Home Latin America I 2001 Voice Over Packet in Latin America: Present and Future

Voice Over Packet in Latin America: Present and Future

by david.nunes
Cresencio ArcosIssue:Latin America I 2001
Article no.:2
Topic:Voice Over Packet in Latin America: Present and Future
Author:Cresencio Arcos
Title:Regional Vice-President, International Public Affairs, Latin America and Canada
Organisation:AT&T Corporation
PDF size:36KB

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Article abstract

The telecommunications revolution gives developing countries unprecedented opportunities for economic growth. Internet telephony has the potential to transform the economies of developing countries. Incumbent operators lobby against new competitors with new technology to protect their investments. By favouring incumbents, regulators limit market access and competition. Pro-competitive regulations are vital to Latin America’s prospects in a global economy. Updating telecommunications technology is essential to ensure the burgeoning of the information economy.

Full Article

The global telecommunications revolution is providing developing countries unprecedented opportunities for economic growth. Fibre optics, new wireless technologies, and the Internet support the communication of ever-greater quantities of information faster and at a lower cost. Individuals as well as businesses with access to these new technologies are better equipped to compete in the world market and propel their countries forward into the global economy. Voice over IP (VoIP — often referred to as IP Telephony or Internet Telephony) stands out among these revolutionizing technologies for its potential to transform the economic landscape of developing countries. Tied to the potential for this technology to transform economic landscapes are critical policy and regulatory decisions that policy makers will have to make. In Latin America, the prospects for IP Telephony are tremendous. VoIP calls are predicted to increase in the region from just 184 million minutes in 1999 to 45 billion minutes in 20051. By 2005 these phone calls are expected to equal 15 to 20 percent of all voice traffic in Latin America2. The strong growth of Internet telephony primarily will be due to the low prices charged for such calls and the relatively cheap start-up costs for an Internet Telephony Service Provider. But, despite these market drivers, there still exists the danger that regulatory entities will inhibit the use of Internet telephony in the region. The public policy pitfalls lie in applying regulations and policies that would create a technological lag or regression for the region as a whole. Public policy decisions are critical not only to the future of telecommunications in Latin America, but also to the larger economic performance of the region’s countries. For the past decade, much of the world has been moving towards critical re-examination of policies and regulations that will drive and foster the development of the telecommunications sector and the introduction and development of new technologies. Most state-owned telephone utilities have been privatised. The World Trade Organisation’s (WTO) Agreement on Basic Telecommunications Services, signed in February 1997, now encompasses 75 countries worldwide, 20 in Latin America. Most of the parties to the Agreement have adopted the common set of principles contained in the GATS (General Agreement on Trade in Services) Reference Paper on issues such as market access, interconnection and transparency. The global trend toward liberalisation and the expanding availability of new technologies and services such as VoIP are forcing individual country regulators to confront serious regulatory and policy challenges that will shape their plans for liberalisation. In Latin America anxious to recover the costs of their large privatisation bids, and wary of the costs of upgrading their networks to compete in the digital era, incumbent operators pressure regulators to protect their investment at the expense of new entrants and the new technology they bring to the market. By favouring the incumbents, Latin American regulators limit market access, hobble competition, and run the risk of impeding the arrival of new technologies driven by the development of the Internet and IP-based networks in general. Voice over IP emerged on a greater commercial basis in 1995 and has in a short time become a threat to traditional carriers. With VoIP, voice calls are broken into small packages (or packets) of data that are transported via IP-based networks to their destination, where the packages are reassembled and converted back into sound. A call can either be made from a PC by using special software, or from a phone by dialling a special access number or by using a special IP-phone. For international calls, voice traffic is transported between IP ‘gateways’ and are terminated subject to specifically negotiated termination agreements. The local partners of international carriers, in certain circumstances, may introduce inter-national traffic into local networks in such a way that international calls appear as local calls to the local operators. Given the current costs of making international calls via the traditional accounting rate system, some Internet telephony service providers may be able to charge significantly less and still make a profit. For example, a call over the Internet between the U.S. and Mexico can be as low as three cents per minute, versus the 35 cents per minute cost of a traditional voice call between the two countries. While the transmission quality of an IP phone call is below that of a regular call, transmission quality often is less of an issue for users given the cost savings. In fact, because of the high cost of international phone calls into Latin America, termination of VoIP calls in Latin America ranks among the highest of any region in the world. At the same time, Latin America originates the least VoIP calls, due