Relation between residential VoIP and broad band development

One of the most interesting points to analyze in VoIP is how it closely relates to broad band development, a topic that is worth going into some depth on.

VoIP is a killer application [1] for broad band

There is very high synergy in the residential market between these two services. On one hand, VoIP improves its low-cost residential virtual operator application model as the density of Internet access increases and particularly using band access. On the other hand, although the decision to buy broad band services may arise from alternate needs such as entertainment, education, web-working, and research, among others; to a certain extent, it is favorably influenced by the additional attribute of savings in LD services, mainly ILD. In other words, although the cost model is said to be marginal for VoIP leveraged on the broad band access acquired for the above described alternate uses, in many cases, the initial decision to buy the broad band is based on the possibility of financing it with LD service savings.

Incremental marginal VoIP model

Upon analyzing the VoIP cost model in detail, we find various situations. On one hand, for PC-to-PC traffic there is a flat cost model where the whole chain functions based on AYCE rates that solely depend on the contracted capacity.

If we extend this model to PC-to- Telephone traffic, some incremental costs appear for traffic termination, which, at any rate, are still low, and most of the value chain is handled using a fixed cost model.

Upon comparing this model to the  traditional  LD service,  we find that as there is no access cost, the decision to use this model or not is based on the  marginal cost per minute, which for PC-to-PC VoIP tends to zero and for PC-to- telephone VoIP is very low and totally marginal.

Mechanism of ILD traffic migration to broad band services

The above description generates a model of potential migration from using traditional LD services, ILD in particular, to VoIP services.

When we analyze the demand structure of any service, we always find that there are user with very low usage, users with moderate usage, and users with high usage [2]. So, if we organize them in a graph according to their usage  level, we will find a growing curve [3]. In this curve that we have described for the LD market, proportionate level of billing  will  be  higher  upon  disaggregating  ILD  services  than  it  would  be  for  NLD. Therefore, any VoIP attribute of lower cost will have a very significant effect on ILD.

If we analyze this basic model, we find that, for the business market, various situations will occur when comparing costs:

• When a corporate user imputes total costs and sees that it is in a fixed cost environment for PC2PC traffic, it must make a decision whether or not to use VoIP in the LD traffic level where the variable rate is equal to said fixed cost.

• For PC2Phone traffic, said change decision must be made, including the marginal termination cost that the VoIP services generates in the comparison. (See Graph above).

For residential or SMB traffic, the perception is marginal and the change decision points have some different elements:

• From a strictly economic point of view, the decision does not impute the cost of the broad band as a VoIP service cost.

• Switched Internet-access links, in spite of their low quality, can be enabled and using VoIP reduce costs, provided that their marginal use (Internet rate) is less than the LD rate.

• For broad band, the rational economic decision in +99% of the cases is to change to VoIP.

• Notwithstanding, given the level of education and technological affinity, the effect of the complexity of use, and usage levels and relative rates, it is feasible that a large number of users is would not make the change, or at least not without thinking it over a lot.

In summary, given a “perceived” broad band cost imputable to VoIP service, users who have a billing level higher than that value in LD services would tend to make an aggressive migration of its traffic to VoIP services.

Mechanism of local traffic migration towards alternate operators

For traditional telephony services using access networks enabled on VoIP, customer migration will follow similar mechanisms of cost comparisons, without  the obstacle of facility of use and they will be leveraged in bundling strategies such as triple play.

Colombian Association of Engineers (ACIEM)

NOTES:

[1] Term coined to indicate applications that generate a boom in the use of a specific technology, understanding that technology per  se is not useful if it is does not enable specific applications.

[2] Said usage is proportionate to the said user’s billing.

[3] This curve aggregates residential, business, resale through telephone booths, etc…