IP Telephony in India: Cost, Pricing and Regulation

A Project report

Submitted to

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on Sept 5, 2000

in partial fulfillment of the requirements of the course

Infrastructure Development and Finance

by

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Acknowledgements

We hereby acknowledge the contribution of the following people and resources to our project.

� Professors Rekha Jain, G.Raghuram and Sebastian Morris for laying a foundation in the

conceptual issues of infrastructure.

� Bhagabhati Maharana ,Infoscian and Ajith .A.Mascarenhas, Doctoral candidate at the

University of North Carolina ,U.S.A for providing an understanding of the technical aspects of

IP Telephony.

� The Internet Telephony Consortium at MIT, USA whose conferences, publications, and

research in the field of VoiP have aided us, especially in the field of regulatory and economic

issues.

-Amit Dhingra

Deepak Rajan

Manish K.Sarswat

Mudit Gera

S.Prashanth

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Executive Summary

The advent of the Internet has set in motion a fundamental shift in the way telephony is viewed.

Traditional telephony or POTS (Plain Old Telephone Services) viewed voice as a continous

stream of electrical signals to be delivered uninterrupted (circuit switched) from one end to

another. Voice was the result of modulation and demodulation at either end. What the Internet has

achieved is to provide an alternate form of carrying these signals, albeit at a much cheaper and in

a more efficient form. This is through packetization of these data streams. This technology has its

drawbacks in that the Carrier views these packets as data packets and is liable to treat them as

such, which implies lost or delayed data packets, resulting in poor quality of voice. New

technologies are available today, which have brought down “Jitter”, “echo” and “latency” to a

more tolerable level. Worldwide, VoiP has already been commercialized as part of convergence

offerings.

This project aims to look at the applicability of IP telephony as a viable offering in India.

The delivery channels identified are ISP’s (who offer dial up connections), Cable (for its vast

penetration) and Phone to Phone (Incumbents like VSNL and MTNL). We feel that the latter two

are viable means of VoiP entry in India. Cable because of Multi media and convergence offerings

on broadband which would become possible in the near future and Phone to Phone, wherein we

feel that existing players would have an advantage as they would have to only replace the

backbone, and not the end instruments, which signify a captured market. The project takes a look

at regulatory issues, drawing parallels from regulatory ruling in the USA, which currently is in the

most advanced stage of implementation and usage of VoiP.The issue of pricing VoiP is a very

contentious one, as in the era of convergence, all manner of packets, i.e data, voice, video will

compete for access on the same network, unlike a circuit switched network. This throws up

questions of priority before pricing occurs.The model identified for pricing is based on the

concept of “Smart Markets” originally proposed by Hal Varian and Mackie-Mason in 1994.

This employs a bidding mechanism based on a “Vickrey Auction”. The costs of implementing

such a system in India have been worked out and it is found that it would cost on an average 25%

cheaper than existing POTS. We feel that in the context of Infrastructure development, this

technology with its price and technical advantage could drive higher accessibility and thus easier

flow of information across the country.

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Table of Contents

What Is Packet Telephony?.......................................................................................................... 6

Carrier Applications............................................................................................................................. 6

Enterprise Applications ........................................................................................................................ 6

Voice Over Internet Quality of Service (QoS) Issues.................................................................... 7

QoS defined........................................................................................................................................... 7

Delay...................................................................................................................................................... 7

Accumulation Delay (Sometimes Called Algorithmic Delay) .............................................................. 8

Processing Delay ................................................................................................................................... 8

Network Delay ...................................................................................................................................... 8

Jitter ...................................................................................................................................................... 8

Lost-Packet Compensation................................................................................................................... 9

Echo Compensation ............................................................................................................................ 10

The Unique Demands of Voice Traffic............................................................................................... 10 Table 1. Characteristics of Packet and Circuit Switched Networks.................................................11

Engineering Around Delay and Packet Loss...................................................................................... 11

Is Overprovisioning of Bandwidth a Solution for QoS ? .................................................................. 12

MPLS- The Need for Traffic Engineering .........................................................................................12

Differentiated Services (DiffServ or DS) ............................................................................................ 13

IPv6 ..................................................................................................................................................... 14 Latest Developments on Ipv6...................................................................................................................15

Challenges of IP Telephony ................................................................................................................ 18

CABLE IP TELEPHONY.......................................................................................................... 20

Cable IP telephony- Architecture....................................................................................................... 20

Cable IP telephony - The evolution to come....................................................................................... 22

Long Distance Service for ISPs.................................................................................................. 27

Deploying VoIP in an ISP’s Network ................................................................................................. 28 Components of a H.323 Network............................................................................................................31

Service Description ............................................................................................................................. 32 How the Service Works—Call Processing............................................................................................32 Facilities embedded in the network:-......................................................................................................33

Regulation: Legal and Policy Issues.......................................................................................... 35

US Scenario......................................................................................................................................... 35

The Petition......................................................................................................................................... 36

The Proceedings.................................................................................................................................. 36

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The Ruling........................................................................................................................................... 36

FCC’s Report to Congress.................................................................................................................. 37 Stance of European Commission.............................................................................................................38 Stance of other Government/Regulators................................................................................................40 Interoperability of IP Telephone..............................................................................................................40

INTERNET TELEPHONY IN INDIA....................................................................................... 42

MODES OF PROLIFERATION ....................................................................................................... 43 THE ISP SCENARIO IN INDIA............................................................................................................43

How would the future Indian IP Telephony market look like?......................................................... 47 Retail Segment.............................................................................................................................................47 Corporate Segment.....................................................................................................................................47

Current Legal and Policy Concerns In India.....................................................................................47

What lies ahead for the Incumbents?................................................................................................. 48

PRICING OF IP TELEPHONY........................................................................................ 50

Cost of IP Telephony in India............................................................................................................. 52 Key Assumptions........................................................................................................................................52

Results ................................................................................................................................................. 53 How cheap is IP Telephony compared to traditional telephony?.....................................................54 Major Hurdles..............................................................................................................................................54 Possible Answers........................................................................................................................................54

Exhibit 1: Cost estimates for connection for IP Telephony ............................................................... 55 VSNL Cost.......................................................................................................................................................55

Exhibit 2: Prevailing STD and ISD rates in India ............................................................................. 56

Exhibit 3: Comparison of prices of IP Telephony (PC to Phone) with Traditional Telephony prices (US prices for overseas telephony) ..................................................................................................... 57

Bibliography...............................................................................................................................61

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What Is Packet Telephony? There is a lot of confusion regarding packet telephony in two specific areas. First, packet

telephony is not Internet telephones. Internet telephones are software packages sold

predominantly to place telephone calls over the Internet. They are generally awkward to use and

offer poor voice quality.

Packet or IP telephony is the simultaneous and joined delivery of voice and data communications

over a single, unified communications fabric based upon the Internet Protocol (IP). Packet

telephony traffic will be delivered within the enterprise over an organization’s intranet and

outside the enterprise initially over a circuit-switched fabric. Over time, as corporations develop

extranets with their trading partners and as those partners install interoperable packet telephony

systems, corporations will deliver packetized voice end-to-end outside of the enterprise.

������� �������� �In the carriers, packet telephony is emerging as a key bypass technology. A new class of carriers,

Internet telephony service providers (ITSPs), is building packet-based WAN networks to carry

voice traffic. Even some traditional long-distance carriers are experimenting with packet-based

WANs, primarily for service outside their regulated markets.

� �������� �������� �In the enterprise, packet telephony will emerge in applications where the value proposition can be

clearly articulated. This is likely to begin with specific applications in large organizations—

applications utilizing the joined delivery of data and voice over a single infrastructure. Examples

include next-generation call centers, new voice logging systems, and unified messaging: the

joined receipt of voice mail and e-mail. Because of its radical technological departure, packet

telephony will emerge at the fringe of organizations in value-added applications, not in the core

premises telephony fabric.

Much of packet telephony’s present deployment is for toll bypass over WANs. Organizations are

purchasing VOIP gateways to combine their phone and data infrastructures (or at least selected

links in their infrastructures) primarily to high-tariff countries.

Domestically, organizations with large branch office systems (such as banks) and a capillary data

infrastructure to reach those branches are also exploiting the WAN data network to carry voice. In

an odd reversal of the metaphor that sold T1 multiplexers for years (“voice pays for the circuit;

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data rides for free”), these customers have already installed and justified their data networks and

are using spare capacity to carry intra-corporation voice traffic. Over time, as the business

justification shifts to increased employee productivity and effectiveness, packet telephony will

infiltrate the LAN fabric. Several events need to occur to effect this change. Much of the high

cost of installing a LAN-based telephony system today lies in the infrastructure components (as

opposed to telephone handsets or other client equipment).

Voice Over Internet Quality of Service (QoS) Issues

��� ���� ��Quality of service can be interpreted as the ability of a user of a specific application to obtain

service with predictable performance over some reasonable period of time that permits the

application to operate in an acceptable manner. Latency and dropped packets from congested

links make it extremely difficult to provide such a predictable performance. In general, delivering

QoS over the Internet depends upon two primary components: -

1. The use of an explicit bandwidth reservation tool for reserving network resources tailored to

specific application flows. The expectation for QoS to exist in parallel with a “best-effort

Internet” for those who are willing to pay a premium for more predictable service quality. Thus

it is imperative for network operators to utilize management tools like admission control to

restrict access to reserved and conformant traffic only.

2. The routers must maintain control mechanisms to enforce preferred access to network

resources for priority flows.

Some of the problems associated with VoIP are discussed below in greater detail..

����Delay causes two problems: echo and talker overlap. Echo is caused by the signal reflections of

the speaker's voice from the far-end telephone equipment back into the speaker's ear. Echo

becomes a significant problem when the round-trip delay becomes greater than 50 milliseconds.

As echo is perceived as a significant quality problem, voice-over-packet systems must address the

need for echo control and implement some means of echo cancellation.

Talker overlap (or the problem of one talker stepping on the other talker's speech) becomes

significant if the one-way delay becomes greater than 250 milliseconds. The end-to-end delay

budget is therefore the major constraint and driving requirement for reducing delay through a

packet network.

8

The following are sources of delay in an end-to-end, voice-over-packet call:

�������� ���� ���������� ���� ��������� �����This delay is caused by the need to collect a frame of voice samples to be processed by the voice

coder. It is related to the type of voice coder used and varies from a single sample time (.125

microseconds) to many milliseconds. A representative list of standard voice coders and their

frame times follows:

� G.726 adaptive differential pulse-code modulation (ADPCM) (16, 24, 32, 40 kbps)—

0.125 microseconds

� G.723.1 Multirate Coder (5.3, 6.3 kbps)—30 milliseconds

������� � ����This delay is caused by the actual process of encoding and collecting the encoded samples into a

packet for transmission over the packet network. The encoding delay is a function of both the

processor execution time and the type of algorithm used. Often, multiple voice-coder frames will

be collected in a single packet to reduce the packet network overhead. For example, three frames

of G.729 code words, equaling 30 milliseconds of speech, may be collected and packed into a

single packet.

������� ����This delay is caused by the physical medium and protocols used to transmit the voice data and by

the buffers used to remove packet jitter on the receive side. Network delay is a function of the

capacity of the links in the network and the processing that occurs as the packets transit the

network. The jitter buffers add delay, which is used to remove the packet-delay variation to which

each packet is subjected as it transits the packet network. This delay can be a significant part of

the overall delay, as packet-delay variations can be as high as 70 to 100 milliseconds in some

frame-relay and IP networks.

�����The delay problem is compounded by the need to remove jitter, a variable inter-packet timing

caused by the network a packet traverses. Removing jitter requires collecting packets and holding

them long enough to allow the slowest packets to arrive in time to be played in the correct

sequence. This causes additional delay.

The two conflicting goals of minimizing delay and removing jitter have engendered various

schemes to adapt the jitter buffer size to match the time-varying requirements of network jitter

removal. This adaptation has the explicit goal of minimizing the size and delay of the jitter buffer,

while at the same time preventing buffer underflow caused by jitter.

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Two approaches to adapting the jitter buffer size are detailed below. The approach selected will

depend on the type of network the packets are traversing.

The first approach is to measure the variation of packet level in the jitter buffer over a period of

time and incrementally adapt the buffer size to match the calculated jitter. This approach works

best with networks that provide a consistent jitter performance over time, such as ATM networks.

The second approach is to count the number of packets that arrive late and create a ratio of these

packets to the number of packets that are successfully processed. This ratio is then used to adjust

the jitter buffer to target a predetermined, allowable late-packet ratio. This approach works best

with the networks with highly variable packet-interarrival intervals—such as IP networks.

