Let's see if I can add to your confusion! Hope you have an hour for my
favourite topic - I think I got carried away! Foofle has the right
answer in his comment. I will try to give you an more North American
perspective and some of the background to how we got to all those
acronyms you mentioned. I hope this is of some use.
First, everything I will say is a generalization, since every country
in the world has different telecom and datacom policies and they are
changing daily. I assume you are in the U.S., so will try to describe
what I know about that. Let me point out that even in the U.S. there
is a morass of regulation. Both the FCC and EVERY state have telecom
regulators and VoIP has stirred up a lot of activity. The FCC has
categorically stated that VoIP will not be regulated but the states
see a huge loss in revenue coming and will fight this as hard as they
can.
The existing analog/digital PSTN is structured similarly all over the
world. Originally in EVERY country there was a monopoly phone service
provider, often coming from the postal / telegraph government-run
monopoly. (Western Union in the U.S. thought the telephone would
never catch on!).
Governments created phone company monopolies for many reasons but a
major one was the need for an enormous capital investment to deliver a
pair of copper wires to every house in the country. For the most part
local services have stayed that way to this day.
In most cases there was a single-tier structure of domestic phone
companies that interconnected to other domestic phone companies. Each
country (and note this was often done by the governments of the
country ? hence the International Telecommunications Union (ITU),
which is a UN-sponsored organization) negotiated interconnection
agreements with others to allow calls onto their networks. This
became and still is very complex, especially in international circuits
where regulators in other countries have different views (and laws)
regarding services. In all cases carriers had to create ?settlement?
policies. Simply, when you call Canada, for example, you pay all the
long distance charges but some portion of the call is transmitted over
the US carrier?s facilities and some is transmitted over a Canadian
carrier?s facilities, both of whom want to get paid for this use.
There were many hundreds of carriers / countries and the job of
maintaining settlement contracts become quite complex. Later,
International Carriers started up, to ease the negotiation process,
for one thing (and own the infrastructure between countries). A small
country, such as Bermuda negotiated with Cable & Wireless, for
example, to handle all international traffic. C&W was responsible for
negotiating settlements to each of its landing points.
In the U.S. AT&T became the monopoly provider of domestic and
international long distance services and the monopoly provider or
local services where it operated. However there were many hundreds of
local carriers that the Bell System did not buy out, so while there
were many providers of dial tone, you could only get one depending on
where you lived ? still a monopoly from the consumer viewpoint.
In 1984 AT&T was broken up into ?AT&T? ? the long distance monopoly
and 7 (I think) Regional Bell Operating Companies (RBOCs). These RBOCs
and the other local monopoly carriers became the Incumbent Local
Exchange Carriers (ILECs). There are still hundreds of independent
ILECs in the US - companies like Lincoln Tel and Century Tel - even
SPRINT is an ILEC in Las Vegas. Google ?USITA? for lots more info on
the US Independent Telephone Association.
Today, local phone service is still generally provided by regulated or
defacto monopoly providers or Incumbent Local Exchange Carriers
(ILECs). Basically an ILEC (or the ILEC part of a larger company) is
responsible for dial tone and local calling.
Most North Americans see local calling as a flat-rate service - the
same monthly fee for unlimited local calls. This is starting to get
confused because of Intra- and Inter-LATA calls, but we won't go there
in this discussion. In the rest of the world, ALL calls have been
"Measured Service" (which is also available in NA now). Measured
Service means you pay time and distance charges for EVERY call,
usually with a monthly fee as well.
In the "old" days (prior to 1984 in the U.S. and somewhat later in
other countries) you bought local service and long distance service
from the same carrier. Now you buy local, intrastate, interstate and
international services from just about as many carriers as you want.
Long Distance providers are called Inter-eXchange Carriers or IXCs. I
think MCI was the first IXC in the U.S, after AT&T. They installed
their own long distance microwave network between major cities,
?interconnected? with the ILEC in each city and sold bandwidth and
minutes, initially to enterprise customers and eventually the general
public. Other IXCs sprang up such as Sprint and Wiltel. Maybe we
should call AT&T the Incumbent Inter-eXchange Carrier or IIXC!
At this point you had a 2- or 3-tiered structure ? an ILEC delivering
dial tone and local calling services, an IXC delivering long distance
services and sometimes an international carrier (Teleglobe Canada,
Cable & Wireless, KDD). Each carrier negotiated interconnection
agreements with others to allow calls onto their networks. As noted
above, the revenue settlement issues were complex before and became
more so with many hundreds of carries in the various tiers.
In the late 80's further deregulation resulted in the rise of
Competitive Local Access Providers (CLECs) whose goal was to wrest
customers away from the ILECs and make a profit. Problem was, no one
had the money to completely rebuild the "last-mile" infrastructure to
deliver another pair of wires to the home and alternate technologies
like cable or wireless were not quite ready for prime time. The CLECs
then "cream-skimmed" - concentrating on urban and business customers
where phone density and usage was high. This was not enough to create
a successful business model and eventually the FCC decreed policies
resulting in UNE-P services. Basically, UNE-P allowed CLECs to rent
local facilities (like a home phone line) from the ILEC at a wholesale
rate and ?own? that ?physical plant? ? be responsible for service,
installation, etc. Huge money was spent negotiating who serviced what,
at what price and what prices constituted wholesale and retail.
