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Technical characteristics of VoIP

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  • 1. The diffusion of VoIP fosters the process toward the info- communication industry CECERE Grazia1 Abstract The diffusion of VoIP technology enforces the diffusion of the info-communication industry, in other words the IP based industry. This industry is characterised by rapid innovation, low barriers to entry and common IP general purpose technology pattern. The VoIP could be applied to any layers. The technology has two many impacts on the telecommunication industry. In terms of industrial dynamics, it is changing the market structure being the vehicle for the new entrants. In terms of knowledge dynamic, it is transforming the telecommunication industry into informatics and multimedia based industry. This process fosters the technological convergence and the convergence of services. Key words: economics of telecommunication, VoIP diffusion, info-communication industry, modularity Introduction 1 Universit Paris Sud 11, Laboratoire ADIS, France Joint Supervision University of Torino, Dipartimento S. Cognetti De Martiis, Italy Visiting Student University of Sussex, SPRU, United Kingdom 1
  • 2. The telecommunication sector is under the pressures from sector liberalisation and the emergence of the new technologies and new entrants coming from others sectors (Peitz M., Valletti M. V., Wright J., 2004)2. New actors including connecting operators, content producers, browsers and search engines are competing with incumbents. In this complex scenario, VoIP is one of the emerging technologies. This article will deal with the analysis of VoIP (Voice over internet protocol) technology, so-called Internet telephony which supports voice, data and video communication as well as instant messaging. However, this technology originates from the computer networking or data communications technology, VoIP is strongly influencing the telecommunication sector. VoIP could, in principal, replace the traditional public switched network (PSTN), which is in other words the traditional technology employed on the telecommunication sector. VoIP is based on packet switching transmission technology; on the contrary, the PSTN is based on switching circuit. VoIP have different forms of applications, namely, as software (Skype, Yahoo) in form of peer-to-peer system where it needs the access on the internet network, as device applied on the network at the consumers level or on the backbone (in Italy FastWeb, in France FREE, in United Kingdom TalkToTalk) and on the wireless environment. New technologies are the engines able to change/transform the industry structures and thus the activities of the firms involved into a knowledge-based industry. Schumpeter defined these engines like to be able to offer new goods and services to consumers; to create new methods of production, transportation and new markets and to set up new industrial organisation forms (Chandler, 19903; Fransman, 2003). VoIP is the engine coming from the computer industry and strongly challenging the incumbents on the telecommunication industry. Firms involved on VoIP diffusion are heterogeneous (David, 1975; Antonelli, 2005) and they operate in a complex dynamic system. The diffusion of VoIP is able to foster the diffusion of new infrastructures, such as the wireless networks; then, VoIP could support the diffusion of new technology and multimedia applications services such as IPTV. In fact, this innovation is changing the telecommunication industry structure and thus the boundaries of the firms involved. The aim of this paper is to contribute on the analysis of industrial dynamic and knowledge dynamic into the telecommunication industry. The article shows this technological change enable dynamic efficiency on the telecommunication sector, as they increase the competition among new entrants and between them and carriers. These changes occur within the constraint of interoperability/ interconnection on the network and modularity among the systems. The article identify two new entrants applying VoIP providers IP network Voice service (such as Vonage, Iliad/Free) and VoIP software- service (such as Skype, JaJah), both part of the info-communication industry. I recognize some criteria for distinguishing these two main models: network layer, consumers VoIP perceptions, cost of communication, multimedia options and providers capabilities. The incumbents have applied the technology without any dynamic capabilities. I consider VoIP a second generation innovation in respect to Internet telephony, as it is based on the packet switching technology, thus I identify the VoIP economic characteristics as follow cumulative, complementary and fungibility innovation (Scotchmer, 2005; Antonelli, 2005). This allows to make huge economies of scope and increasing return. Further, in order to describe the telecommunication industry and its transformation, I use the layer method (Fransman, 2002; Krafft, 2003). This method 2 Ibid. p. 315 3 Ibid. p. 597 2
  • 3. permits both to do static and dynamic approaches. On the one hand, layer method defines the similar capabilities and functionalities of each layer and on the other hand, the dynamic approach helps to define the impact of VoIP (or new technology) on the players strategies and evolution. The dynamic process transforms the telecommunication sector into the info-communication industry. According to Fransman (2003), the activities based on the info-communication industries exploit the internet interconnection as common platform. The historical and dynamic diffusion of VoIP innovation involves a complex dynamic system with elements including capabilities, location and systemic interdependence (Antonelli, 2005). Firstly, the players have different capabilities and endowments; as they are coming from different sectors. Hence on the supply side, I observe that the diffusion of VoIP has been characterized by the high mobility of people at intra-firms level within the telecommunication industry and from informatics industry to the telecommunication industry. Secondly, firms involved are located in different parts of the world and nevertheless they create a huge network effects among the supply and demand side. Thirdly, elements of the systemic independence arises as VoIP diffusion involves: implications for regulation framework, interdependence between players coming from different sectors and thus the pressures on the incumbents created by this new type of bypass of existing telecommunication tariffs. On the consequence, this complex process provides a recombination of intra-firms and inter-firms capabilities. The economic characteristics of the innovation foster the process of convergence which it has been taken place into the telecommunication sector (Aoki K, Ono R., 1998). On the one hand, VoIP fosters the technological convergence as it combines the telecommunications and informatics technology. On the other hand, VoIP has the technical requirement to support different functionalities- convergence of services/ applications, which implies that providers are coming from different sectors and thus they have different capabilities, as engine browsers (for example Yahoo voice). In other words, VoIP is the result of different features, because of the nature of suppliers, the nature of physical/technical supports and the nature of the consumers involved. Furthermore, the VoIP diffusion is based on a great interaction/reaction between suppliers and consumers. These characteristics allow VoIP to have wide range of applications, which would create branching process outcomes; hence non-predetermined further developments, in other words it is possible to assume that the VoIP diffusion is non-ergodic. The section 1 describes the technical characteristics of VoIP in order to differentiate it from former PSTN voice technology underling the modularity technology; the section 2 delves into the analysis of VoIP economical characteristics, such as fungible, cumulative and complementary in respect to internet protocol. Then, the section 3 illustrates the layer model and underlines the key capabilities of each layer, identifying the former firms boundaries in term of capabilities and regulation features. Section 4 aims to illustrate the changing of telecommunication industry toward the info-communication industry and hence underling the industrial and knowledge dynamics. 1. Technical characteristics of VoIP 3
  • 4. In this paragraph, I would describe carefully the VoIP technology characteristics compared to PSTN technology. In order to analyse the diffusion of VoIP technology, it is crucial to identify the technical characteristics of this technology, coming from the computer sector, evolving within the info-communication industry. At the industrial economy perspective, VoIP could be considered as substitute of the PSNT communication (De Bijl P.; Peitz M., 2005)4. VoIP does not require a separation of data and voice (Chetty, Blake, McPhie, 20065). The VoIP is based on the technology coming from the computing world, the packet switching technology. This

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