to a number of factors such as low teledensity rates and Internet and IP-based network penetration. But as Latin American countries continue the process of deregulation and liberalisation, and access to the Internet becomes more widespread, originating IP telephony traffic should increase. The cost savings for consumers are equally dramatic. A call to Miami from an Internet café in La Paz, Bolivia, for example, may cost as little as one and a half cents per minute. IP telephony services are putting pressure on incumbent service providers to lower prices for domestic and international long distance, thereby reducing their margins. Incumbents in turn are putting pressure on regulators to restrict IP telephony or, in some instances, make it illegal. Brazilian regulator ANATEL, for example, is under pressure from incumbent Brazilian carriers to prohibit Internet telephony. These incumbent carriers enjoy exclusivity as international long distance service providers in Brazil until the market fully is opened in January 2002. These companies estimate that they lose as much as US$240 million a year, or 30 percent of Brazil’s annual market for international calls, to IP telephony and other ‘illegal’ services, such as call-back3. In Mexico, dominant carrier Telmex also insists that the Mexican regulator, the Federal Telecommunications Comm-ission (COFETEL) take steps to prevent so-called ‘bypass’ traffic. Telmex estimates losses of US$200 million, or 15 percent of its revenue from international calls, to bypass operators, many of whom use VoIP technology4. Colombia also faces a dilemma with respect to the regulation of IP phone calls. Last year the Ministry of Communications fined two operators US$132,000 each, the maximum fine, for offering IP telephony, and ordered them to stop providing the service. The decision was made after three long distance operators (Telecom, Orbitel and 007 Mundo) complained and insisted that either the government refund them the US$150 million they each paid for their long distance licences, or that the IP telephony service providers be shut down. By regulating by service rather than by technology, Colombian regulatory officials must consider whether or not it is better to protect the investments of established operators and delay the arrival and widespread use of cheaper and more efficient technologies such as Voice over IP. “The longer the entry of competition is forestalled, the incumbents are better able to prepare themselves for the digital world of IP, broadband, and convergence.” IP telephony is one area where regulators face difficult challenges ahead. Incumbents are adept at using their political and economic power to protect their investments. The longer the entry of competition is forestalled, the incumbents are better able to prepare themselves for the digital world of IP, broadband, and convergence. By allowing these carriers to leverage their hold on infrastructure and use their dominant market position to transition to the digital era, Latin American governments may see their countries left behind by the global economy. In Mexico we are already seeing the ill effects that the disproportionate power of a single operator can have on the development of the Internet. Privatised in 1990, Teléfonos de México (Telmex) is dominant in virtually every area of Mexico’s telecommunications sector, including long distance, local service, and mobile telephony. Telmex also is Mexico’s largest Internet access service provider with over 500,000 subscribers, and has used its monopoly power and control of the local loop to consolidate its dominant position within the national Internet market, of which it had a 58 percent market share in 1999. Competitors fruitlessly have sought the intervention of the regulator, COFETEL, as they have encountered endless provisioning delays of high-speed lines by Telmex that they pay for at exorbitant rates. Last month, under the threat of a possible WTO case brought against Mexico by the United States, claiming U.S. carriers did not have fair access to Mexico’s telecommunications market, Telmex reached an agreement with major competitors, Avantel (49percent owned by Worldcom) and Alestra (49percent owned by AT&T) to facilitate the use of its network by, among other things, lowering access charges. Nonetheless, the lack of regulatory resolve in Mexico remains troubling for the future development of the country’s telecommunications sector. The ultimate losers from weak regulation are Mexican consumers and business customers who will suffer the problems typically associated with monopoly power: limited choice, high prices and poor service. In such an environment, business customers will be hard put to stay competitive if they do not have access to efficient and low-cost telecommunications services. The potential for new telecommunications technologies such as VoIP to promote economic growth and development in Latin America are extraordinary. Technology by itself, however, cannot accomplish this goal. Achieving widespread and low-cost access to cutting-edge information technology requires sound public policy. A pro-competitive regulatory environment is vital to Latin American countries’ prospects in a global economy. Without such an environment, the region’s policymakers run the risk of being left behind. Conclusion Instead of looking at IP services such as IP telephony as competition to traditional switched traffic, Latin American regulatory officials should view these services as important means to provide much needed infrastructure, provide an impetus for offering better quality of service and lowering prices so that more consumers are served. Updating telecommunications technology and providing the policy and regulatory framework for the development and growth of these technologies are essential ingredients that will ensure a future for Latin American countries in the burgeoning information economy.

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