In addition to the techniques described, the network must be configured and managed to provide

minimal delay and jitter, enabling a consistent QoS.

!���"����� ����� ����� Lost packets can be an even more severe problem, depending on the type of packet network that

is being used. Because IP networks do not guarantee service, they will usually exhibit a much

higher incidence of lost voice packets than ATM networks. In current IP networks, all voice

frames are treated like data. Under peak loads and congestion, voice frames will be dropped

equally with data frames. The data frames, however, are not time sensitive, and dropped packets

can be appropriately corrected through the process of retransmission. Lost voice packets,

however, cannot be dealt with in this manner.

Some schemes used by voice-over-packet software to address the problem of lost frames are as

follows:

� interpolate for lost speech packets by replaying the last packet received during the interval

when the lost packet was supposed to be played out; this scheme is a simple method that

fills the time between noncontiguous speech frames; it works well when the incidence of

lost frames is infrequent; it does not work well if there are a number of lost packets in a

row or a burst of lost packets.

� send redundant information at the expense of bandwidth utilization; this basic approach

replicates and sends the nth packet of voice information along with the (n+1)th packet;

this method has the advantage of being able to correct for the lost packet exactly;

however, this approach uses more bandwidth and also creates greater delay

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� use a hybrid approach with a much lower bandwidth voice coder to provide redundant

information carried along in the (n+1)th packet; this reduces the problem of the extra

bandwidth required but fails to solve the problem of delay

��� ����� ����� Echo in a telephone network is caused by signal reflections generated by the hybrid circuit that

converts between a four-wire circuit (a separate transmit and receive pair) and a two-wire circuit

(a single transmit and receive pair). These reflections of the speaker's voice are heard in the

speaker's ear. Echo is present even in a conventional circuit-switched telephone network.

However, it is acceptable because the round-trip delays through the network are smaller than 50

milliseconds and the echo is masked by the normal side tone every telephone generates.

Echo becomes a problem in voice-over-packet networks because the round-trip delay through the

network is almost always greater than 50 milliseconds. Thus, echo-cancellation techniques are

always used. ITU standard G.165 defines performance requirements that are currently required

for echo cancellers. The ITU is defining much more stringent performance requirements in the

G.IEC specification.

Echo is generated toward the packet network from the telephone network. The echo canceller

compares the voice data received from the packet network with voice data being transmitted to

the packet network. The echo from the telephone network hybrid is removed by a digital filter on

the transmit path into the packet network.

Without appropriate design, this can wreak havoc on a telephone conversation. A number of

techniques have been developed to address this problem. One technique is to use jitter buffers to

smooth out the ebb and flow of packets. However, jitter buffers, which store a string of packets,

introduce additional absolute delay.

#�� $ �%�� ���� �� �� &��� #�����The legacy PSTN was engineered to optimize the transport of predictable analog voice traffic. Its

centralized, circuit switched nature is not suitable for meeting the demands of large volumes of

data traffic. Instead, voice is migrating onto distributed, packet switched networks such as those

running IP, Asynchronous Transfer Mode (ATM), and Frame Relay technologies. Circuit and

packet switched networks have distinct differences, as shown in Table 1.

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Table 1. Characteristics of Packet and Circuit Switched Networks

Packet Networks Circuit Networks

Architecture Distributed Centralized

Transport Packet/statistical multiplexing Circuit/time-division multiplexing (TDM)

Bandwidth Broadband Narrowband

Optimum Application(s) Multi-service Voice

� �� ���� � ���� � ���� � � ����� !���Voice quality is significantly impacted by one-way network delays of anywhere between 100 and

200 milliseconds (ms), depending on the tolerance level of the individual. Contributors to delay

include normal processing in a network, the distance between two communicating points, network

congestion, and packet loss and retransmission delays. To successfully deploy toll-quality voice

services over packet infrastructures, service providers must engineer their networks in a way that

ensures that latency does not exceed the 200 ms end-to-end, one-way maximum. To

accommodate a wider scope of users, keeping latency below 100 ms is preferable. Packet loss

should remain under 3 percent, with 1 percent packet discard preferable.

Consistently achieving these metrics requires equipment with integrated Quality of Service (QoS)

mechanisms for prioritizing, queuing, and reserving bandwidth for delay-sensitive traffic. Among

these mechanisms are standards-based options such as DiffServ, Int-Serve, Resource Reservation

Protocol (RSVP), and Multiprotocol Label Switching (MPLS). These technologies enable service

providers to enter into service level agreements (SLAs) with their customers to guarantee certain

network metrics so that users are assured that their applications will perform well over the

network. Some of them are discussed below in the study.

Simply over-provisioning bandwidth to the point of eliminating any network congestion is

another approach to controlling these metrics. The expense associated with this alternative,

however, can negate the cost savings of deploying an integrated IP infrastructure. In addition, the

extra bandwidth will only suffice until traffic volumes increase. Traffic engineering and

performance monitoring provide a more economical option for controlling network performance.

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'� ()�����)���� � � �� *� ������ � ������ ��� ���+

The simplest and the most obvious solution to provide better service quality to meet the complex

demands is to deploy ample bandwidth in the core to keep ahead of the demand curve. This

motivation has necessitated the constant upgrading of backbone fiber links by core transit

providers. However, this strategy of deploying an increased number of higher data rate channels

over fibre has not satisfied the hunger for bandwidth- in fact the demand has grown so as to

consume the bandwidth available.

Overbuilding networks is a highly capital intensive solution that may not continue to scale in a

world where the cost of bandwidth is declining more dramatically than the network transmission

costs. Before companies can migrate to critical business applications on the internet, a new set of

traffic management tools is required to align the bandwidth requirements of more varied traffic

types with the physical resources that the network can provide. These requirements create the

underpinnings for the emergence of traffic engineering and the QoS. While overprovisioning can

relieve congested traffic arteries, it delivers no tightly encompassing mechanisms for guaranteed

service level agreements (SLAs) encompassing delay intolerant applications.

,�!�" #�� ���� ��� #����� � �� ���� �

The IP was created as a connectionless network layer protocol that makes no attempt to

discriminate the various application types. IP uses traditional interior gateway protocols to

advertise and build a database of all active links within a routing domain. Successful operation of

these networks depends upon the same distributed network state information being disseminated

and consistently maintained by all routers within the same autonomous system. Each router uses

the same global state information to independently develop its own forwarding table using the

shortest path constraint –based metrics. As a result, the traffic is concentrated on a small number of

optimized data paths to the detriment of other links, which frequently remain underutilized.

To accommodate highly interactive application flows with low delay and packet loss thresholds,

there is a clear need to more efficiently utilize the available network topology. The process

13

whereby this is accomplished is known as traffic engineering and Multi Protocol Label Switching

(MPLS) provides these capabilities.

MPLS traffic engineering attempts to correct the inefficiencies of typical datagram routing

protocols by more evenly spreading the flow of traffic across all available resources.

Reengineering a conventional datagram network based solely on Layer 3 cost-based metrics can be

both expensive and inefficient as network re-convergence times are higher and it means moving all

data flowing across a link to an alternate path. In an MPLS traffic engineered path, when a more

desired route becomes available, some labels associated with certain traffic classes may be

assigned the optimal path while delay-intolerant service classes may remain behind on the original

link.

Through more precise balancing of various traffic engineering mechanisms, MPLS provides an

extensive array of tools for more precise balancing of flows of different size and application

priority across the most lightly loaded network links. The goal of traffic engineering is to increase

through put across a network while concurrently decreasing congestion. As a result, the preferred

paths in the new networks may not be synonymous with the shortest cost paths. Ina coat

competitive market for bandwidth, MPLS provides an effective tool for increased network

utilization and yields economies of scale and relative cost advantages for service provider.

������� ������ ���)��� ��������) �� ���Differentiated Services (DiffServ, or DS) is a protocol for specifying and controlling network

traffic by class so that certain types of traffic get precedence - for example, voice traffic, which

requires a relatively uninterrupted flow of data, might get precedence over other kinds of traffic.

Differentiated Services is the most advanced method for managing traffic in terms of what is

called Class of Service (CoS). Unlike the earlier mechanisms of 802.1p tagging and Type of

Service (ToS), Differentiated Services avoids simple priority tagging and depends on more

complex policy or rule statements to determine how to forward a given network packet. An

analogy is made to travel services, in which a person can choose among different modes of travel -

train, bus, airplane - degree of comfort, the number of stops on the route, standby status, the time

of day or period of year for the trip, and so forth. For a given set of packet travel rules, a packet is

given one of 64 possible forwarding behaviors – known as per hop behaviors (PHBs). A six-bit

field, known as the Differentiated Services Code Point (DSCP), in the Internet Protocol (IP) header

specifies the per hop behavior for a given flow of packets.

14

Differentiated Services and the Class of Service approach provide a way to control traffic that is

both more flexible and more scalable than the Quality of Service approach.

'�)-

IPv6 (Internet Protocol Version 6) is the latest level of the Internet Protocol (Internet Protocol)

and is now included as part of IP support in many products including the major computer operating

system. IPv6 has also been called "IPng" (IP Next Generation). Formally, IPv6 is a set of

specifications from the Internet Engineering Task Force (IETF). IPv6 was designed as an

evolutionary set of improvements to the current IP Version 4. Network host and intermediate node

with either IPv4 or IPv6 can handle packet formatted for either level of the Internet Protocol. Users

and service providers can update to IPv6 independently without having to coordinate with each

other.

The most obvious improvement in IPv6 over the IPv4 is that IP addresses are lengthened from 32

bits to 128 bits. This extension anticipates considerable future growth of the Internet and provides

relief for what was perceived as an impending shortage of network addresses.

IPv6 describes rules for three types of addressing: uni-cast (one host to one other host), anycast

(one host to the nearest of multiple hosts), and multi-cast (one host to multiple hosts). Additional

advantages of IPv6 are:

� Options are specified in an extension to the header that is examined only at the destination,

thus speeding up overall network performance.

� The introduction of an "anycast" address provides the possibility of sending a message to

the nearest of several possible gateway hosts with the idea that any one of them can

manage the forwarding of the packet to others. Anycast messages can be used to update

routing tables along the line.

� Packets can be identified as belonging to a particular "flow" so that packets that are part of

a multimedia presentation that needs to arrive in "real time" can be provided a higher

quality-of-service relative to other customers.

� The IPv6 header now includes extensions that allow a packet to specify a mechanism for

authenticating its origin, for ensuring data integrity, and for ensuring privacy.

15

Latest Developments on Ipv61

WorldCom Inc. is testing IPv6 within its own VBNS (very-high-performance Backbone Network

Service). The company runs a nationwide native IPv6-over-asynchronous transfer mode section on

the VBNS at speeds of 155M bps. Right now, the driving force toward IPv6 is increased

addressing space, especially as Internet-enabled devices become prevalent. Under the IPv4

specification for Internet traffic, which uses a 32-bit addressing scheme, it is to run out of IP

addresses eventually. The 128-bit addressing scheme of IPv6 is enough to dedicate many

thousands of IP addresses for every square inch of the Earth’s surface.

Sprint and the '6bone' network

Sprint Corp., for its part, hopes to get an early jump on the move to IPv6 through experiments with

the "6bone" network -- a network put in place by industry groups to run early versions of IP v6.

The company operates its portion of the 6bone network running IPv6 traffic exclusively as a

"tunnel" within its Internet backbone. Sprint currently provides IPv6 connections to about 70

research, government, academic and corporate entities.

Sprint is also looking to IPv6 as the vehicle for far higher levels of service security and

performance, he said. For instance, IPv6 was engineered to include built-in support of QOS,

DiffServ (Differentiated Services) and IPSec (IP Security). IPv4 includes none of those functions

as a uniform part of the standard.

Despite the work being done with the specification, commercial availability of IPv6 software and

services isn’t expected until next year at the earliest, after networking companies such as Cisco

Systems Inc. begin implementing the technology in core products.

Evolution of Market in the United States

The market for Internet Telephony was largely created by VocalTec's Internet Phone,

introduced in February 1995. These first-generation Internet Telephony products were

characterized by the fact that users on both ends of the conversation are required to have Internet

connected computers with compatible software to convert voice into data packets. To locate people

on the Internet, most applications use an scaled down LDAP (lightweight directory access

protocol) directory service that allows an e-mail address to be mapped to the users current IP

1 www.zdnet.com, July, 2000

16

address -- user must logon to the LDAP directory each time they connect to the Internet. Since that

time, there has been a significant increase in offerings of Internet Telephony software from many

vendors. VocalTec claims there have been over 600,000 downloads of its test software since its

introduction. While these applications vary in sound quality, using 28.8 Kbps modems on both

ends can provide sound quality comparable to a regular phone call most of the time, international

calls tend to have lower quality.

