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Network World, permission is hearby given for reproduction, as long as attribution
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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.