MEMOIR TITLE

Technical and Economic Feasibility Study of PTCL VoIP based network as a pilot project

Presented by:

Muhammad Nasir khan TM-99/2-06

Objectives:
Technical and economic feasibility study of PTCL VoIP based network as a pilot project Study of economic impact on revenues with Cost-benefit analysis Strategy formulation

Memoir Distribution
This Memoir has been divided into four chapters: Chapter1: Introduction Chapter2: Situation Analysis Chapter3: Cost-benefit analysis Chapter4: Strategy formulation

Telephony Network
Typical Characteristics of Traditional Voice Networking
Bandwidth inefficient; uses 64kbps to transport one call Operating systems and networking protocols are proprietary Multimedia services can not be provided

CO
POP

PSTN CO TDM Network

POP POP
T1/PRI

Authentication & Billing System (IN & Online Billing)

PBX

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PBX
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2w

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9

Analog FAX

Analog Handset

1
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Voice Mail & Conferencing Unit

Packet Telephony
Packet based voice networks allow flexibility, richer connectivity options and added features.
Voice Gateway
2w

Authentication & Billing System Voice Gateway

T1

Digital PBX

Analog PBX

Analog Handset

POP

4w

Voice Gateway Analog FAX Voice Mail & Conferencing Unit

Packet Network
IP

PRI

CO

PSTN

Voice enabled applications

Router

Dynamic Address/Name Resolution

1
4

8
0
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6
9

IP Phone

What is IP Telephony?
IP Telephony is the transmission of voice signals over packetswitched IP-based networks. There are two main types: Internet Telephony: using the public Internet; Voice over IPalso known as IP telephony: using private, managed IP-based networks, in addition to the Public Internet. Services and applications: IP telephony: voice service built on top of data communications Mix of real-time and store-and-forward services!

 Voice over IP Technology: an IP gateway is sited at the edge of the network between the PSTN and the data network Conversion of analog voice signal to digital format and compression/translation of the signal into IP packets for transmission, the process is reversed at the receiving end Services: voice communications Infrastructure: IP-network (Intranet) Objective: cost reduction, integration of terminals and services Market segment: focus residential and business customers Relevant ITU-T standards include H.323, H.324, H248, T.120 etc.

Stages of evolution
PC-to-PC (since 1994) Connects multimedia PC users, simultaneously online Cheap but inconvenient and low quality PC-to-Phone (since 1996)

PC users make domestic and intl calls via gateway Increasingly services arefree (e.g., Dialpad.com)

Phone-to-Phone (since 1997) Accounting rate bypass Low-cost market entry (e.g., using pre-paid card) Voice/Web integration (since 1998) Calls to website/call centres and freephone numbers Enhanced voice services (e.g., integrated messaging)

1. PC-to-PC over IP
Internet

Phone Gateway Computer

Phone Gateway Computer

Needs similarly equipped Internet users (e.g., IP telephony software, multimedia PC etc), both logged-on simultaneously Main applications: avoidance of usage-based telephone charges, chat-rooms, company LANs Potential Market: < 50 million users

2. PC to phone over IP

Internet
Phone Gateway Computer

Desktop PC

Public Switch

Telephone

Fax

Internet users with multimedia PC able to call any phone or fax user (not, at present, vice versa) Main motivation: Reduced telephone charges, free calls to US, Canada, Hongkong etc Service providers include Net2Phone, DialPad etc Market potential: Sending, >250 million Web users, receiving >1.3 billion telephone/mobile users

Internet

3. Phone to phone Mobile, over IP

Fax

Phone Gateway Computer

Phone Gateway Computer

Telephone

Public Switch

Telephone

Fax

Any phone/fax/mobilephone user to any other Main motivation: Reduced call charges, accounting rate bypass, market entry for non-facilities-based carriers (e.g., via pre-paid cards) Market potential: >1.3 billion phone/fax/mobiles

4. PC to website/ Call centre, over IP

Desktop PC

Internet
Web Server

Public Switch

Phone Gateway Computer at Service Provider

Telephone

Internet users with multimedia PC browse Website and choose voice/video connection option Main motivation: Service provider can interact directly with potential clients, via voice or video, for instance for telemarketing, freephone access Market potential: >250 million Internet users

Technical Challenges
Packet loss: typical performance question in packet-switched network due to congestion in routers (queuing!) critical for voice communications several techniques to reduce packet loss and to decrease the effects of packet losses Packet delay (incl. Jitter/wander): critical for voice communications (long delay: echo, half-duplex mode) Sources of delay in IP-networks: codec ( 0 - 40 ms) serialisation delay ( < 0.1 ms) queuing delay (routers/gateways) propagation delay (critical for satellites links) Solutions: priority mechanisms (RSVP, buffers, )