According to the research group Frost and Sullivan, the concept of IP Telephony has evolved

from the initial use popularized by VocalTec into the following five areas:

1. Voicemail: Non-real-time audio communication where one person sends a voice message

to another person.

2. Fax: Near real-time and store-and-forward data communication between two users.

3. Voice telephony: Real-time audio communication between two or more users.

4. Desktop videoconferencing: Real-time audio-visual communication between two or more

users, where each user can see the others on a computer screen.

5. Application sharing and document sharing: The sharing of software applications and

documents, in real time, by at least two users (application sharing); the sharing of

documents, in real time, by at least two users (document sharing). Document sharing is

different from application sharing in that no user can take control of someone else's

application. Every participant can view and modify the document using his or her own

application. (Network Computing, NC-C, NC-S, NetPC)

As described above, the first three areas have been traditionally functions of voice networks

and were services performed by PBX type telephone switches. The last two areas have been

applications promoted as tools used by GroupWare electronic collaboration and real-time

conferencing applications. Groupware and group collaboration products tend include IP Telephony

features. Netscape Communicator and Microsoft's NetMeeting are freely available on the Internet;

as end-users start experimenting with the applications, the Internet will see an increase in the use

of IP Telephony. The FCC has decided that these first-generation PC based IP Telephony

applications are enhanced service products, not subject to regulation.

In 1996 VocalTec introduced the second generation of IP telephony products by marketing a

gateways product that would allow for the translation of Internet domain IP addresses with voice

network telephone numbers. The gateway products allow for a call originating on an Internet

connected PC to be terminated at an analog based telephone; typically an integration of an Internet

17

based LDAP directory with the telephone system's SS72 call processing protocol. In 1997, the

International Multimedia Teleconferencing Consortium adopted the H.3233 conferencing standard

as the standard for Internet telephony. These second-generation products tend to revolve around

PBX telephone systems that operate as gateways to the Internet with the Virtual IP network being

treated as another long-distance carrier in terms of least-cost call routing.

Gateways consist of three parts:

1. Codec -- software that typically runs on a dedicated PC and handles the packetization,

compression, and decompression of voice calls.

2. Line Interface -- interconnects with either a company's PBX (Private Branch Exchange) or

the PSTN (public switched telephone network.)

3. Session Management -- manages the connection between gateways

In a corporate environment, when the user dials a number in another city, a setup message is sent

to the local PBX, which in turn sends the message to the gateway. The local gateway consults a

lookup table to locate the IP address of the remote PBX's gateway. The two gateways establish a

session and the remote PBX is requested to complete the call. As the remote telephone rings, the

gateways run voice traffic through the codec and sends voice packets to the appropriate gateway.

Examples of Internet telephony gateway web sites:

Lucent Technologies (http://www.lucent.com/) Internet Telephony Server

RADvision Ltd. (http://www.radvision.com/l2w323.html) L2W-232

Vocaltec Ltd. (http://www.vocaltec.com/) Vocaltec Telephony Gateway

One of the major problems of a public Internet telephony system is how to share costs

between users and providers. Telecommunication carriers such as MCI Worldcom can purchase

unbundled elements from Local Exchange Carriers and resell them to ISPs and other large

customers through their UUNet service.

Third-generation IP Telephony products will provide Gatekeeper functionality that allows

for transparent translation between IP addresses and International Direct Distance Dial (IDDD)

2 Traditional circuit-switched voice networks currently that typically use SS7 switching protocols. 3 H.323 is a comprehensive International Telecommunications Union (ITU) standard for multimedia communications (voice, video, and data) over connectionless networks that do not provide a guaranteed quality of service, such as IP-based networks and the Internet. It provides for call control, multimedia management, and bandwidth management for point-to-point and multipoint conferences

18

telephone numbers, as well as a settlement system that will allow revenues to be split between

sending and receiving gateways. A computer connected to the Internet will be able to receive a

voice telephone call, without a second telephone line and without the end-user disconnecting from

the ISP. Because of efficiencies in the data network over the voice network, it is estimated that

ISPs would be able to earn twice the profits from a voice call as from a data call and still be

competitive with long-distance carriers.

Several companies are providing gateway and gatekeeper services between. The

Public Switched Network and the Internet and are: -

Delta Three (http://www.deltathree.com/)

Net2phone (http://www.net2phone.com/english/)

RSL Communications - Delta Three service is available in 16 countries

(http://www.rslcom.com/)

���� ��� �� '� #����� �Since IP packets carrying voice are treated just like IP packets carrying any other type of data, they

are subjected to delays, loss, and retransmissions. This is especially true when the network is

congested. The quality of service becomes very important issue. Losing every other words of the

phone call can make the call essentially worthless. IP telephony is facing the following challenges:

� Unpredictable service quality, which relates to quality of service and reliability. Real-time

applications set high requirements on the reliability and quality of service capabilities of IP

networks. Protocols and techniques to ensure this must be developed. Until these

techniques are widely deployed and supported by most networks, over-provisioning or

proprietary methods in private IP networks remain the only way to ensure the required

QoS.

� Datacom and telecom convergence related complex system integration, Network

Management Systems (NMS) integration, Customer Care and Billing (CCB) systems

integration, and diversity in the marketplace. IP telephony equipment consist of new

network elements that need to be integrated into the corporate, and teleoperator's or service

provider's network. Both physical and logical integration to the other network elements are

required, as well as integration to the vital operation support systems such as maintenance,

provisioning, and billing systems.

19

� Lack of interoperability because a single waterproof standard does not exist. There are

several competing or partially overlapping standard proposals. Current IP telephony

standards only ensure interoperability within a single IP telephony subnetwork. The

communication between gateways or gatekeepers from different vendors remains to be

standardized.

� Regulatory development will have a major impact on IP telephony. In most countries IP

telephony is still unregulated but the regulatory authorities are monitoring the situation

closely.

� Inertia in the legacy networks, large investments tied in legacy technologies, and people are

accustomed to the old services. There is inertia in the traditional telecom services.

20

CABLE IP TELEPHONY

��.� '� ������ �" ����������

In cable networks, both circuit-switched and IP technologies are overlaid onto a hybrid fiber/coax

(HFC) network, which uses optical fiber for signal distribution along trunks or between cable

headends. Fiber's resistance to noise and low signal attenuation drove its acceptance as a preferred

trunk medium in cable networks. As fiber became more prevalent, its costs decreased, which

helped extend it further into the cable network.

Today, a common configuration for larger service providers is a star-star-tree topology. In this

design, fiber extends from the headend to hubs in the first star layer, and then from hubs to fiber

nodes in a second star layer. The final layer begins with optical to electrical conversion at the fiber

nodes and continues with sets of coax tree branches from the fiber node to the subscriber.

Adding circuit-switched telephony to an HFC network requires three network elements: a

telephony switch, a network interface unit (NIU) and a host digital terminal (HDT). Their

placement in an HFC cable network is shown in Figure 1.

HDT: Host digital Terminal

HFC: Hybrid Fiber Coax

NIU : Network Interface Unit

Information Source: Cable Datacom News, www.kineticstrategies.com

NIU

Fiber Node

Coax

Video Signal Processing at headend

Optical-Electric Conversion

HDT

Telephony Switch

Public Network

Fiber

Fiber

Figure 1: HFC switched telephony Network

21

The functions of a telephony switch can be grouped into three categories: call processing, call

routing and feature provisioning. Call processing and call routing set up a path through the public

network between parties when a call is initiated. Enhanced capabilities such as call screening are

provided from the digital switch through the HFC telephony network. Associating these feature

capabilities with an originating line is an important part of the switch's function. Switch software

can also provide call forwarding, call transfer, call waiting and call conferencing.

In telephony, the NIU is the demarcation point between subscriber-owned equipment and

equipment owned and maintained by the service provider. The NIU has outgrown its traditional

role as a passive termination point. Although it still terminates the cable company's coax plant at

the customer premises, it must also provide:

� Twisted pair termination for telephony.

� Analog-to-digital conversion and vice versa for voice telephony.

� Packetization of digital information.

� RF modem.

� Diagnostics.

� Dial tone and ring generation.

As the interface between a cable distribution system and the telephony switch, the HDT acts as a

digital multiplexer. It provides T-1/E-1 links to the telephony switch at 1.544 Mb/s and accepts 64

kb/s digital signals from lines on the subscriber side, usually in a T-1/E-1 format.

Most vendors have designed the HDTs with an open interface to the telephony switch, allowing

the service provider to choose different vendors for the switch and the HDT. On the subscriber

side, however, the connection to the NIU is proprietary, requiring the cable operator to purchase

both the HDTs and NIUs from the same vendor. Having an open interface to the switch also

enables a cable operator to obtain telephony switching from another company through alliances or

leasing agreements, so the operator doesn't need its own digital switch in the early stages of

telephony offerings.

22

��.� '� ������ � " #�� �)����� �� ���

Certainly, the existence of these technical issues does not mean that IP telephony will never reach

dominance or that operators shouldn't implement it in the short term. To the contrary, visionary

service providers can develop an IP telephony strategy that applies packet technology in parts of

the network when and where it makes sense.

One solution is to creatively locate gateways in an operator's network. For example, a gateway at

the subscriber's location could be part of a long-term strategic deployment, based on the evolving

standards previously discussed. On the other hand, gateways at the network side of a telephony

switch make sense now.

Such architecture enables a service provider to offer cost- and quality-based service options, using

the switch to choose routes through either the public network or the Internet. As the feature servers

are developed and installed, service providers could add gateway functionality at either the HDT

or the NIU. The result will be an integrated IP/circuit-switched telephony architecture (Figure 2).

Gateway Gateway

Terminals

* Policy Based Routers

Information Source: Cable Datacom News, www.kineticstrategies.com

Gatekeeper

Gateway Gateway

Gatekeeper

* *MCU HDT

Digital Switch

Digital Switch

HDT MCU

Public Network

INTERNET

Public DataNetwork

1 1

NIU NIU

HFC HFC

POTS VOIP TV POTS VOIP TV

Figure 2 : An integrated IP/circuit-switched telephony architecture

23

In fact, because the NIU can be remotely provisioned, vendors will likely build gateway

functionality into the NIU. This will allow operators to select whether a subscriber line is

provisioned to route via the IP network or the public network without a truck roll dispatch. This

flexibility will allow cable service providers to offer circuit-switched service today and voice over

IP when the supporting infrastructure is in place. Without a doubt, this evolutionary journey will

bring creative and unique solutions to the networks of tomorrow.

Standards and their evolution

There are predominantly two cable modem standards that operate in the cable industry. DOCSIS,

which is the standard in North America and in other International markets, and DVB/DAVIC

EuroModem, which is an emerging standard in Europe .Of these standards, DOCSIS is the

standard used by a majority of cable modem vendors worldwide.

The North American cable industry developed the DOCSIS standard to create a competitive

consumer market for cable modem equipment. Seeking to capitalize on the most obvious service

opportunity -- delivering high-speed Internet access -- the DOCSIS 1.0 standard was designed as a

cheap consumer Web-surfing platform. While well-suited for its intended application, DOCSIS 1.0

does not provide all of the QoS and latency controls required to offer toll-quality IP voice services.

A team at AT&T Labs identified three key items that must be added to DOCSIS 1.0 to

support toll-quality telephone calls: upstream packet fragmentation and reassembly techniques,

support for a national clock, and an advanced isochronous scheduling system.

Because DOCSIS products employ an asymmetric architecture, offering 27 Mbps of

downstream capacity and typically less than 1 Mbps upstream, packet fragmentation is required to

avoid upstream congestion that impacts call quality. Specifically, the largest Ethernet packet size is

1500 bytes. Thus, sending this full-size packet upstream over a 768-Kbps cable modem would take

about 15 milliseconds, straining the delay budget for a packet voice call. Using fragmentation

techniques, these large data packets are broken into smaller ones to prevent unacceptable

transmission delays.

24

The second item, a national clock, is necessary to properly synchronize transmissions between

cable modems on the network.

The final enhancement is adding a high-quality isochronous scheduler to headend-based DOCSIS

cable modem termination system (CMTS) equipment. Because the DOCSIS 1.0 standard was

designed as a consumer Internet access platform, system latency can run in the 50 to 70

millisecond range. While this window is fine for Web surfing, it seriously impacts packet

telephone call quality. To support packet telephony, CMTS vendors must offer an isochronous

scheduling solution closer to a two-millisecond time scale.

