The History of VoIP

Today’s telecommunications landscape bears little resemblance to that of two decades ago. Instead of a single, slow-moving operator per country, there are now dozens, if not hundreds, of players offering myriad services in each market.

Exponential increases in the volumes of data have transformed the way businesses are run and how we communicate, and have been matched only by ever-decreasing prices charged by operators for carrying it. The numerous privatizations of the late 1980s and early 1990s opened the way for the rise (and in many cases demise) of the pan-European and global carrier. Defensive global alliances also came and went. Mobile and broadband, of course, are still with us. These vibrant sub sectors of the industry did not even exist when Telecom Markets first went to press.

But although the landscape is markedly different in a number of ways, in some respects it is similar. The triple-play concept has been around for years but is now gaining currency as DSL expands the capability of the PSTN. Fixed-mobile convergence has long been debated, and though there has been little evidence of it to date, Wi-Fi is already changing that and wireless broadband will do so even more. Most important perhaps, voice over IP (VoIP) is finally reaching (or to be more accurate bypassing) the local loop, with industry-wide consequences. Incumbents are looking to overturn 20 years of regulation as they seek to overhaul their networks, just as VoIP innovator Skype faces regulatory threats that could inhibit its growth.

Combined with broadband, VoIP emerged as a major competitive threat to incumbent carriers in the decade of 2000.

In August 2003, Skype launches a peer-to-peer (P2P) VoIP telephony service. The service is free for Skype users when they call one another, regardless of distance. A few months later, the company rolls out a service that allows Skype users to make relatively cheap calls to the PSTN. VoIP is perceived as a major threat to conventional telephony and telecoms carriers. That same month, Italian alternative operator FastWeb, which began offering video services over its fibre-to-the-home (FTTH) network in 2001, launches a TV-over-DSL service. In the coming years, a number of Europe’s incumbents and alternative operators move to offer TV-over-DSL in a bid to replicate FastWeb’s success in selling “triple play” bundles of voice, video and internet access.

In February 2004, The Federal Bureau of Investigation (FBI) put tremendous pressure on the FCC to issue an order forcing VoIP providers to comply with the federal Communications Assistance for Law Enforcement Act (CALEA). Currently, VoIP service providers are not required to comply with CALEA, although many are. The FBI reportedly believes that unless the FCC compels VoIP service providers to be CALEA-compliant, criminals will seek out non-compliant VoIP providers and use their services to enable clandestine communications.

The Minnesota Public Utilities Commission (MPUC) appealed a federal court ruling that permanently enjoins the state regulator from subjecting Vonage Holdings Corp., a VoIP service provider, to being regulated as a telephone company. The case marked the first time a state regulatory agency tried to impose telco rules on a VoIP provider.

In April 2004, a bill was introduced in the House and Senate that claimed to protect VoIP technology from regulation. The parallel bills, both dubbed “The VoIP Regulatory Freedom Act of 2004,” were intended to foster the evolution of the technology within the U.S. telecom industry.

Researchers from the Massachusetts Institute of Technology (MIT) and Princeton University recently released details of a historical analysis and study of U.S. business and the economy that suggests massive telecom regulatory reform should take place at this time or the incumbent telephone carriers and other elements of the service provider community could go the disastrous way of the now- disintegrated railroads.