Generally, other than the lawyers, no one made money and the CLEC
industry collapsed, causing the telecom collapse of 2001, resulting in
trillions of dollars (yes, trillions) of lost capital investment (and
the bankruptcy of most of the major carriers who all had IXC and CLEC
arms) and about 400,000 lost jobs in the U.S. alone. To add insult to
injury last year the courts struck down UNE-P resulting in increases
in the CLEC cost structure, since the ILECs no longer had to sell
local facilities at wholesale rates.
After all of this we are still left with essentially a 2- or 3-tiered
system ? local services, long distance services and maybe
international services. ILECs and CLECs compete at the local level
(and now compete with cellular providers as well). IXCs compete for
domestic and international long distance. Companies compete in
overlapping areas or provide IXC services in parts of the country
where they are not the ILEC and it is all very confusing!
And then along comes VoIP! I will assume you understand that in VoIP,
voice is packetized for transmission over Internet Protocol on a LAN,
a private or virtual WAN or the public Internet itself. This
fundamentally shifts costs and revenue around or out of the entire
system, much to the chagrin of incumbent carriers, ISPs and
governments.
VoIP adds another player to the mix but not necessarily another tier.
An Internet Telephony Service Provider delivers services over others?
facilities. The analogy might be that of an application that runs on
your PC. Within reason, the application provider does not care what
brand, size, specification of PC you have and the PC vendor has no
control what applications you run on the PC.
Internet access to other internet devices is global flat-rate, for the
most part. For a monthly fee you can contact any device that is
connected to the internet anywhere in the world. There are no
settlement organizations, no sharing of revenue. In order for
Internet Service Providers to pass traffic between them and other
organizations, they generally pay for a circuit between them or they
pay for a ?peering? service that connects many ISPs locally and
globally (MCI is one of the biggest, I think). ISP costs are not usage
sensitive but are bandwidth sensitive since interconnection circuits
are usually priced by their size ? 56kb/s, 1.5Mb/s, 2.0Mb/s, 45Mb/s,
150Mb/s circuits all cost increasing more but the increase is not
linear. The more traffic you aggregate, the lower the ?cost-per-bit?.
On top of this the cost of bandwidth in the U.S. and elsewhere has
dropped over 90% in the past 5 years and still only about 3% of
installed fibre capacity is lit, pointing to further declines.
All of this is rolled into your flat-rate monthly fee. There are some
services that police the amount of bandwidth you use in a given month
for your flat rate but these usually exceed any normal traffic you
would generate anyway.
For this reason PC-to-PC calls are essentially free. The Internet
business model does not currently allow an ISP to bill extra for a new
service. Someone is sure to try and change this, however.
There are many practical problems with PC-to-PC phones calls, most
notably the lack of ubiquity in connections and standards. To give
you an idea of the magnitude of the problem (despite the hype), there
are about 185 million phone lines in the U.S. and about 160 million
cell phones. There are only about 20 million broadband connections
(6% of the total number of phones) and the largest VoIP ITSP ? Vonage,
claims less than 400 thousand subscribers (0.1% of the total number of
phones!). See: http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC-State_Link/IAD/trend504.pdf
So, for any self-respecting ITSP it is necessary to connect your VoIP
call to the old world of PSTN. As mentioned in the other comment,
this is done with an IP to PSTN Gateway device of which there are many
on the market. However, where and if this is done is very much a
choice made by the ITSP. Most large ILECs, IXCs and international
carriers are already using VoIP for some of their routes. ITXC (now
part of Teleglobe) became the world?s fifth largest international
carrier in only 5 years with an IP-only network.
The ITSP must make an economic choice on how much it wants to control
it?s destiny and what it is willing to pay. For full control, the
ITSP needs to install a gateway in every city where a customer is
likely to call. This is impossible of course and unnecessary because
someone else probably already has one. Carriers trade local
origination or termination minutes or trade costs-per-minute to give
each other access to the PSTN. This is very much like the ?old days?
and in fact as soon as the call touches the PSTN all the old revenue
sharing ?settlement? formulas fall into place. Most ITSPs start by
making a single connection to an IXC. Wholesale rates in the U.S. are
now under $0.01 per minute, and remember this includes paying the
terminating ILEC for making your friend?s PSTN phone ring! If the
ITSP sees a particularly large volume to one location ? L.A. for
example - it may install a local gateway there and reduce it?s costs
even further (sending the calls over IP to LA results in no IXC
charges ? only the ILEC in LA). The bean counters are always busy
figuring out the most cost-effective, least capital-intensive ways to
do this. By the way, doing this wrong was one of the biggest pieces
of the problems as Enron and Qwest, resulting billions in losses.
While I am a decided fan of VoIP and deep into the technology, no one
has proven to me that this business model will work. Vonage has
attracted $100M in investment and is generating about $8M per month in
revenue. Skype invested over $20M for it?s ?free? service and will
not discuss its business model. Pundits are predicting that within a
few years the pricing model will need to flip around and pricing will
be in minutes-per-penny instead of pennies-per-minute. This is truly a
disruptive time in telecom. |