In the proposed PacketCable architecture, a range of DOCSIS 1.1-based client devices will

support IP telephone connections, including cable modems, digital set-tops and media terminal

adapters (MTAs), standalone devices that link telephone handsets to the cable data network. All of

these devices can be served in the same cable spectrum by a single DOCSIS CMTS.

Vendors expect that the addition of IP telephony support will only increase the cost of a DOCSIS

1.1 cable modem by 20 to 30 percent. Thus, an integrated cable modem and PacketCable MTA

could be priced as low as $250. Building DOCSIS 1.1 headend and client products with IP

telephony support is not easy. But an even greater challenge, according to cable operators and

vendors, is efficiently provisioning and managing the devices once they are installed on the

network. Additionally, engineering disparate local cable data systems and backbone networks to

offer high end-to-end IP voice quality is not trivial. This means voice packets need to be specially

identified and given priority by the CMTS, routers and switches as they traverse the network.

As a starting point, many cable operators favor initially deploying IP telephony merely as a local-

loop bypass service. In this scenario, voice packets would be transferred directly from the CMTS

to an IP telephony gateway, and then onto the public switched telephone network (PSTN). This

would enable cable IP telephony users to place and receive calls without using the incumbent local

exchange carrier (ILEC).

The ultimate goal of many MSOs is to also offer long-distance IP telephony over their

packet backbone networks. For example, a residential cable IP telephony customer served by

Comcast in Philadelphia might call another cable IP telephony customer served by Time Warner in

Los Angeles. The packet calls could be carried nationwide at very low cost without ever touching

25

a telephone company network. MSOs are currently evaluating options to enter into backbone

interconnection arrangements that would make such a solution viable.

Using IP, cable operators hope to create an integrated multi-service communications platform that

operates on a lower cost structure than existing circuit-switched alternatives, enabling aggressive

service price discounting without sacrificing margins. Besides undercutting competitors, MSOs

hope the flexibility of IP networks will allow them to deliver a host of unique value-added

features, such as integrated voice mail and e-mail messaging and the real-time provisioning of

additional phone lines without rewiring a home

Players like AT&T Corp., after deciding to back a fast-track approach to cable industry protocols

supporting IP telephony over cable networks, late last year signed off on a voice services

expansion plan for their own cable systems that puts off the transition to IP well into next year, if

not later. The reason they gave in making their decision public was that routers just weren’t ready

for the job.4

Where the total per-customer cost of provisioning voice over a system provided by

Arris, a joint venture between Antec Corp. and Nortel Networks , has been about $890 at the

outset of the company's first voice service deployment in California, it is anticipated that the

cost will fall to about $590 by the quarter of this year. This is predicted in the context of new

players, including Lucent Technologies Inc and Motorola Inc.

It is believed that one key reason that the IP solution will eventually prove more cost

effective is that the premises-mounted network interface units that support IP voice over cable

will use the cable modem technology that is also used for high-speed data, thereby eliminating the

cost of the separate modem that's required for current voice customers who want high-speed data.

One of the cable companies taking issue with AT&T as to how ready the IP platform is

for commercial deployments is Comcast Corp. has begun testing VoIP services in New Jersey.,

using the PathStar access router/server supplied by Lucent. Comcast's trial is taking advantage of

4 www.soundingboardmag.com, June 2000

26

the PacketCable specifications to deliver multiple lines of toll-quality service, complete with all

the features customers get from the telephone companies.

DiffServ and MPLS have emerged as the key to QoS in IP routing, with DiffServ used to

identify traffic flows within pre-set classes so that bit streams are aggregated and treated

according to the class specs on a per-hop basis from router to router. MPLS is applied on a

systems-wide basis using labels assigned at Layer 3 to create label-switched paths, thereby

affording carriers a means of maximizing traffic flow efficiency across the network in accordance

with the assigned priorities.

Further buttressing the case for router-based telephony is the emergence of terabit routers,

which are designed to aggregate all forms of IP traffic across the backbone at speeds that are high

enough to allow carriers to fully exploit the carrying capacity of optical networks.

Avici is supplying terabit routers for testing by various carriers, including Deutsche

Telekom AG, GST Telecommunications Inc. and MCI WorldCom Inc. with plans to begin

delivering product for commercial deployment in the second quarter. The system is designed to

scale from single modules operating at 2.5gbps to an array of multiple modules seamlessly

interconnected to deliver aggregate throughput of up to 5.6 terabits per second.

Terabit routing will also play a fundamental role in expanding the efficiency of the

cable industry's play in IP telephony. Once the zone-to-zone specifications for cable IP telephony

are established in version 1.1 of the PacketCable standard, cable companies will be able to

interoperate with each other's IP voice services directly across IP backbones, avoiding the

intervening steps of converting signals to ATM or switched circuit formats.

27

Long Distance Service for ISPs

Increasing competition and worldwide deregulation are opening up new opportunities for Internet

service providers (ISPs) to enter the lucrative voice market. Killen and Associates has estimated the

worldwide voice over IP (VoIP) long distance services market to be worth $9.4 billion by 2002. ISPs

can leverage their existing data infrastructure and subscriber bases to deliver carrier-class long distance

voice services over low-cost Internet Protocol (IP) networks. With minimal upgrades to their existing

IP networks, ISPs can carry voice traffic over packet networks, opening the door to a variety of new

services. ISPs can use a voice-enabled Cisco access server as the VoIP gateway to offer carrier-class

domestic and international phone calls and real-time fax transmissions. Subscribers can make long

distance calls from home or office using their regular telephone or fax machine, or they can call from

other locations by entering an account number or password.

An ISP can gain the following advantages by offering long distance service:

• Provide a new service beyond Internet access.

• Increase revenue from existing points of presence.

• Expand their customer base.

• Bundle voice and data services for greater differentiation.

• Leverage lower-cost IP infrastructure with voice compression and silence suppression to offer

various competitively priced voice services.

After the IP infrastructure has been enabled for voice, ISPs can begin to offer value-added services

such as voice mail, unified messaging, Internet call waiting (alerting users to incoming voice calls

while on line) and virtual second line (ability to make and receive voice calls from the user’s PC).

These services can greatly increase the ISP’s revenue streams from Internet access subscribers.

The specific service described is a retail voice and fax offering to an ISP’s residential and business

subscribers.

Off-net calls are handed off to a traditional long distance provider at discounted rates. Billing is

usage based. Many other service variations are possible. ISPs can handle off-net traffic by

exchanging traffic with other ISPs by partnering, joining a consortium, or going through a

settlements company. They can offer wholesale VoIP services to other carriers. Managed VoIP

service for multi-location enterprises is yet another service model.

28

������ � &�'� � � '��/� �������ISPs are well positioned to deploy VoIP because of their existing IP infrastructure. The equipment

and software needed to implement VoIP can be added incrementally. ISPs already have Internet

POPs that connect to local exchange carrier (LEC) or public telecommunications operator (PTO)

central offices.

Figures 3 (a) & (b) show before and after views of a POP being equipped for long distance

service.

ISPs can add individual voice-enabled access server gateways equipped with additional T1 or E1

interfaces to the PSTN. Additional WAN bandwidth may be needed to support the extra voice

traffic. One or more gatekeepers are added to serve multiple gateways. Existing RADIUS servers

can be used for AAA as well as existing routers and Ethernet switches located in their POPs. The

ISP may need to add a billing server for voice services.

With this equipment in place, the ISP can either place connections to long distance carriers for off-

net calls at local POPs or choose to centralize such connections at a single POP location. Deciding

factors include traffic expectations and the geographic distribution of POPs. It may be more cost-

effective to choose one high-bandwidth connection in order to get better bulk rates from the long

distance provider. To expand its service coverage, an individual ISP might choose to partner with

ISPs in other regions or join a consortium to provide widespread coverage. Settlement firms allow

ISPs to provide national coverage by exchanging voice traffic with other ISPs. Finally, the ISP can

use a centralized service node equipped with programmable switches to add support for such

value-added services as debit cards and calling cards.

29

Radius Server

������ Servers

WAN PSTN

Billin g Servers

Figure 3 (a) –Dial POP , before

30

Voice Data

Billin g Servers Radius Server

WAN

Router

PSTN

H-323 Gateway H-323 Gatekeeper

Figure 3 (b): After Deployment of H-323 for VoiP in the long distance Network

31

Components of a H.323 Network The H.323 is an ITU standard that provides a common foundation of data, audio and video and

communications across IP networks. The elements required in a H.323 network are as follows:-

1. H.323 gateway

2. H.323 gatekeeper

3. RADIUS server

4. Billing server

1.H.323 gateway

The H.323 gateway is the gateway between the PSTN and the H.323 packet-switched network. It

provides standard interfaces to the PSTN, processes the voice and fax signals using

coders/decoders (CODECs) to convert between circuit-switched and packet formats, and works

with the gatekeeper through the Registration Admission Status (RAS) protocol to route calls

through the network. Cisco has numerous VoIP gateway platforms.

With a voice/fax feature card and a T1 or E1 interface card, it can be deployed as the gateway in a

local point of presence (POP).

2. H.323 Gatekeeper

The VoIP gatekeeper in the network is the Multimedia Conference Manager, an H.323-compliant

program implemented as part of the Cisco IOS ® software. The Multimedia Conference Manager

software can run on Cisco 2500 and 3600 routers. The use of gatekeepers makes the network more

scalable by centralizing routing and numbering plan information to facilitate growth and changes.

The gatekeeper resolves addresses, finding the IP address for the gateway configured for that call

destination. It also manages bandwidth and quality-of-service (QoS) requirements. Each

gatekeeper has a “zone” of administrative control, which can control multiple gateways. Such

zones are normally set up to correspond to geographic zones.

3.. RADIUS Server

The RADIUS server performs functions necessary for authentication, authorization, and

accounting (AAA). An ISP can use its existing RADIUS servers the CiscoSecure

implementation for these functions.

32

4. Billing Servers

Billing servers are needed to provide usage-based billing. The ISP may use any RADIUS-based

billing system that supports Cisco VoIP extensions. Examples include Portal, Belle, and Xaact.

The RADIUS server collects and stores call detail records from the VoIP gateways. The billing

servers collect this information from the RADIUS servers and process the data using specialized

billing applications. The final billing statements can be made available to subscribers via the Web

or through the mail, depending on the service provider’s service model.

Local call VoiP Call Local Call

FIGURE 4.: Steps involved in making a long distance VoIP call

���)�� ��������� How the Service Works—Call Processing A typical VoIP long distance call is processed as follows using H.323 protocols:

1. A caller dials the local access number for the gateway. This call arrives at the gateway over an

ISDN or channel associated signaling (CAS) interface from the PSTN.

2. The gateway answers the call.

3. The gateway queries the RADIUS server with the automatic number identification (ANI) of the

caller. The ANI is the caller’s phone number.

�����

���� �����

���� QoS Packet WAN

33

4. The RADIUS server uses the ANI to verify whether the caller is a paying customer. If the ANI

is not in the account database, the gateway prompts for an account or password and sends it to the

RADIUS server for verification.

5. After the RADIUS server has verified that the caller has an account, the gateway plays a second

dial tone for the caller.

6. The gateway collects the destination number digits entered by the caller.

7. The gateway attempts to deliver the call using H.323 by consulting a gatekeeper.

8. The gatekeeper matches the destination number against a set of remote zone E.164 prefixes

configured for the gatekeeper. The match determines the destination zone for the call, which

identifies the far-end gatekeeper.

9. The originating gatekeeper consults with the terminating gatekeeper to select an appropriate

gateway in the remote zone to deliver the call. The address of the remote gateway is then passed

back to the originating gateway using the RAS protocol.

10. The originating gateway places an H.323 call across the IP network to the destination gateway.

If the call attempt fails, the originating gateway tries a different terminating gateway using the

rotary call pattern feature. The originating gateway can be configured to try any number of

alternate routes.

11. The destination gateway places a call using the local PSTN to the call destination.

12. Start/stop records for the call are generated by the originating and terminating gateways and

sent to the RADIUS server.

Facilities embedded in the network:-

User Authentication

Access to the VoIP network can be controlled at the originating gateway using RADIUS-based

authentication. When a caller dials the local access number for the gateway, the AAA interface on

the gateway collects user account information and sends an authentication request to the RADIUS

server.

Interactive Voice Response

The gateway has an integrated interactive voice response (IVR) application that provides voice

prompts and digit collection in order to authenticate the user and identify the call destination.

