. The telecommunications industry is surging forward into the 21st century, embracing a new technology that has the ability to reshape the industry.
Slowly but surely, today's switch-based phone networks will shift to IP-based networks instead. In other words, the same protocols that drive the Internet will run the phone networks. Research organization Killen & Associates estimates 35% of all calls will be made using IP networks by 2002, a potential $60-billion market. Phone calls routed over the Internet jumped from 200 million total minutes in 1998 to 2.5 billion minutes this year, according to analysts. Although that number is small compared with the 7 trillion total minutes people spent on traditional phone networks in 1999, it's a sign that consumers and businesses are starting to warm up to Web-based phone calls.
Despite the optimistic projections, Internet telephony and Voice over Internet protocol still faces many obstacles and challenges before it is an accepted mainstream technology. Questions over standards, quality, and potential cost saving must first be solved by the industry before this new technology has the chance to revolutionize the way we communicate. Service providers, for example, will need to prove they can provide the same quality of service on the IP networks that customers are used to from traditional circuit-switched voice networks. In addition, protocols needed to ensure interoperability between IP-based voice switching equipment are still in flux.
Once these problems are addressed, Internet telephony undoubtedly will become the primary means of placing telephone calls. The future looks promising for Internet telephony companies.
Deregulation of the Telecommunications Industry
The driving force behind the changes in the telecommunications industry is the recently passed Telecommunications Act of 1996. "The goal of this new law is to let anyone enter any communications business -- to let any communications business compete in any market against any other." The passage of the act essentially deregulated the previously closed telecommunications industry and allowed the entrance of new operators and suppliers. Among the new players are a host of Internet startups trying to seize on the opportunity to enter the growing Internet telephony market.
New Telecommunications Operators Entering the Market as a result of the Telecommunications Act.
Many new telecommunications operators entered the market as a result of the Telecommunications Act of 1996. These new companies have spurred the growth of Internet telephony.
New Equipment Suppliers
New non-traditional telecommunications equipment suppliers have entered the market to provide equipment for the growing Internet telephony industry. Companies such as Cisco which are players in the Computer industry have started to provide equipment for Internet telephony companies.
Traditional telecom equipment vendors buying datacom vendors
The growth of Internet telephony has also caused many traditional telecom equipment suppliers to buy companies in order to enter the emerging market. These purchases indicate how traditional telecom companies realize that Internet Telephony will revolutionize the industry. They recognize that they must change to remain competitive in the industry.
Lots of mergers and acquisitions among datacom vendors
There has also been a merger and buying frenzy among datacom vendors. Cisco has been the most active company in buying up smaller companies.
Technology behind Internet Telephony
Here is a glossary of some terms that deal with Internet telephony.
Internet Telephony is any means of transmitting the human voice (real time or close to real time) over the Internet
There are several components:
In non-technical terms, Voice Over Internet Protocol allows the conversion
of voice into data packets that can be sent
over the network along with the data. Like data on Internet-based networks,
voice-over-Internet protocol (IP) takes a voice call, breaks it into "packets"
of information, then reassembles those packets at its final destination. Traditional
voice
calls over a PSTN(Public Switched Telephone Network) require a dedicated "circuit"
between the two parties. Even through telephone companies can combine (multiplex)
multiple phonecalls over one wire, and fill in blank spaces and ISDN digital
telephony converts the analog input stream to bits, allowing more compression
and oversubscription, VOIP allows voice to be sent in packets over Internet-based
networks.
Voice Gateways allow the conversion of voice into data. The Gateway 'switches' calls between the local PSTN and the private network, carries the traffic over the Network as data packets, and 'switches' it back to the PSTN at the destination point. Voice Gateways can not only provide basic telephony and fax services but also will enable lots of value-added services, e.g., call-centers, integrated messaging, least-cost routing, ... .
Such gateways provide three basic functions:
Interface between the PSTN (Public Switched Telephone Network) network and the Internet: Terminate incoming synchronous voice calls, compress the voice, encapsulate it into packets, and send it as IP packets. Incoming IP voice packets are unpacked, decompressed, buffered, and then sent out as synchronous voice to the PSTN connection.
Global directory mapping: Translate between the names and IP addresses of the Internet world and the telephone numbering scheme of the PSTN network.
Voice Representation
ITU G.723.1 algorithm for voice encoding/decoding or G.729
Signaling
Based on the H.323 standard on the LAN and conventional signaling will be used on telephone networks. H.323 is the international standard protocol for VoIP.
