# Presentation: 698501

## VoIP: The Catalyst for Universal, Affordable Broadband Access by 2007

**Michael D. Gallagher**
- Assistant Secretary for Communications and Information
- National Telecommunications and Information Administration
- U.S. Department of Commerce
- Voice on the Net 2005 Spring Conference
- San Jose, CA
- March 9, 2005
- www.ntia.doc.gov

## Overview

- State of the Economy
- The President’s Broadband Vision
- IP-Based Services and Applications
- International Outlook
- Regulatory View

## Overarching Goal:Promoting Economic Growth

- Thanks to the President’s policies, America’s economy is strong:
- Over the past four quarters the U.S. economy grew at  a real GDP rate of 4.0%; compared to GDP growth in Europe of 2.1%.
- 262,000 new jobs created in February 2005.
- The economy has shown job growth for 21 straight months and added 3 million new jobs – more than Canada, France, Germany, Great Britain, and Japan combined.
- The U.S. unemployment rate is 5.2%, while the unemployment rate in Europe was 8.9% (Dec. 2004).
- There has been a sharp pickup in business spending on capital equipment.
- Homeownership rate was a record high of 69.0% in the third quarter of 2004.
- Manufacturing activity (ISM index) has been growing for 20 straight months and employment has been growing for 14 straight months.

## The President’s Broadband Vision

**Goal**
- 	*“**This country needs a national goal for broadband technology . . . universal, affordable access for broadband technology by 2007.” *		–   President George W. Bush, Albuquerque, NM, March 26, 2004
**Government’s Role**
*	*
*	**"The role of government is not to create wealth; the role of our government is to create an environment in which the entrepreneur can flourish, **	**in which minds can expand, in which technologies can reach new frontiers."** *		 – President George W. Bush, Technology Agenda, November, 2002.

## Benefits of Broadband

*“**[B]roadband will not only help industry, it’ll help the quality of life of our citizens.”*— President George W. Bush, US Department of Commerce, June 24, 2004
- Tele-Medicine
- Distance Learning
- Tele-Work
- National Security
- Jobs and Economic Growth

##  Creating Economic Conditions For Broadband Deployment 

*“**We ought not to tax access to broadband.  If you want something to flourish, don’t tax it.”**	**–* President George W. Bush in Baltimore, Maryland on April 27, 2004
- Tax relief has given businesses powerful incentives to invest in broadband technology
- Accelerated depreciation for capital-intensive equipment
- Extension of the Internet tax moratorium until Oct. 31, 2007; support making the moratorium permanent
- An 18-month extension of the research and experimentation tax credit; support making it permanent
- President's FY 2006 budget requests $132 billion for research and development.

## Removing the Regulatory Underbrush  

*“**[B]roadband providers have trouble getting across federal lands...that’s why I signed an order to reduce the regulatory red tape for laying fiber optic cables and putting up transmission towers on federal lands.”*
-    – President George W. Bush, U.S. Department of Commerce, June 24, 2004
- Reducing Legacy Regulation of Broadband Services:
- The Administration supports the FCC’s order freeing newly deployed broadband infrastructure from legacy regulation.
- Verizon, SBC, and Bell South announced they will wire at least an additional 20 million homes with fiber-optic cable by 2007 → Total investment is expected to be more than $6 billion over next several years.
- Bell South aims to provide 150,000 households with fiber per year and plans to increase the number of homes equipped with a fiber platform by 40% in 2005.
- SBC will bring video and broadband via fiber to 18 million homes in the next 2-3 years.
- Verizon aims to connect more than 2 million homes and businesses in 2005.
- Improving Access to Rights-of-Way:
- On April 26, 2004, the President signed an executive memorandum directing federal agencies to implement recommendations set out by the Federal Rights-of-Way Working Group. They called for improvements in: 1) Information Access and Collection, 2) Timely Processing, 3) Fees and Other Charges, and 4) Compliance.

## Total High Speed Lines in the U.S.

- Source: FCC, December 2004

**Lines in Service**

## VoIP and Other IP Applications Will Continue to Change the Market

- _CAGR 2003-2007_
- Revenues			51%
- Cable VOIP Customers 	68%

- Source: Kaufman Brothers, “A General Flavor of Mild Decay,” July 14, 2003

- Millions of Customers

- Billions of Dollars

## VoIP Share of International Traffic(1998-2003)

- Source:  Telegeography 2004

## Cost Savings Drive VoIP Market

- Costs of deploying IP-based network are estimated to be about 1/3 the cost of deploying traditional circuit switched network; operating costs of IP network may be 50-60% less.  (Source: Sonus Networks, NYT 1/12/04)
- Percentage of corporations using VoIP grew to 12% in 2004, from 3% in 2003. (Source: InStat/MDR, CommDaily 12/8/04)
- Vonage announced 400,000 lines in operation as of Jan. 5, 2005 – 115,000 lines added in 4Q2004 alone.
- TIA's 2005 Telecom Market Review & Forecast said the number of VoIP access lines jumped to 6.5 million in 2004 from 3.8 million in 2003 and was expected to expand rapidly to 26 million by 2008.