34

RADIUS Accounting

The VoIP long distance service uses RADIUS-based accounting. The gateway generates start/stop

accounting records for each call leg, which are sent to the RADIUS server to support billing. For a

VoIP call, there are a total of four call legs—an incoming and outgoing call leg at both the

originating and terminating gateways. These legs are linked by a unique 128-bit connection ID.

Each record contains the following information stored in standard RADIUS attributes:

• Calling station ID

• Called station ID

• Call duration

• Received bytes

• Transmitted bytes

• Received packets

• Transmitted packets

4. Call Routing

The gatekeeper routes calls using E.164 prefixes, which are in the form of zone prefixes or

technology prefixes.

35

Regulation: Legal and Policy Issues

$� �� ���� In U.S. telephony, service is split between Local Exchange Carriers (LECs) and InterExchange

Carriers (IXCs). The generally monopolistic LECs provide local telephone service, whereas the

IXCs provide long-distance service between LECs, making up a highly competitive, albeit

regulated, industry.

Most long-distance phone calls in the U.S. involve an LEC connection on both ends (with the

long-distance carrier as the bridge). Each time an IXC terminates or originates a call through an

LEC, the IXC pays the LEC an access charge of roughly 3 cents per minute on each end. This

access charge is greatly inflated but it covers Universal Service obligations. However, in the early

1980's the FCC ruled that providers of 'enhanced services', like Internet Service Providers (ISPs),

need not pay these access charges. ISPs are treated as "end users" who can purchase lines that have

no per minute charge for receiving calls from their customers.

The following is a representative study of a landmark regulatory ruling in the field of VoiP.

America’s Carriers Telecommunication Association (ACTA)5 filed a petition with U.S. Federal

Communications Commission (FCC) to prevent companies from selling Internet Telephony

software and to "institute rulemaking proceedings defining permissible communications over the

Internet".

ACTA argued that it is not public interest to permit long distance services through Internet

Telephony thus depriving those who maintains infrastructure for the same and also it is not in

public interest for these selected communication operators to operate outside regulatory

requirements that are applicable to all other telecommunication provider.

5 ACTA's membership consists primarily of small to medium-sized resellers of long-distance services; larger companies like AT&T, MCI and Sprint are not concerned with ACTA or their petition since they are 'wholesalers of capacity'. Internet telephony is not a form of competition in their market. ACTA's main corporate purpose is to represent these small resellers of long-distance services in legal and political spheres

36

#�� ������� ACTA argued that FCC has regulatory control over the Internet and should take action with regard

to technology of long distance calling. ACTA further argued that goals such as Universal Service

and fair competition in the telecommunications market were being thwarted by Internet

Telephony.

#�� ������� ��Though the petition names VocalTec, Webphone and others as respondents, it was clear that the

FCC's jurisdiction does not extend to software. Netscape, Voxware and Insoft, in a joint opposition

to the petition argued convincingly that in traditional telephony there are many companies who

supply software for operating telecommunications networks - such as software for switching and

signalling in the public switched telephone network – without being subject to FFC regulation. It

would then seem arbitrary to treat Internet Telephony software producers as telecommunications

carriers and other companies who manufacture software for long distance services as not.

Netscape, Voxware and Insoft further suggest that Internet telephone software be, if anything,

customer premises equipment (CPE) since it enable a user's computer and peripheral devices to

communicate over the Internet. Worse still for ACTA (and others), CPE providers are unregulated

and detariffed; state regulation of them has been pre-empted by the Commission itself.

ACTA submitted that Internet Telephony services should be considered interstate

telecommunications carriers under definitions provided in the Telecommunications Act of 1996

#�� 0�� �The U.S. Telecommunications Act of 1996 makes it clear that it is the policy of the United States

Government "to preserve the vibrant and competitive free market that presently exists for the

Internet and other interactive computer services, unfettered by Federal or State regulation". In May

1997, while not explicitly ruling on the ACTA petition, the FCC ruled against requiring ISPs to

pay per-minute access charges - instead an increase in fixed charges on each phone line for

business users was implemented, ISPs included.

37

1��/� 0����� �� �� �����The ACTA petition was fundamentally flawed since it did not identify Internet Telephony as the

actual service (i.e. companies which provide IP Telephony services). It merely identified producers

of software for the output and input of audio, some of whom may have coincidentally been

offering IP Telephony services. The initial definition of Internet Telephony (as merely the use of

the Internet to transmit 'real-time' audio either from PC to PC or from PC to phone) neglects a

third, next generation type of Internet Telephony - phone to phone.

While the first two types of Internet Telephony are inherently tied to the PC (including necessary

software) and Internet Service Providers. The third type, however, is not. In phone-to-phone

Internet Telephony the customer, using an ordinary telephone, dials an access code and then the

telephone number; the access code then routes the call to a special computer gateway (the IP

network). The trouble is that local computer gateways for companies offering this type of service

must be placed in strategic geographic areas. For instance, if a customer using phone-to-phone

Internet Telephony plans to call London (England) from Toronto (Canada), then local gateways

must be located in both London and Toronto. The gateways convert audio into data for

transmission across the IP network and then convert incoming data back into analog signals.

The FCC's definition of phone-to-phone IP Telephony requires that such services:

1.Hold themselves out as providing voice telephony or facsimile transmission service;

2.Do not require the customer to use CPE different from that CPE necessary to place an ordinary

touch-tone call (or facsimile transmission) over the public switched telephone network;

3.Allow the customer to call telephone numbers assigned in accordance with the North American

Numbering Plan (and associated international agreements); and

4. Transmit customer information without net change in form or content.

In the FCC's report to Congress it states that "when an IP telephone provider deploys a gateway

within the network to enable phone-to-phone service, it creates a virtual transmission path between

points on the public switched telephone network. From a functional standpoint, users of these

services obtain only voice transmission, rather than information services such as access to stored

files. Routing and protocol conversion within the network does not change this conclusion,

38

because from the user's standpoint there is no net change in form or content". Given this, together

with the Telecommunications Act's (1996) definitions of a telecommunications carrier,

telecommunications service and 'telecommunications' - as the transmission, between or among

points specified by the user, of information of the user's choosing, without change in the form or

content of the information as sent and received - it seems readily apparent that phone-to-phone IP

Telephony companies should be required to pay access charges for connecting to and/or the usage

of the local phone companies' systems. In the absence of a more detailed case-by-case

investigation, however, the FCC withheld any definitive conclusion regarding whether phone-to-

phone IP Telephony should be properly considered a 'telecommunications' rather than an

'information' service.

With regards to specifically PC-to-PC Telephony, the FCC held that "Internet service providers

over whose networks the information passes may not even be aware that particular customers are

using IP telephony software, because IP packets carrying voice communications are

indistinguishable from other types of packets (in which case the) Internet service provider does not

appear to be 'providing' telecommunications to its subscribers." While it would only be fair to

presuppose this will also apply to PC-to-phone IP Telephony, big business cannot make that

assumption.

Stance of European Commission

The European Commission, in supplementing their 1995 Communication on the status and

implementation of the Commission liberalisation Directives, issued a notice on January 15, 1998

(under article 1 of Directive 90/388/EEC) defining its policy on voice telephony in respect of

telephony via the Internet. The notice defines "'voice telephony' means the commercial provision

for the public of the direct transport and switching of speech in real-time between public switched

network termination points, enabling any user to use equipment connected to such a network

termination point in order to communicate with another termination point."6

6 “Status of Voice Communications on Internet under Community Law And, in Particular, Under Directive 90/388/EEC”, Published in the OJ No C 6, 10.1.1998, p. 4. http://europa.eu.int/comm/dg04/lawliber/en/voice_en.htm.

39

Does Internet Telephony falls under this definition of voice telephony?

The European Commission argues that Internet Telephony understood as either PC-to-PC or PC-

to-Phone - is not the principal aim of Internet access providers. The purpose of Internet access is

for the facilitation of browsing, the exchange of electronic mail, and the exchange of data files.

They do, however, properly identify phone-to-phone IP Telephony as involving a commercial

offer. Similar considerations come into play when examining whether Internet Telephony is

correctly "for the public", since computers and access to the Internet are not currently available to

all citizens (nor are there any policies in place, as Universal Service, to help achieve it). The

Commission argues that PC-to-PC Internet Telephony is not available 'for the public', while PC-to-

phone and phone-to-phone IP Telephony are.

The Commission argues that "the time period required (in Internet Telephony) for processing and

transmission from one termination point to the other is generally still such that it cannot be

considered as of the same quality as a standard real-time service" On an IP network packets are

switched; in regular telephony the circuits are. Internet Telephony thus fulfils voice telephony's

stipulation that 'switching' be involved. Internet Telephony is real-time; it simply depends on how

rigorously you define 'real-time'. Surely a delay of no more than two seconds would disbar the

entire technology from being labelled 'real-time'? Even shouting to someone across the street

produces greater delays! (The analogy of cellular communications is also applicable in this

instance).

The Commission concluded that Internet Telephony cannot be properly considered 'voice

telephony' and therefore already falls within the liberalised area, before the deadlines set for the

implementation of full competition. The commission states that with growing sophistication,

certain Internet telephony providers would qualify as providers of voice telephony, and therefore

be subject to the regulatory regime applicable to voice telephony in the future. The Commission

has announced that it will review this policy in light of the evolution of IP Telephony early in

2000. It will be interesting to see if long-distance providers switch to IP networks to avoid

Universal Service contributions.

40

Stance of other Government/Regulators The Mexican government has indicated unofficially that it would apply traditional telephone

regulations and restrictions on phone-to-phone IP voice services, Jacobs continues, but it has not

taken any official action either. A few governments, he says, such as that of Pakistan, have

prohibited personal computer (PC)-based IP voice services, but it doesn't appear to be enforcing

that ban.7

In Singapore, the IP telephone is considered as both the basic telecommunications service and

Internet application, and different regulation methods for different definitions are adopted.The

Internet telephone is completely banned in countries such as Iceland and India. While in Czech and

Hungary, It is specified that the Internet provider must be awarded a license for IP telephony

operations.8

Meanwhile most countries hold wait-and-see attitude, to be decided according to development of

the Internet telephone. Some like Canada have started informally to discuss regulation

methodology for the Internet telephone.

There are two schools of thought regarding IP telephony’s international regulatory future. Many

governments may not worry about it for a while because IP telephony makes up only a small

portion of telecom revenues, and they think it very well may stay that way. Some countries,

however, may be concerned because traditional carriers are using their long distance revenues to

invest in telephone network buildouts. When IP telephony carriers undercut those fees with their 3

cents-a-minute service, the regulators may conclude, it will affect telecom network investments

adversely.

Interoperability of IP Telephone

While the regulators in various countries and regions grapple with the IP Telephony

regulation/deregulation, the industry is striving for interoperability. Interoperability includes two

aspects of contents: interoperability of gateway products and application interoperability. From

the view of current status of interoperability in gateway products, gateway companies now have

products conforming to the H.323, interoperation testing is being performed, and the

interoperability between gateway products produced by many companies will be possible very

7 Kim Sunderland, “ The 1999 Regulatory Outlook for IP Telephony”, www.soundingboard.com. 8 Zang Rong, “Current Status and Future of IP Telephone”, available at www.telecomn.com.

41

soon. To solve the problem of interoperability in gateway products, ITXC, Lucent and VocalTec

have commenced and proposed an interoperability frame of i.NOW!

Thus it appears that in the absence of sound regulatory (or deregulatory stance) by the various

regulators , industry itself is moving towards self-regulation and proposing compatible standard.

In other words, we strongly feel that technology would drive regulation, by means of evolving

technical solutions for problems even when semantical debates are being carried out in courts of

law.

42

INTERNET TELEPHONY IN INDIA

The sub-committee on telecommunications, headed by Planning Commission advisor Montek

Singh Ahluwalia, is likely to recommend liberalisation of Internet telephony or voice on Internet

(VoI) norms, paving the way for issuing Internet telephony licenses in a year. In the New Telecom

Policy 1999, the government had not permitted Internet telephony. However, the decision was kept

subject to review. Similarly, in its guidelines for Internet service providers (ISP), the department of

telecommunications (DoT) had said that the licence would be liable for termination following any

violation. Experts believe that there may be some opposition from the Videsh Sanchar Nigam Ltd,

as Internet telephony will end its monopoly. Also, Communications Minister Ram Vilas Paswan

has said9 that Net telephony would strictly be kept off the reach of private ISPs to safeguard

government revenues.

A study by a London-based telecom consultancy had projected in 1997 that VSNL would

lose $54 million (about Rs 195 crore) by the year 2001 if Net telephony were legalized. VSNL has

until now blocked out sites on the Net which offer voice telephony services.