The first generation of Internet telephony products required each user to have a computer with an Internet connection. Some products were then developed that minimized the hardware requirements, so that a computer and Internet connection were only needed at one end. Phone-to-Phone telephony gateway network allows telephone conversations without the need for a computer or software. Calls are made using traditional telephones on both ends and are executed in real time. Steps of the transmission are:
New companies entering the market have shifted Internet Telephony from PC to PC connection to PC to Phone and eventually Phone to Phone connections. PC to Phone and eventually Phone to Phone is a more convenient mode of operation because it does not require the the receiving party to be at a computer.
Economics: VOIP vs. traditional telephony
"What is the reality in the battle over packet-versus-circuit telephony, and what is hype?
There are two diametrically opposed views on public-network Internet Protocol (IP) telephony.
Some people, such as James Crowe, president and CEO of Level 3, and Joe Nacchio, president and CEO of Qwest, have an almost messianic belief in IP as an inherently low-cost vehicle for both data and voice transmission. Crowe has been quoted as saying that voice-over-IP calls cost 1/27th what circuit-switched calls do.
When most people think about IP telephony, they think in terms of long distance savings, particularly for high-volume international calling. The cost savings is obvious. Just compare the cost of long distance calls over the PSTN vs. over the Internet The Internet telephony users say they're realizing 50 percent to 87 percent reductions in long distance rates.
For example, Tso-Lee Hsu, network manager for DiVio, a semiconductor design and manufacturing company in Sunnyvale, Calif., says his company cut long distance costs to Taiwan by 87 percent. The company uses Broadmedia's freeTone Internet telephony solution, and now pays an average of $130 per month for calls to Taiwan vs. the $1,000 per month it spent using the PSTN.
Lori Sklar, president of West New York, N.J.-based Netbar Exams Inc. and principal attorney at Sklar Associates, is also a big fan of Internet telephony, as it cut her $800 per month long distance bill in half. She uses Net2Phone's Internet telephony service and says she now pays 4.9 cents a minute for calls.
Margrit Sessions, Phillips Tarifica Ltd., she predicts that by 2001, Internet telephony could squeeze nearly US$1.2 billion in revenue out of 16 international service providers, while losses due to e-mail (US$463 million) and Internet fax (US$170 million) will be much less.
Expected loss of international call revenue due to: Internet phone, fax, and e-mail, by operator:
|
Company |
Expected Losses (millions of US Dollars) |
Loss as a percentage of revenue |
|---|---|---|
|
AT&T |
~350 |
3.6% |
|
Kokusai Denshin Denwa (KDD) Co. Ltd. (Japan) |
~307 |
10.4% |
|
Deutsche Telekom |
~175 |
4.2% |
|
Telstra Corp. (Australia) |
~168 |
9% |
|
Embratel (Brazil) |
~28 |
11.5% |
|
Bezeq (Israel) |
~30 |
10.7% |
On the other hand, Traditional phone companies publicly insist that Internet telephony is a niche business based on unrealizable expectations. "There's no such thing in this world as a free lunch," says Howard McNally, an AT&T Corp. vice president of transaction services. "Sooner or later, the economics of the Internet are going to catch up with it."
Some people believe IP telephony's cost advantages are due mostly to the Enhanced Service Provider (ESP) status enjoyed by Internet service providers (ISPs). This regulatory classification exempts ISPs from paying the local access fees assessed circuit switched calls. Every time long distance company routes a call to your home, it must fork over about 4 cents per minute to local phone monopolies for the courtesy of completing the call. When companies send voice as digital "packets" over Internet networks, they don't have to pay a penny in acess fees. Under FCC rules, these digital packets aren't deemed to be phone calls. They are Internet traffic, and the FCC, in a nod toward a little social engineering, has decreed that the Internet should be exempt from access fees and other taxes that might thwart its growth. If the ESP status is removed, argues Jack Grubman of Salomon Smith Barney, there won't be a significant cost difference between IP and circuit-switched telephony.
Looking at the potential savings by cost element, it is clear that in 1998, access arbitrage is the major economic driver behind VOIP. By 2003 as the ESP exemption disappears and/or access rates drop to true underlying cost, switched-access arbitrage will diminish in importance,
However, the convergence between voice and data via packetized IP-networks will offset the disappearance of a gap in switched access costs. Internet Telephony lets you integrate voice, data and fax on one network, dynamically allocating bandwidth and maximizing the use of a company's network. IP telephony vendors are combining the low cost and pervasiveness of IP with the rich features of computer telephony integration. That translates to cool new features like integrating messaging that can help improve customer service.
As a result, VOIP will continue to enjoy a substantial advantage over circuit-switched voice. Indeed, as voice/data convergence occurs, standalone circuit-switched voice will become economically nonviable.