## Video Phones: Becoming a Reality

- AT&T first introduced the Picturephone at the 1964 World’s Fair, but price and quality prevented the Picturephone from taking off.
- IP platform, TV-quality images and lower costs may finally make videophone service commercially viable.
- More VoIP providers are offering videophone service.
- Sales of video-calling equipment reached $40 million in 2004, up 23% from 2003.

- Bell System (AT&T/Western Electric) Picturephone Model I version from the 1965 "The Telephone Story" poster (Source: Bell Labs “Record” magazine, May/June 1969)

- Then...

- Now

## IP VPNs

- Virtual private networks (VPNs) enable organizations to establish private, secure connections with remote offices or employees via the public Internet.
- VPNs are increasingly important as businesses seek to tie together globally-dispersed operations.
- IP VPN revenues in U.S. were $2.45 billion in 2003; revenues projected to increase to $6.1 billion in 2008. (Source: In-Stat/MDR, reported in NetworkWorld, 9/20/04)
- IP VPN revenues are increasing at 30% per year.

## Moore meets Marconi: Wireless Applications of VoIP 

-  _**Wi-Fi:**_ Until recently, the utility of Wi-Fi phones was limited to businesses and colleges. Companies such as Nokia, Flarion, IDT, Motorola, Cisco, and SpectraLink are beginning to develop hardware and software to facilitate Wi-Fi telephony.
-  _**WiMax:**_ Intel plans to build WiMax into its Centrino chip platforms, which power 80% of all PCs, by 2006. InStat/MDR estimates that a company could reach 97.2% of the US population with a $3.7 billion investment in Wi-Fi.
** **_**Software Defined Radio**_ (SDR) devices can dynamically reconfigure the device’s characteristics for better performance and new services.
** **_**Cognitive radio technology**_ is a particular extension of SDR that employs model based reasoning based upon its assessment of the radio environment.
** **_**Smart antenna systems**_ provide numerous benefits in wireless communications environments.

- Skype offers free global telephony to make unlimited, superior quality voice calls via its next-generation peer-to-peer software for Windows, Linux, Mac OS X, and Pocket PC platforms.
- Since its launch in August 2003, Skype has been downloaded over 79 million times -- more than 28 million registered users and over 5.6 billion minutes served as of 3/2/05.
- March 3, 2005 - Wireless provider Broadreach and Skype announced free voice over Wi-Fi service at 350 hotspots around the UK.
- Recently announced partnership with Motorola to provide hands-free accessories and mobile devices to enable truly mobile VoIP communications -- Motorola ‘Skype Ready’ companion products are expected to be available in the first half of 2005.

## VoIP Technology Evolution: QoS & Security

_**QoS**_
- Quality of VoIP service is continually improving.
- Service quality depends heavily on the reliability and capacity of the underlying broadband connections.
- Inform customers of quality differences and value proposition.
_**Security**_
- While converting voice communications into a data stream can produce significant efficiencies, it can also expose those communications to the same vulnerabilities as other Internet transmissions.
- Industry is aware of potential security challenges and is moving to address them through the VoIP Security Alliance (VOIPSA).

## How Should Government Treat VoIP and Other IP-Enabled Services?

- VoIP and other IP-enabled services are engines for expanded competition, lower prices, and robust service innovation.
- VoIP creates new market opportunities for equipment manufacturers and applications vendors.
- Regulatory framework must give this powerful technology full and fair opportunity to maximize its potential.
- FCC’s has already taken useful first steps
- Declared some VoIP services (*e.g.*, Pulver.com’s Free World Dialup) to be unregulated information services.
- Determined that Vonage’s DigitalVoice service and similar VoIP offerings are interstate services subject to exclusive FCC authority.

## Opportunities for International Trade and U.S. Job Growth

- “In the last ten years, 3 billion people have joined the world economy.”
- 					- Craig Barrett, CEO Intel Corporation
**China**
- World’s largest landline and mobile telecom networks -- China plans to inject $500 billion between 2001-2005 into its telecom infrastructure.
- China’s telecom equipment market, ($20 billion estimated worth) is among the world’s largest. U.S. exports comprise only $630 million of that total, leaving ample room for expansion.
**India**
- 1.08 billion people = world’s largest democracy 1 300 million people = world’s largest middle class 2
- Broadband and internet growth a priority  -- Government of India has set a minimum goal of 20 million broadband subscribers and 40 million Internet subscribers by 2010.
**Russia**
- Market for IP Telephony expected to reach $200 million in 2004.
-  Mobile penetration almost twice that of fixed-line telephony, and growing at 104% annually.

- 1 The World Factbook 2004 (updated Feb. 10, 2005)2  UC Santa Cruz, http://humwww.ucsc.edu

## Governing Principles for Emerging Elements of a Sustainable Policy Framework

- Create President Bush’s pro-technology, entrepreneurial environment.
- Respect the diversity of IP services.
- Serve important social policy goals without reflexively imposing legacy regulations.
- Recognize the importance of regulatory stability** -- **a stable regulatory environment enables businesses to make rational investment decisions.
- Fully engage VoIP stakeholders in developing regulatory framework.