Small players in India (e.g., Premiere Infosystems, a Noida tech start-up) have started offering

installation of software for voice services over the Net at less than 50 paise per minute. To put this

in perspective: an international one-minute call on a normal basic telephone would cost some Rs

75. The infrastructure required at the subscribers’ end is remarkably limited: a computer-

multimedia kit and Net telephony software. Apart from a computer and a high-speed modem, users

indulging in Netspeak need to install a sound-card (which converts sound into electronic signals

and vice versa), a microphone, speakers and Net telephony software. The software like Net-To-

Phone can be easily downloaded from the Net.

The cost of installing the software is less than Rs 2,000, after which every call domestic or

international long distance would be billed as a local call: maximum of Rs 1.40 per minute. Calls

could be made to other telephones or to other computers rigged up with a multimedia kit.

9 Source: Cyber News Service , 7/19/00.

43

Significant interest has been shown by various IP telephony players in India, despite the

regulations. In July’00, Israel based Arelnet Limited, leading provider of IP telephony solutions,

expressed its intentions of launching VoIP gateways in India, for small and medium-sized ISPs.10

,(��� (1 �0(!'1�0�#'(� The modes of proliferation of VoIP in India are primarily three

1. Traditional Dial Up Internet (through an ISP)

2. Cable access (through a cable modem through existing cable TV lines)

3. Phone to Phone (Major providers could be existing established players like VSNL and

DOT)

1.Traditional Dial Up Internet

Internet Service Providers connect customers to the Internet. For a particular access fee, the

service provider provides an installation software, a username and password and access phone

number.

National ISPs

These ISPs operate points of presence throughout the country. One category of national

ISPs own the network backbone and lease the international connectivity while the other category

of players lease the network and the international connectivity from other ISPs.

The main target segment for these ISPs is the corporate segment. A presence throughout

the country helps these ISPs to cover all the locations for a particular corporate. ISPs owning the

network backbone use the reliability of service (due to ownership of the network) as a key

USP to customers. This is helpful, especially for real-time mission-critical applications.

Regional and local ISPs

These are the ISPs that either operate in the smaller towns or particular states. These ISPs

serve both the business and consumer segments usually within a geographic region.

THE ISP SCENARIO IN INDIA Internet subscribers in India are expected to reach a figure 5,30,000 by March this year,

according to IDC. This figure is expected to touch 1.3mn by March 2001, a growth of 145% over

the previous year. Dataquest (DQ) estimates are slightly more optimistic. DQ expects the Internet

subscriber base to reach 6,55,000 by March 2000. DQ expects this to shoot up to 1.86mn by 2001

10 Israel IP firm enters India, Business Standard, July 30th, 2000.

44

and 3.75mn by 2002. DQ’s estimates say that the ISP access market was worth Rs1.02bn in 1999

and is likely to touch Rs2.13bn in 2000. The market will expand sharply to touch Rs8.37bn in

2001 and to Rs15bn by 2002.

Falling PC prices, coupled with a drop in the access rates (due to the price war in the ISP

market) has caused this growth. To some extent, future growth will also be assisted by Internet

access through cable TV. Estimates are that three to four years down the line, India, with 30mn

Internet users, will have the most Internet users in Asia, next only to China.

The last 12 months has seen a good growth in the usage of Internet by the corporate

segment also. The factors, which have helped this, is the lowering of leased line charges by TRAI

and the offering of a variety of value-added services by the ISPs. While earlier the corporates were

using the Internet more as an information provider – email, surfing etc, many of them are using

this to do some kind of e-commerce especially on the vendor end.

According to the IDC survey on 31st July 1999, the small / medium organizations had the

largest portion of the subscriber base. Large organizations were next, with a subscriber base of

nearly 97,000. The home segment showed a healthy growth in its subscriber base share over its

November 1998 share of 8.9%. In the next few years, the home and small/ medium sized segments

will experience unprecedented growth in terms of Internet connectivity.

� PC / Internet Penetration comparison

India US Asia-Pacific

Population 1000 270.3 2769.6

Number of Internet users 0.5 62.8 10.2

Net-enabled PCs 0.3 87.4 9.5

Internet users / population 0.1% 23.2% 0.4%

Net-enabled PC / household (%)11 0% 129% 1%

Growth of the corporate access market is also expected with large domestic

computerization measures in the Government sector. Already initiatives are underway on the part

of the Government to start a comprehensive move towards electronic governance. The corporate

11 assuming family size of 5 in India and 4 otherwise; IDC, Indiainfoline estimates

45

access market will also grow as the economy gathers momentum and companies realise the

benefits of using the Internet.

2.Cable ISPs

These ISPs are normally owned by the cable companies that help them to get exclusive use

of the cables. (The cable IP telephony technology has been explained in detail earlier)

Cable access ISPs offer broadband Internet connectivity through the coaxial fiber networks. Cable

ISPs usually service the consumer segment of the market. The parent makes money from the lease

charges of the cable while the ISP uses the access / e-commerce / advertising revenues to

compensate for the hiring charges.

The development of alternative means of access is also expected to give Internet

usage a boost. The most obvious way is using the TV Cable network, given the enormous TV

penetration in India. Currently, 30mn Indian households have a TV. If this segment of the

population can be tapped, Internet usage can explode. Currently, set-top boxes, which connect

users to the Internet through the TV, are quite costly. However, with increasing penetration the

cost of these boxes should fall and help increase ISP demand.

Indian Cable Television Industry

. The cable industry however is growing at what some consider a chaotic rate; because

entrance barriers are low, the industry is open to almost anyone. Currently there exist over 100,000

cable operators in India (compared to 10,000 in the US) employing over 1 million people. Ninety-

seven percent of cable operators have less than 1,000 subscribers, most having less than 500.

Presently, an initial investment of Rs.250,000 ($7,287) covering a dish, signal receiver, mixer,

amplifiers and a modulator to convert frequency is all that is needed. The only other expenses are

installation and small VCR movies fee: all satellite signals are received free. Eighty percent of

Indian cable systems carry between six and eight channels, fifteen percent between ten and twelve,

and five percent carry more than twelve. Over 30 million Indian households receive cable serving

an audience of well over 125 million, the second largest cable market in Asia after China. For this

reason, the Cable Television Networks (Regulation) Bill was presented to the Indian Parliament

and passed December 13, 1994.

Hence, the medium will be a powerful mode of Internet penetration, especially of

broadband services. Internet over cable is picking up very fast in India this year. Some of the

major service providers are Hathaway in Mumbai and Spectranet in Delhi. However as compared

46

to the traditional dial-up services, the subscriber charges are around Rs.1000 per month for

unlimited access. These are in addition to the cost of a cable modem.

Once IP telephony is permitted in India, we feel that Cable IP will be a major mode of

proliferation of IP telephony services. The current subscription rates of Internet over cable are

targeted towards corporates and high-income consumers. However, subscribers may retail these

services to other customers (who can’t purchase these services themselves) in future “IP booths”.

Also, these services may be combined with “ cyber cafes” which already provide Internet services

to customers.

Lack of a proper telecom infrastructure has kept the Internet penetration down to only

the major towns and cities. With the setting up of a National Telecom Backbone, it is expected that

Internet will reach more areas of the country. Higher bandwidth availability is also expected to

spur the usage of Internet in terms of both number of subscribers as well as the usage time by a

particular user.

Key Features of the Indian Internet Policy

1. Licensee has the freedom to lease domestic backbone from DOT, basic service providers,

SEBs, the power grid corporation, railways or any other authorized operator.

2. License fee is absent for the first five years and is nominal (Re.1) after that.

3. The decision on tariffs has been left to the ISP providers. However, TRAI has the right to

review and fix the tariff anytime during the licensee period of a licensee.

4. The ISP policy does not allow for Internet telephony.

The government has issued in principle clearance to all ISPs who have applied for

international gateway license using satellite technology. The government has given around 225

ISP licenses so far.

47

2�� ���� ��� ������ ' ��� '� #����� � ������ ��� ���+

Retail Segment In the retail market, the competition is likely to be fierce because the only service

provided is a plain vanilla service and, therefore, there is very little differentiation, which is

possible. So the competition would be around price.

Since extent of value addition is very low here, the only way to compete is by reaching

economic volumes, so it is essential to make large upfront investments in infrastructure and service

and capture as much of the market as possible.

Corporate Segment Corporate customers have relatively lower price elasticity towards access charges. As most of

them use the voice and facsimile communication to support business critical applications their

focus is on service rather than costs. Corporate customers are easy to retain because service

disruptions due to a change in vendor can be extremely costly. Thus, entry barriers in this market

are very high. This is also because a good track record is essential to get business from corporates.

With e-commerce becoming a buzzword, IP telephony helps in creating a completely new class of

service such as web-enabled call centers, telecommuting and long distance learning

����� � !��� � � ���� �� �� � ' ' ��� Presently IP Telephony is banned in India. Unlike US there has not been any comprehensive

debate on the issue. Following are some of the factors that are driving the government stance:

1. International Accounting Rate System

As per the prevalent International Accounting Rate System, India benefits from heavy incoming

calls compared to outgoing calls. Under this system whichever country has net incoming calls gets

paid for the same. The United States sends billions of dollars abroad as a result of such

international settlement rates and a significant chunk of it comes to India. While IP telephony

could save America billions of dollars, possibly a significant portion of the size of a federal

universal service fund, India stands to lose out the precious foreign exchange, which it presently

gets due to exorbitant rates being charged by VSNL from consumers making international calls.

2. Effect over investment in traditional telecom

48

After liberalisation of telecom sector in 1994, heavy investment has been made in private and

public sector. These operators of basic and cellular telephony are required to pay heavy license

fees in the tune of thousands of crores every year. If IP Telephony is allowed to become popular

and unregulated, it will have adverse impact on the present telecom player and not only the

investment made in developing telecom structure may parish but even government may lose out a

major source of revenue.

3. Level Playing Field

Another major concern of Indian Regulators is to provide level playing field to traditional

telephony operators and IP telephony operators.

3��� ��� ����� ��� ��� ' ��.� ��+ A complete scenario of Indian telephony is not possible without considering the options

before the incumbents, MTNL, DTS and DOT when voice services over the Internet are allowed.

For this purpose, the strategy adopted by the largest U.S. telecommunication provider, AT&T in

the wake of IP Telephony was studied.

The Telecommunications Act of 1996, which allowed local and long distance phone companies,

Internet firms, and cable businesses to compete in each others’ markets, immediately led way to a

long list of mergers and acquisitions.

AT & T has set itself the objective of becoming the leader in end-to-end communication

services. In March 1999, AT&T made a $62 billion cash bid for MediaOne, one of the largest

suppliers of broadband services on cable. The driving force for this merger is that AT&T wants to

take advantage of recent consolidation in the industry and changing technology. The purchase of

the Cable Company was not only intended to bypass the Regional Bell Operating Companies12, but

also to deliver a full menu of phone, Internet and multimedia entertainment.

If the deal goes through, it will create the largest Cable Company in the U.S., with over 16

million subscribers. It is now planning to provide Cable IP telephony services.

Hence, it is clear from the above moves that AT&T is unfazed about the arrival of new

technologies as substitutes for its services. Instead it has proactively adopted these new

technologies so that it is not left behind. It plans the migration of its services from the old

technology to the new as it upgrades its network across the U.S. for digital services.

12 Local access providers in the U.S.

49

We believe that it is futile for the incumbents in India to restrain the growth of IP telephony

as it may not be possible to restrain users from accessing and using the services in light of the

significant price differences. Given the fact that international gateways for private ISPs have been

allowed, it would become more difficult to regulate the rendering of these services. In contrast, the

incumbents should use their existing infrastructure and first-mover advantage to enable themselves

to expedite these services on their systems. Such a process would involve the following: -

� Technology assessment

� Establishment of Additional Infrastructure (Gateways, Gatekeepers, etc.)

� Deployment of Software

50

PRICING OF IP TELEPHONY The issue of pricing IP Telephony is closely linked with the pricing of Internet services as a whole

if viewed as capable of providing different kinds of services to the users.

One opinion is that we have survived so far. There is rather substantial experience with the current

model, and it seems to meet the needs of many users. However, others believe that once

commercial Internet service becomes mature, customers will start to have more sophisticated

expectations, and will be willing (and indeed demand) to be able to pay differential rates for

different services. Indeed, there is already evidence in the marketplace that there is a real need for

service discrimination. The most significant complaint of real users today is that large data

transfers take too long, and that there is no way to adjust or correct for this situation. People who

would pay more for a better service cannot do so, because the Internet contains no mechanism to

enhance their service.