Compatibility
De jure standards:
ITU(International Telecommunication Standard) G 723.1/G.729 and H.323
VoIPForum IA 1.0
De facto standards:
Netscape's Cool Talk
Microsoft's Netmeeting
New protocols are needed to scale VOIP to the needs of the Internet The protocol being used to control voice over IP now, H.323, was developed for use on a single LAN. H.323 wasn't designed with Internet requirements of scalability. Version 2 of H.323, which is in the works, improves on the previous standard, but even networks using the enhanced H.323 won't be able to accommodate the size of an IP-based public telephone network.
The Internet Engineering Task Force is building two new protocols, MGCP (Media Gateway Control Protocol) and SIP (Session Initiation Protocol), built from the ground up for use on the Internet Special attention is being paid to extensibility and scalability, and the protocols are optimized to run over IP networks.
MGCP will be used primarily as a gateway-to-gateway protocol handled by carriers. SIP borrows from other Internet technologies to address some of the shortcomings in H.323. For example, SIP uses a technology resembling BGP (Border Gateway Protocol) to accommodate multidomain and looping issues. These types of call-routing features will be very important in tomorrow's complex networks, especially for advanced features such as call forwarding and aliasing.
Current H.323-based calls require gateways to maintain all information on a call throughout its duration, adding a lot of overhead to each call. By contrast, SIP does not require gateways to track information such as end-point identities on a call, enabling a single server to handle many more calls. This improved scalability is a lifeline for service providers that need to serve tens of thousands of users. By using SIP, companies will be able to serve more users without adding hardware.
Conference calls have also been a sticking point for H.323. An H.323-based conference call now requires a multicast distribution server, creating a bottleneck that the International Telecommunications Union has tried to address with the concept of cascaded multicast servers, but large conferences stress even those systems. SIP can alleviate those problems with its native support for multicasting.
SIP
also has the advantage of protocol neutrality, running on either TCP
or UDP (User Datagram Protocol); H.323 runs only
on TCP. Combine all of this with address-format neutrality and SIP extensibility,
and it is easy to see why major companies, such as Cisco Systems Inc. and Telcordia
Technologies Inc., are supporting MGCP and SIP.
The VOIP industry has some things to work out, too. Most of the vendors are promoting products based on SIP (Session Initiation Protocol) and MGCP (Media Gateway Control Protocol), but they're selling products based on H.323, the ITU standard for packet-based multimedia communications systems.
As you can see, there are still a variety of standards over the transmission of voice over the Internet The technology behind VOIP is still complicated and complex that many people who do not understand VoIP are afraid to embrace this new area of the Internet revolution. Competing standards breed stagnation. Everyone's going to wait around to see which ones win, meaning that VOIP is still a ways off.
Latency
People use the World Wide Web because it gives quick and easy access to a tremendous variety of information in remote locations. Users do not like to wait for their results; they tend to avoid or complain about Web pages that take a long time to retrieve. That is, users care about Web latency. Latency is also an important topic when dealing with Internet telephony and trying to predict the growth of the technology. Latency can seriously affect the quality of the voice sent over the Internet as delays cause breaks and pauses in the voice transmission because on the Internet, data is broken into discrete packets, sent separately, and reassembled at the receiver's end, usually in the right order. The low fault tolerance of voice communications has made Net telephony a dicey proposition. Unlike in circuit switching where overload leads to a circuit busy signal, in Internet packeting, latency leads to poor quality. According to Mark Winther, an analyst with International Data Corp, the greatest barrier to using voice-over data network services is voice quality, . When you use a regular phone line, the entire connection is devoted to your voice. When you use an Internet telephony connection, your voice is digitally encoded, then broken up into packets and sent out across the Net. Although speeds should increase during the next few years and improvements in voice compression should allow us to do more with slower connections, for now you may experience delays when you and the person you are talking to aren't in sync and end up talking over each other.
Latency comes from several sources. Web servers can take a long time to process a request, especially if they are overloaded or have slowly spinning disks. Web clients can add delay if they do not quickly parse the retrieved data and display it for the user. Latency caused by client or server slowness, however, can in principle be solved simply by buying a faster computer, or faster disks, or more memory.
