VoIP: Shifting the paradigm

10 January 2003
For global operators of voice over internet protocol (VoIP) technology, the Middle East has long remained a black spot on the international map. The lack of deregulation in the regional telecommunications markets has prevented international VoIP carriers from setting up their operations, protecting incumbent telecoms operators from downward price pressures on international phone calls. But with the majority of Arab states preparing to put in place legislation for opening up their telecoms sectors by 2005 in accordance with World Trade Organisation (WTO) rules, the widespread launch of VoIP services across the region will be inevitable.

Companies such as US-based Internet Telephony Exchange Carrier Corporation (ITXC), a major operator of a global voice network built over the internet, are closely monitoring the liberalisation drive in the region. 'We have very little presence in the Middle East because there is little deregulation,' says Tom Evslin, chief executive of ITXC. 'But countries such as Egypt and Saudi Arabia certainly offer huge potential.'

VoIP usage is minimal in the Middle East as existing phone operators have benefited from governments banning VoIP after the technology emerged as an attractive alternative for internet users to avoid high charges on international calls. But the trend towards VoIP on a broad commercial scale in the Middle East will be irreversible as the successful application of the technology in much of the rest of the world shows.

'Carriers in the Middle East have been reluctant to give up their monopolies,' says Evslin. 'But the high rates [on phone calls] are a drag on commerce in general and the position is therefore rather shortsighted.'

In 2002, about 10 per cent of all international phone calls, equivalent to 18 billion minutes, were VoIP. ITXC carried about 20 per cent of the total, establishing the firm as one of the top five VoIP carriers based on minutes of international traffic. The application of the technology is expected to soar to new heights by the end of the decade. 'ITXC believes all calls will travel over the internet by 2010', says Evslin.

The distinguishing feature of VoIP from transmission over conventional public switched telephone networks (PSTNs) is that voice information is converted to IP format and transported in digital form in packets over global internet backbones or private networks of companies. Each data package is routed independently of each other from the origin to the destination, allowing for greater transmission efficiency. The key advantage of the technology is that it avoids the fees charged by ordinary telephone services as the cost of using the internet is not determined by the distance the calls need to travel. Moreover, quality issues, a problem in the early days of the technology, have been resolved, says Evslin. To ensure a high grade of quality, VoIP uses real-time protocol (RTP) technology to help ensure that packets get delivered in a timely way.

ITXC's strategy is clear. As a VoIP carrier, the company provides a gateway to the internet by switching the voice traffic from conventional PSTNs and vice versa at worldwide points of presence (PoPs). Today, the company has established a worldwide network of 175 PoPs.

ITXC acts as wholesaler to its customers, which include all major US carriers and companies such as China Telecom, Italy's Albacom and Sweden's Telia. In addition, pre-paid calling service providers have emerged as key customers for ITXC, buying significant capacity and in turn offering low rates on international calls at high quality.

Says Evslin: 'ITXC serves these companies by providing them a global network and the economics that result when the internet is optimised. We enable retail carriers - many of whom do not own or manage a global network - to be active in the international long distance voice services market.'

Unlike other international telecoms firms, ITXC, which in September 1999 completed an initial public offering (IPO) and a second IPO in March 2000, has not been hit by the turmoil in the international telecoms markets. 'The internet was already there and built, so we did not have to physically set up a network,' says Evslin. As a result, the company today is virtually debt-free.

Oliver Klaus

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