In case of IP Telephony this debate becomes more critical because “voice packets” generated from

IP Telephony users needs to be routed fast the other end to maintain semblance of real time

communication. For this priority routing the “voice packets” needs to be given priority by the

routing mechanisms.

In 1994 Jeffrey K. MacKie-Mason and Hal R. Varian (University of Michigan) advocated the

usage based pricing of Internet and presented the concept of “smart market”. They proposed a way

to price network usage that they called ``smart markets.'' Much of the time the network is

uncongested; at such times the price for usage should be zero. However, when the network is

congested, packets are queued, delayed, and dropped. The current queuing scheme is FIFO. They

propose instead that packets should be prioritized based on the value that the user puts on getting

the packet through quickly. To do this, each user assigns her packets a bid measuring her

willingness-to-pay for immediate servicing. At congested routers, packets are prioritized based on

bids. In order to make the scheme incentive-compatible, users are not charged the price they bid,

but rather are charged the bid of the highest priority packet that is not admitted to the network.

(Vickrey Auction) It can be shown that this mechanism provides the right incentives for users to

reveal their true priority.

51

David D. Clark (1995)13 also discusses a scheme where bandwidth is allocated among users by

creating different service classes of different priorities to serve users with different needs. The

definition of priority is that if packets of different priority arrive at a switch at the same time, the

higher priority packets always depart first. This has the effect of shifting delay from the higher

priority packets to the lower priority packets under congestion. If this argument is pushed further

by redefining priority where high priority packets (voice packets) are sent first even if they arrive a

little later than the other packets (normal data packets).

Clark further says that the slowing down an individual packet does not much change the observed

behavior. But the probable effect of priority queuing is to build up a queue of lower priority

packets, which will cause packets in this class to be preferentially dropped due to queue overflow.

The rate adaptation of TCP translates these losses into a reduction in sending rate for these flows

of packets. Thus, depending on how queues are maintained, a priority scheme can translate into

lower achieve throughput for lower priority classes.

This might, in fact, be a useful building block for explicit service discrimination except that

priority has no means to balance the demands of the various classes. The highest priority can

preempt all the available capacity and drive all lower priorities to no usage. In fact, this can easily

happen in practice. A well tuned TCP on a high performance workstation today can send at a rate

exceeding a 45 mb/s DS-3 link. Giving such a workstation access to a high priority service class

could consume the entire capacity of the current Internet backbone for the duration of its transfer.

It is not likely that either the service provider or the user (if he is billed for this usage) desired this

behavior.

The other drawback to a priority scheduler (where priority is not based on price) for allocating

resources is that it does not give the user a direct way to express a desired network behavior. There

is no obvious way to relate a particular priority with a particular achieved service. Most proposals

suggest that the user will adjust the requested priority until the desired service is obtained. Thus,

the priority is a form of price bid and not a specification of service (which is similar to the smart

13 David D. Clark, “A Model for Cost Allocation and Pricing in the Internet”, Presented at MIT Workshop on Internet Economics March 1995.

52

market pricing proposed by Hal R. Varian (1994)). It is much more direct way to let the user

directly specify the service he desires, and let the network respond.

Above concept of usage based pricing may be the fundamental of IP Telephony pricing where 1 IP

Telephony voice packet transmission (with priority routing) price will be equal to x normal data

packet transmission price. At times when network is uncongested and spare capacity is available

the value of x will be around 1 but when the network is congested and capacity is being utilized

fully, the value of x will high and cost of may even approach cost of long distance telephony on

traditional network.

However, such dynamic pricing and billing for every packet may not be possible for IP Telephony

service provider (ISP, Cable operator) but this can be approximated by putting different slabs for

different values of x based on historical congestion (magnitude and timings). This mechanism is

somewhat similar to what is being followed for peak and off-peak hours in traditional telephony.

���� �� '� #����� � � ' ��� Though it is difficult to develop the above-mentioned dynamic model, static models where values

of x can be varied depending over network congestion can approximate it.

In this section the cost of IP telephony if implemented in India has been estimated based on the

following explicit assumptions:

Key Assumptions � 64 kbps ISDN connection for one IPT connection (this is very estimates. In fact 64 kbps should

be sufficient to allow user to make two IP telephony calls at the same time. This conservative

estimate has been taken in view of congested network condition in India that prevails most of

the time and it is felt that 64 kbps connection will make the last mile network congestion free

for good quality voice communication by providing excess bandwidth at user end. Another

reason for taking ISDN costs is that capital investment very closely approximates capital cost

of IP Telephony ports for phone to phone telephony)14.

14 Partly based on methodology followed by Andrew Sears (1996) for US market where he used two line of 14.4 kbps each for one IP Telephony lines. However, technical feasibility of combining two low capacity line and developing high capacity line is yet to be proven sound. Improved for additional requirement of IP Telephony. See Andrew Sears, “The Effect of Internet Telephony on the Long Distance Voice Market”, 1996.

53

� 1 data packet of IPT is equivalent to x nos. of normal data packet (as discussed earlier this

variable is a function of network congestion, which may vary over time in a day).

� Fixed cost recovery in 4 years (Again it appears a bit conservative but has been taken as the

rate of change of technology is quite fast and may make investment obsolete).

� Cost estimates are for ISP.

� Local call charges Rs. 1 per minutes (to make it unsubsidized).

� 1000 data hours have been assumed for a year and price has been taken for the same per ISDN

connection.

0����� Yearly Cost of ISDN connection (1000 hours) = 38033 Rs. (See Exhibit 1 for detailed

calculations)15.

Priority Premium

Factor

Equivalence (in Rs.)

X = 1 1 DH = 1 IPTH 1 hour cost of IPT 38.03333

X = 2 2 DH =1 IPTH 1 hour cost IPT 76.06667

X = 3 5 DH = 1 IPTH 1 hour cost IPT 190.1667

DH = Data Hour IPTH = IP Telephony Hour Cost of IP Telephony for various values of x: (all figures are in Rs.)

x Without Local Call With Local Call

Voice

Price

Voice

Price

Voice

Price

Voice

Price

(1 IPT packet eq.

Of x data packet

(per hour) (per min) (per hour) (per min)

1 38.03 0.63 98.03 1.63

2 76.07 1.27 136.07 2.27

5 190.17 3.17 250.17 4.17

15 Costs for estimation have been taken from VSNL and MTNL websites. The rates are for basic access from MTNL for ISDN connection and data hours rates are from VSNL.

54

From the above analysis it is evident that the IP telephony is going to be significantly cheaper that

traditional telephony (see VSNL rates for overseas calls and ISD rates in India in Exhibit 2).

How cheap is IP Telephony compared to traditional telephony?

To find out the actual discount available from IP telephony at present, prices of per minute call

from US to 180 countries for IP telephony were compared with the traditional telephony prices

(Exhibit 3). Based on analyses of pricing data (US to180 countries) available from PC to phone

companies (net2pnone and deltathree) with traditional telephony provider (Telecom International

Ltd.), it was found that IPT is around 25% (with stdev. 13%) cheaper on average (for major

destination it is 40-50%). This discount can be increased as presently part of the path is on

traditional telephony network. Once a seamless phone to phone VOIP connection infrastructure is

in place, this price is further expected to come down.

Major Hurdles

One of the major hurdles (other than clear regulatory framework) in roll out of VOIP network is

high cost of IP Telephony port ($ 1000 - 2000 compared to $100-200 for traditional telephony

port). Though it is likely to come down in near future, it is also to be considered that cost of

traditional telecom equipment is also falling.

Possible Answers

One of the positive approaches to make most of existing VOIP network is to use yield

management in IP Telephony.16 It is true that providing 100% available connection to all the users

for 24 hours will not be possible at a cheaper cost and the capital investment will be prohibitive.

This can be overcome using different values of x for different network congestion conditions. This

approach coupled with falling hardware prices is can make IP Telephony a cost effective solution

for the communication for the masses.

16 Brett A. Leida, “A Cost Model Of Internet Service Providers: Implications For Internet Telephony And Yield Management”, MIT, 1998.

55

�4��.�� 56 ���� ��������� ��� � ���� ��� '� #����� �

(All Figures are in Rs.) MTNL Cost (Rs.)

One Time Cost 17100

Yearly One time cost 5700 (cost recovery in 4 years @ 15.5% cost of capital)

Yearly Charges 12000

VSNL Cost

One Time Cost 1000

Yearly One time cost 333.33 (cost recovery in 4 years @ 15.5% cost of capital)

Yearly Charges 20000

(for 1000 data hours)

Yearly Charges (1000 hrs) 38033.33 (excluding local calls)

The above costs are based on rates available on www.vsnl.net.in and www.mtnl.com .

56

�4��.�� 76 ���)��� � �#� � � '�� ����� � ' �����

(from Oct 1, 2000 in Rs./min)

Distance Pulse Charges @ Rs. 0.80 @ Rs. 1.00 @ Rs. 1.20

STD Rates Up to 50 km 0.80 1.00 1.20 50 – 200 km 4.00 5.00 6.00

201 – 500 km 8.00 10.00 12.00 500 – 1,000 km 12.00 15.00 18.00 Above 1,000 km 16.80 21.00 25.20

ISD Rates SAARC & Other Neighboring

Nations 16.80 21.00 25.20

Africa, Europe, Gulf, Asia and Oceania

27.20 34.00 40.80

America & Western hemisphere

32.40 41.00 49.20

17 Anonymous, “ Trai Slashes domestic, overseas telecom charges by 16-23%”, The Economic Times, 29th August, 2000.

57

�4��.�� 86 ��������� �� ����� �� '� #����� � ��� �� ��� �� ���� #������� �

#����� � ����� �$� ����� ��� �)������ ������ ����

Country Net2Phone Deltathree Smartlink Tele. Int. Average for

IPT Average for Traditional Tele.

Discount

Albania $0.27 $0.32 $0.49 $0.30 $0.29 $0.40 26% Algeria $0.24 $0.47 $0.69 $0.39 $0.35 $0.54 35% American Samoa $0.28 $0.31 $0.76 $0.53 $0.30 $0.65 54% Angola $0.45 $0.43 $0.91 $0.57 $0.44 $0.74 41% Argentina $0.39 $0.39 $0.59 $0.25 $0.39 $0.42 7% Armenia $0.59 $0.60 $0.99 $0.35 $0.59 $0.67 11% Aruba $0.23 $0.39 $0.53 $0.35 $0.31 $0.44 30% Ascension Island $0.70 $0.84 $1.09 $0.84 $0.77 $0.97 20% Australia $0.08 $0.16 $0.21 $0.08 $0.12 $0.15 17% Austria $0.10 $0.23 $0.36 $0.08 $0.16 $0.22 25% Azerbaijan $0.44 $0.50 $0.65 $0.49 $0.47 $0.57 18% Bahrain $0.63 $0.61 $0.99 $0.80 $0.62 $0.90 31% Bangladesh $0.69 $0.88 $1.32 $0.75 $0.78 $1.04 24% Belarus $0.39 $0.45 $0.55 $0.30 $0.42 $0.43 1% Belgium $0.08 $0.20 $0.30 $0.08 $0.14 $0.19 27% Belize $0.64 $0.66 $0.99 $0.71 $0.65 $0.85 23% Bhutan $0.47 $0.61 $1.15 $0.33 $0.54 $0.74 27% Bolivia $0.53 $0.60 $0.88 $0.42 $0.56 $0.65 13% Bosnia And Herzogovina

$0.36 $0.43 $0.64 $0.30 $0.40 $0.47 16%

Botswana $0.29 $0.38 $0.79 $0.46 $0.34 $0.63 46% Brazil $0.22 $0.33 $0.59 $0.21 $0.27 $0.40 32% Bulgaria $0.25 $0.45 $0.50 $0.33 $0.35 $0.42 16% Burkina Faso $0.57 $0.68 $0.84 $0.64 $0.62 $0.74 16% Burundi $0.58 $0.54 $0.97 $0.69 $0.56 $0.83 33% Cambodia $0.79 $1.03 $1.35 $1.03 $0.91 $1.19 24% Cameroon $0.65 $0.67 $1.02 $0.85 $0.66 $0.94 30% Canada $0.04 $0.15 $0.19 $0.12 $0.09 $0.15 39% Cape Verde Isl $0.45 $0.61 $0.84 $0.58 $0.53 $0.71 25% Central African $0.85 $0.74 $1.16 $0.99 $0.79 $1.08 26% Chad $0.99 $0.90 $1.40 $1.27 $0.95 $1.34 29% Chile $0.17 $0.25 $0.39 $0.11 $0.21 $0.25 16% China $0.25 $0.43 $0.92 $0.21 $0.34 $0.57 39% Colombia $0.22 $0.32 $0.69 $0.15 $0.27 $0.42 36% Comoros $0.75 $0.66 $1.17 $1.02 $0.71 $1.10 35% Congo $0.69 $0.51 $1.09 $0.75 $0.60 $0.92 35% Cook Islands $0.95 $1.07 $1.50 $1.15 $1.01 $1.33 24%

Costa Rica $0.29 $0.31 $0.69 $0.43 $0.30 $0.56 46% Croatia $0.28 $0.41 $0.54 $0.26 $0.34 $0.40 14%

18 IP Telephony prices have been taken from www.net2phone.com and www.deltathree com while the traditional telephony prices have been taken from www.smartlink,com and www.telecominternationl.com.