Web retrieval delay also depends on network latency. The Web is useful precisely because it provides remote access, and transmission of data across a distance takes time. Some of this delay depends on bandwidth; one cannot retrieve a 1 Mbyte file across a 1 Mbit/sec link in less than 8 seconds. You can in principle reduce this time by buying a higher-bandwidth link. But much of the latency seen by Web users comes from propagation delay: the speed of light is a constant. An IP network unlike a circuit switched network contains intermediate nodes where IP addresses have to be read and interpreted for forwarding further delaying the transmission time. You cannot send even a single bit of information over, say, 3000 miles in less than 16 msec, no matter how much money you have. In practice, most retrievals over the World Wide Web result in the transmission of relatively small amounts of data. (An unscientifically chosen sample of 200,000 HTTP retrievals shows a mean size of 12925 bytes and a median size of just 1770 bytes; excluding 12727 zero-length retrievals, the mean was 13767 bytes and the median 1946 bytes.) This means that bandwidth-related delay may not account for much of the perceived latency. For example, transmission of 20 Kbytes over a T1 (1.544 Mbit/sec) link should take about 100 msec. For comparison, the best-case small-packet round-trip time (RTT) over a coast-to-coast (US) Internet path is about 70 msec; at least half of this delay depends on the speed of light and is therefore intrinsic. When the network path is congested, queueing delays can increase the RTT by large factors. This means that, in order to avoid network latency, we must avoid round trips through the network. Unfortunately, the Hypertext Transport Protocol (HTTP) [1], as it is currently used in the Web, incurs many more round trips than necessary.
Usability of a voice circuit as a function of end-to-end delay
Latency and consequently usability of a voice circuit varies as a result of connections speed, distance of travel, server congestion, along with a variety of other reasons. Therefore sound quality still varies from almost perfect to awful, producers of Internet telephony equipment--from newer companies like Clarent, VocalTec and NetSpeak to established companies like Nortel Networks-- have made great strides in building devices that help service providers improve voice quality.
Look at the future for these two promising Internet Startups in the Internet Telephony Industry
Net telephony is still an emerging market that is unknown to many mainstream Net users. Yet the market is expected to skyrocket as consumers here and abroad realize that Web phone calls are often less expensive than regular toll calls. Consulting and market research firm Frost & Sullivan expects voice-over-Internet Protocol (VoIP) technology to be the most significant development in the telecommunications industry since wireless technology.
Earlier this month, cable operator Comcast and Lucent Technologies began voice-over-IP trials, and AT&T plans to deploy VoIP technology once it has successfully offered circuit-switched local cable telephony services. Many high-speed digital subscriber line providers also plan to offer Internet-based voice services. Switched-based networks--the ones phone companies have used since we were born--will become relics. Companies such as Nortel, Lucent and Cisco have staked their futures on Internet telephony.
Although the advantage that sending information over an IP network is more
efficient and costs less than traditional circuit-switched technologies lead
some industry analysts to predict Internet-based voice services will soon be
widely adopted, the technology still faces concerns, including voice quality
of VoIP calls. In order for widespread acceptance, technical concerns over call
quality must be overcome. In addition, a lack of technical standards, which
would allow multiple systems to work together, could hold the market back. Quality
and reliability must be proved before VOIP heads into the mainstream. Expectations
in the voice world hold that the technology must always work. On the other hand
the PSTN works. It's what's setting the standard for voice, regardless of what
medium it's running over. When people talk on the phone, they are used to carrying
on a conversation as if the person on the other end of the line is standing
next to them. Users expect 99.999 percent uptime and zero delays. VOIP must
at least equal that performance. And if it is to take over, VOIP has to handle
many millions of calls daily.
Despite these challenges, analysts expect Internet telephony to continue to explode in year 2000 and beyond. Probe Research analyst Mine predicts Net telephony calls will reach 4 billion minutes in 2000. Consulting and market research firm Frost & Sullivan predicts the market will grow to 634.5 billion minutes by the year 2006.
In 1999, venture capitalists have poured at least $200 million into Web-talk businesses, says Mark Winther, vice president of telecommunications services for International Data Corp., a market-research firm in Framingham, Mass. That's more than four times the level of 1998 spending on Web-talk outfits, Mr. Winther says. He predicts the 1999 amount will double in 2000.
It's going to take some time, to work out the quality questions and competing standards,but I think, it's going to happen sooner rather than later. The experts predict widespread adoption of IP telephony around the year 2010. Kids who are now growing up with computers and the Internet won't think twice about using the Net to make a phone call. Just think how much an IP telephony call will save on the monthly phone bill of a household with a teenager in it. It could work just as well for businesses focused on their own bottom lines. Face it, we accept poor cell-phone quality because it serves a business purpose for the mobile worker. IP telephony, on the other hand, could cut corporate communications costs in half--how's that for a business plan?
Mark my words: Internet Telephony will lead the Telecommunications Industry into the 21st Century.
Please send me any comments or suggestions: bchang@stanford.edu
