Controlling The Phone - Part 9: VoIP

It is no surprise that VoIP has become a battleground on which telcos are actively protecting their business interests. Simply on the basis of VoIP as a technology, and despite an adoption rate slower than has been promised by many who have touted it, VoIP is the future of voice communications. And it is a slow evolution; very few people connect using VoIP at the user appliance, and even fewer use VoIP end-to-end, although it has seen better penetration in international carriage.

Until now the main business driver behind VoIP has been rate and regulatory arbitrage. This has become far less of a differentiator as all voice prices have come down, and because regulators have gradually increased their oversight, and demands, on the pure-play VoIP providers. The VoIP providers themselves have further eroded their competitive position by added in mislabeled fees on their bills, making their business practices far more like that of the telcos.

Even while the telcos did their best to slow the progress of the VoIP providers, including lobbying to get those providers covered by the same jungle of regulations they were burdened with, they also made money from VoIP. The primary revenue stream for them is interconnection fees. Since the vast majority of phone users are not on VoIP, the VoIP providers have to interconnect with the telcos' networks, and pay for the privilege of doing so, if their users are to achieve the universality they expect from any phone. This is one reason why Skype is free, but SkypeIn and SkypeOut are not.

With price largely off the table, the battle now is about subscriber control. As I've talked about in the past, no telco willingly allows themselves to become a dumb pipe, ceding the lucrative and highly-marketable vertical services built on those pipes. That absolutely means the making and receiving of phone calls. While some may wonder if the web and its various services are yet to be seen as a passing fad, no one doubts that for so long as human beings exist they will pay to talk to each other. With phone calls migrating to VoIP, telcos know that the legacy networks are dead and that they, too, must make the move. In time that will be the only game in town.

It isn't easy for the telcos to assert control over VoIP. Being software based and available to anyone with an IP connection, it is very simple today for the most technology-unaware consumer to use and benefit from VoIP. Therefore, a key arena in which telcos are wrestling for control is that of of network neutrality.

It is amusing to read that the telcos are trying to escape regulatory oversight using VoIP, even while they lobby the same regulators to increase the oversight of their competition. This particular tactic can only succeed if they can hobble competitors, the pure-play VoIP providers, by being less than neutral towards users of their data pipes. This further assumes they continue to exercise market dominance, or even a monopoly, on data access, both wired and wireless. Their key competition in this space is the cable companies, but since they and the telcos have the same objectives (and tactics) we face a market-dominant oligopoly, which is as bad or worse than a monopoly.

Anti-neutrality tactics between the telco's wired and wireless networks are different despite their sameness when it comes to IP communications. The reasons for this are technical and also related to regulatory latitude. First, let's quote from an article by Michael Geist, which summarizes in stark terms how one presenter, Pelmorex, put the matter to the CRTC:

wireless reseller blocking ads from a mobile site

wireless carriers stripping out tracking codes embedded in web pages, thereby limiting ability to deliver ads

wireless carriers establishing “walled gardens” that provide preferential access that reduces data charges for sites within the walled garden

forcing users through wireless carrier homepage when accessing the Internet on feature phones

prior approval of applications for use on smart phones

extra fees for text messages that include ads

wireless carriers limiting to whom ads in text messages may be sold

All of the same points could apply to wired broadband, but do not for some important reasons. First, wireless spectrum is still considered a finite and limited resource that regulators (rightly or wrongly) understand must be closely managed by the telco. Second, users expect a somewhat different experience from mobile, in part due to the peculiarities of the devices, availability constraints and in part due to a history of WAP and other low-bandwidth walled-garden services. Third, and with particular respect to VoIP, VoIP is technically impaired on mobile phones for the reasons I covered in the previous article on SMS.

This last reason is why I realized I ought to cover SMS first. VoIP is easily installed as an application on smart phones, but it isn't. First there is the false reason given of excess network usage (recall the earlier point about spectrum conservation). In actuality, VoIP is less of a burden that a great deal of web surfing, especially when it comes to transmitting photos, video, music, and even live mapping/navigation views. Second, VoIP requires a persistent connection to a remote server (SIP server in most cases) to keep an active connection through the network's NAT and firewall so that there is immediate presentation of incoming phone calls. As described in the previous article, this quickly drains the battery. The technical requirement is the same for wired broadband, except that there is no power shortage and the firewall is owned and operated by the user. Wi-Fi can be used from most mobile devices but that would mostly limit VoIP to the home, office and a few other locations.

Even with its technical limitations, the telcos are active in controlling VoIP use on smart phones. Where they can exercise control, they disallow VoIP applications, either directly or in cahoots with the manufacturer or app store. This strategy works well with Symbian, Windows and iPhone devices, but I have to wonder how they can control VoIP on Android phones. Perhaps this is where network neutrality raises its head, with the telcos defending the use of deep packet inspection (DPI) and application filtering. They cannot use this tactic against VoIP on wired broadband, but they are still able to do so with a lot of freedom on wireless networks.

These reasons are why the so-called VoIP apps that are available on smart phones do not in fact use VoIP on the phone itself. Usually they involve ordinary cell phone calls to VoIP carrier POPs (points of presence), to access cheaper long distance rates, and forwarding of incoming calls to a VoIP number to the cell phone number.

Ultimately I believe the status quo is unsustainable. Two key reasons I see are:

• Services: With no prospect of new or enticing services on the legacy network, and the competitive offering of those new services with VoIP, if they are to offer the same services themselves they must allow VoIP on smart phones. Once they do so they will no longer be able to maintain the charade of VoIP harming their network. They will continue to try, however, and that is one reason why they are working so hard against network neutrality: they want to have their cake and eat it, too.
• Wireless Data Marketing: In time, the regulators will get the message that VoIP is not a burden on the network. Sure, it may continue to be a burden on the phones themselves for a while longer, but when they advertise quantities like 5 GB per month of data usage, and VoIP is shown to consume only a small part of that amount, it will be increasingly obvious that it isn't a problem. Even if it were, with a volume-based data plan, surely it's up to the user to decide how the volume is allocated, not the telco. This reasonable argument and the increasing capabilities of wireless networks and the telcos' relentless marketing of those capabilities will subvert their own campaign against VoIP. It will also damage their fight on the broader issue of network neutrality. Battery life is a separate matter, one that is between the users, app developers and manufacturers; but not the telcos.

When all is said and done, the telcos will have to take VoIP seriously, both as legitimate competition and as an opportunity to deliver new and hopefully attractive services. VoIP is here to stay and the telcos are in gradual retreat on all fronts. The most interesting times are yet to come, and VoIP's day may be come sooner than expected.

I have at least one more article in this series that I want to write, on the role of standards in the matter of controlling the phone. Time permitting I'll get to it by next week. With my schedule being a bit more full I have less time to write blog entries. So we'll see.