58

Cyprus $0.31 $0.34 $0.57 $0.26 $0.32 $0.42 22% Czech Republic $0.22 $0.32 $0.42 $0.17 $0.27 $0.30 8% Denmark $0.08 $0.15 $0.26 $0.08 $0.11 $0.17 33% Djibouti $0.73 $0.90 $1.10 $0.93 $0.82 $1.02 20% Dominican Republic

$0.15 $0.30 $0.39 $0.23 $0.23 $0.31 27%

Ecuador $0.26 $0.63 $0.78 $0.34 $0.45 $0.56 20% Egypt $0.54 $0.72 $0.99 $0.60 $0.63 $0.80 21% El Salvador $0.34 $0.43 $0.69 $0.36 $0.39 $0.53 26% Eritrea $0.99 $1.09 $1.50 $0.99 $1.04 $1.25 16% Estonia $0.25 $0.38 $0.44 $0.20 $0.32 $0.32 1% Ethiopia $0.79 $0.98 $1.30 $0.96 $0.88 $1.13 22% Falkland Islands $0.38 $0.39 $1.07 $0.71 $0.38 $0.89 57% Fiji Islands $0.83 $0.82 $1.18 $0.99 $0.83 $1.09 24% Finland $0.10 $0.21 $0.28 $0.08 $0.15 $0.18 15% France $0.08 $0.19 $0.25 $0.08 $0.13 $0.17 19% French Guiana $0.39 $0.61 $0.65 $0.40 $0.50 $0.53 4% French Polynesia $0.63 $0.58 $0.92 $0.66 $0.60 $0.79 24% Gambia $0.43 $0.57 $0.75 $0.58 $0.50 $0.67 25% Georgia $0.65 $0.55 $0.90 $0.35 $0.60 $0.63 4% Germany $0.08 $0.18 $0.25 $0.08 $0.13 $0.17 23% Ghana $0.31 $0.49 $0.82 $0.49 $0.40 $0.66 39% Gibraltar $0.35 $0.34 $0.54 $0.37 $0.35 $0.46 24% Greece $0.19 $0.33 $0.49 $0.20 $0.26 $0.35 24% Greenland $0.36 $0.70 $0.70 $0.54 $0.53 $0.62 14% Guadeloupe $0.38 $0.46 $0.67 $0.50 $0.42 $0.59 29% Guam $0.10 $0.16 $0.29 $0.12 $0.13 $0.21 38% Guatemala $0.25 $0.41 $0.69 $0.26 $0.33 $0.48 31% Guinea $0.40 $0.48 $0.96 $0.59 $0.44 $0.78 43% Guyana $0.76 $0.99 $1.25 $0.87 $0.87 $1.06 18% Haiti $0.53 $0.68 $0.85 $0.66 $0.60 $0.76 20% Hong Kong $0.08 $0.16 $0.36 $0.08 $0.12 $0.22 46% Hungary $0.19 $0.33 $0.37 $0.18 $0.26 $0.28 6% Iceland $0.13 $0.25 $0.46 $0.26 $0.19 $0.36 47% India $0.49 $0.81 $0.99 $0.55 $0.65 $0.77 16% Indonesia $0.29 $0.40 $0.94 $0.36 $0.35 $0.65 47% Iran $0.80 $0.90 $1.17 $0.95 $0.85 $1.06 20% Iraq $0.89 $1.05 $1.24 $1.11 $0.97 $1.18 18% Ireland $0.08 $0.23 $0.29 $0.08 $0.15 $0.19 16% Israel $0.09 $0.24 $0.49 $0.08 $0.17 $0.29 42% Italy $0.10 $0.23 $0.37 $0.08 $0.17 $0.23 27% Ivory Coast $0.70 $0.80 $1.17 $0.89 $0.75 $1.03 27% Jamaica $0.45 $0.64 $0.81 $0.46 $0.54 $0.64 14% Japan $0.08 $0.21 $0.39 $0.08 $0.14 $0.24 39% Jordan $0.59 $0.76 $0.99 $0.85 $0.67 $0.92 27% Kazakhstan $0.49 $0.65 $0.89 $0.35 $0.57 $0.62 8% Kenya $0.63 $0.71 $1.07 $0.78 $0.67 $0.93 28% Kiribati $0.83 $0.86 $1.19 $0.99 $0.85 $1.09 22% Kuwait $0.59 $0.77 $1.15 $0.49 $0.68 $0.82 17% Kyrgystan $0.54 $0.60 $0.94 $0.35 $0.57 $0.65 12%

59

Laos $0.73 $0.86 $1.42 $0.89 $0.80 $1.16 31% Latvia $0.33 $0.44 $0.50 $0.38 $0.38 $0.44 13% Lebanon $0.58 $0.62 $0.99 $0.68 $0.60 $0.84 28% Lesotho $0.43 $0.48 $0.95 $0.57 $0.46 $0.76 40% Liberia $0.39 $0.46 $0.73 $0.49 $0.43 $0.61 30% Libya $0.36 $0.43 $0.63 $0.39 $0.40 $0.51 22% Luxembourg $0.10 $0.24 $0.30 $0.08 $0.17 $0.19 11% Macao $0.39 $0.40 $0.73 $0.56 $0.39 $0.65 39% Macedonia $0.35 $0.51 $0.57 $0.47 $0.43 $0.52 18% Madagascar $0.79 $0.70 $1.18 $1.00 $0.75 $1.09 32% Malawi $0.45 $0.46 $0.63 $0.48 $0.46 $0.56 18% Malaysia $0.10 $0.29 $0.49 $0.19 $0.20 $0.34 42% Maldives $0.69 $0.73 $1.10 $0.83 $0.71 $0.97 26% Mali $0.79 $0.89 $1.15 $0.89 $0.84 $1.02 18% Malta $0.22 $0.32 $0.48 $0.24 $0.27 $0.36 26% Mauritania $0.58 $0.44 $0.99 $0.72 $0.51 $0.86 40% Mauritius $0.59 $0.89 $0.85 $0.72 $0.74 $0.79 6% Mexico $0.16 $0.29 $0.49 $0.17 $0.23 $0.33 32% Moldova $0.44 $0.70 $0.88 $0.73 $0.57 $0.81 29% Monaco $0.11 $0.28 $0.33 $0.35 $0.20 $0.34 42% Montserrat $0.64 $0.66 $0.80 $0.87 $0.65 $0.84 22% Morocco $0.39 $0.54 $0.64 $0.47 $0.46 $0.56 16% Mozambique $0.48 $0.50 $0.88 $0.72 $0.49 $0.80 39% Namibia $0.38 $0.35 $0.89 $0.56 $0.37 $0.73 49% Nauru $0.70 $0.82 $1.34 $1.05 $0.76 $1.20 37% Nepal $0.78 $0.94 $1.29 $0.95 $0.86 $1.12 23% Netherlands $0.08 $0.22 $0.24 $0.08 $0.15 $0.16 6% New Caledonia $0.64 $0.68 $0.95 $0.75 $0.66 $0.85 23% New Zealand $0.08 $0.17 $0.30 $0.08 $0.12 $0.19 34% Nicaragua $0.44 $0.61 $0.82 $0.56 $0.53 $0.69 24% Niger $0.69 $0.67 $1.11 $0.69 $0.68 $0.90 24% Nigeria $0.69 $0.85 $0.99 $0.74 $0.77 $0.87 11% Niue $0.95 $1.12 $1.49 $1.16 $1.03 $1.33 22% Norway $0.08 $0.18 $0.25 $0.08 $0.13 $0.17 22% Oman $0.85 $0.71 $1.19 $0.90 $0.78 $1.05 26% Pakistan $0.49 $0.90 $1.27 $0.78 $0.69 $1.03 32% Palau $0.70 $0.37 $49.00 $0.89 $0.54 $24.95 98% Panama $0.49 $0.57 $0.85 $0.57 $0.53 $0.71 26% Paraguay $0.59 $0.61 $0.95 $0.41 $0.60 $0.68 11% Peru $0.25 $0.49 $0.89 $0.31 $0.37 $0.60 39% Philippines $0.21 $0.40 $0.75 $0.21 $0.31 $0.48 36% Poland $0.16 $0.36 $0.42 $0.29 $0.26 $0.36 27% Portugal $0.15 $0.32 $0.50 $0.16 $0.24 $0.33 28% Puerto Rico $0.07 $0.16 $0.19 $0.07 $0.11 $0.13 13% Qatar $0.69 $0.69 $1.10 $0.79 $0.69 $0.95 27% Reunion Island $0.55 $0.45 $0.97 $0.69 $0.50 $0.83 40% Romania $0.39 $0.50 $0.59 $0.35 $0.44 $0.47 5% Rwanda $0.79 $0.82 $1.19 $0.83 $0.81 $1.01 20% San Marino $0.19 $0.78 $0.57 $0.45 $0.49 $0.51 5%

60

Singapore $0.11 $0.26 $0.42 $0.15 $0.19 $0.29 35% Slovakia $0.25 $0.38 $0.42 $0.24 $0.31 $0.33 5% Slovenia $0.24 $0.38 $0.44 $0.19 $0.31 $0.32 2% South Africa $0.29 $0.43 $0.69 $0.30 $0.36 $0.50 27% Spain $0.10 $0.34 $0.47 $0.08 $0.22 $0.28 20% Sri Lanka $0.86 $0.79 $1.27 $0.81 $0.83 $1.04 20% St. Helena $0.65 $0.99 $0.97 $0.81 $0.82 $0.89 8% Sudan $0.43 $0.52 $0.71 $0.52 $0.47 $0.62 23% Suriname $0.98 $0.67 $1.35 $1.11 $0.83 $1.23 33% Swaziland $0.23 $0.33 $0.60 $0.27 $0.28 $0.44 36% Sweden $0.08 $0.16 $0.20 $0.08 $0.12 $0.14 14% Switzerland $0.10 $0.19 $0.27 $0.08 $0.15 $0.18 17% Syria $0.67 $0.72 $1.15 $0.84 $0.69 $1.00 30% Taiwan $0.10 $0.24 $0.63 $0.11 $0.17 $0.37 55% Tajikistan $0.47 $0.53 $0.89 $0.35 $0.50 $0.62 19% Tanzania $0.49 $0.58 $1.07 $0.62 $0.54 $0.85 37% Thailand $0.49 $0.46 $0.89 $0.45 $0.47 $0.67 29% Togo $0.85 $0.98 $1.19 $0.89 $0.92 $1.04 12% Tonga Islands $0.96 $1.01 $1.29 $0.98 $0.98 $1.14 13% Tunisia $0.35 $0.50 $0.59 $0.44 $0.42 $0.52 18% Turkey $0.29 $0.36 $0.66 $0.26 $0.33 $0.46 29% Turkmenistan $0.59 $0.51 $0.94 $0.65 $0.55 $0.80 31% Tuvalu $0.79 $1.03 $1.05 $0.86 $0.91 $0.96 5% Ukraine $0.29 $0.40 $0.63 $0.20 $0.34 $0.42 17% United Kingdom $0.08 $0.15 $0.19 $0.05 $0.11 $0.12 5% Uruguay $0.61 $0.55 $0.94 $0.62 $0.58 $0.78 26% Uzbekistan $0.59 $0.54 $0.90 $0.35 $0.56 $0.63 10% Venezuela $0.22 $0.44 $0.50 $0.26 $0.33 $0.38 14% Vietnam $0.89 $1.24 $1.35 $0.97 $1.07 $1.16 8% Yemen $0.71 $0.96 $1.06 $0.86 $0.83 $0.96 13% Zaire $0.58 $0.75 $0.89 $0.66 $0.66 $0.78 15% Zambia $0.68 $0.57 $1.07 $0.69 $0.62 $0.88 29% Zimbabwe $0.29 $0.44 $0.74 $0.37 $0.36 $0.56 35%

Mean 25% Std Dev. 13% Min 1% Max 98%

61

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