Constraints to IP Telephony
Quality of Service Getting better, transition to private, managed networks Bandwidth Getting better, particularly on Trans Atlantic and Trans Pacific routes Bandwidth shortage still a problem in developing countries especially if gateway to IP is asymmetric Regulatory Prohibition More than 70% of International traffic flows between markets where IP telephony is already liberalized Many more regulators are liberalizing some form of IP telephony

Advantages of IP Telephony
Packet based voice networks allow for:

Bandwidth Scalability Application portability and flexibility Sharing of infrastructure for high speed and
enhanced data networking Bandwidth efficiency Low-cost domestic & international long distance Introduction to advanced IP communication and value added services for future growth

Implications of IP Telephony
For Consumers, IP Telephony offers cheaper international telephone calls and integrated messaging For Internet Service Providers, voice is a potential application to make their sites more attractive For incumbent Public Telecommunication Operators, IP Telephony will accelerate rebalancing between international and local calls. It is a threat, but also an opportunity. For new market entrants, IP Telephony offers low-cost, lowrisk market access For Regulators, IP Telephony poses many difficult questions!

VoIP equipment classes

VoIP Gateways:
These devices convert analog and digital voice traffic into IP packets and vice versa. These handle multiple T1/E1 and user side signaling.

Remote Access Servers (RAS):

Are for dial-in users, adding VoIP capabilities to RAS allow it to detect if an incoming call is voice or data.

Internetworking Gateways:
Interconnection between VoIP services and PSTN services is mandatory. They must support carrier class signaling including SS7 in addition to packet switching.

Customer Premises Equipment (CPE):

VoIP gateways, IP based telephones and multimedia PCs are new additions to the CPE.

Conferencing Standards
Network Conf. Std. Year Audio Codec Audio Rates kbps Video Codec Data Sharing Control Multiplexing Signaling ISDN H.320 1990 G.711, G.712, G.728 64, 48-64 ATM H.321 1995 G.711, G.722, G.728 64, 48-64, 16 PSTN H.322 1995 G.711, G.712, G.728 64, 48-64, 16 LAN H.323 V1/V2 1996/98 POTs H.324 1996

G.711, G.722, G.723.1, G.723.1, G.728, G.729 G.729 64, 48-64, 16, 8, 8, 5.3/6.3 5.3/6.3 H.261, H.263 T.120 H.245 H.223 -

H.261 T.120 H.230, H.242 H.221 Q.931

H.261, H.263 H.261, H.263 H.261, H.263 T.120 H.242 H.221 Q.931 T.120 H.242, H.230 H.221 Q.931 T.120 H.245 H.225.0 Q.931

VoIP Protocol Stack

Application Presentation Session Transport Network

TAPI G.711, G.723.1 H.323, MGCP, SIP TCP, RTP/UDP, RTCP IP

Link
Physical

Ethernet
Copper / Fiber

ITU H.323 / VoIP

An umbrella of recommendations for multimedia conferencing procedures over packet networks with no delivery guarantee Mandatory elements H.225.0 Call signaling, packet format, synchronization (RAS/Q.931) H.245 Capability exchange, channel negotiation, flow control RTP/RTCP (Real Time Protocol / Real Time Control Protocol) Transport
layer operations such as logical framing, sequence numbering, timestamping, payload distinction, source identification, performance and status reporting. G.711 Voice codec

Optional elements G.723.1/ G.729A Voice codecs H.235 Security and Encryption H.246 Terminal interoperability through gateways H.450 Supplementary services T.120 Data collaboration

ITU H.323 / VoIP

Application

TAPI G.711, G.723.1 H.323, MGCP, SIP

Audio
G.723.1 G.711

Call Manager / Agent

H.225.0 RAS & Q.931 Call Signaling
TCP

Presentation

Session

RTCP

H.245 Control Signaling

TCP

RTP
Transport

TCP, RTP/UDP, RTCP IP Ethernet Copper / Fiber

UDP

Network

Link

Network and Physical Layers

Physical

H.323 PROCOTOLS
Multimedia over LANs Provides component description, signaling procedures, call control, system control, audio / video codecs, data protocols
Video Audio Control and Management Data

RTP UDP Network (IP)

RTCP

H.261, H.263

G.711, G.722, G.723.1, G.728, G.729

H.225.0 RAS

H.225.0 Signaling

H.245 Control

T.124

X.224 Class 0 TCP

T.125 T.123

Data link (IEEE 802.3)

ITU H.323 / VoIP Components

Four types of components are defined Terminals Endpoint device used for real time bi-directional audio communications Gateways Connect two dissimilar network endpoints Gatekeepers Central control point for H.323 network Performs address translation, authorization, routing, bandwidth management, and call accounting Not a mandatory component of H.323 networks Multipoint Control Units Provides for conferencing between multiple H.323 terminals and gateways

Projected IP Telephony market

IDC forecasts that Web Talk revenues will reach US$16.5 bn by 2004 with 135 billion mins of traffic DeltaThree estimates that IP Telephony will generate 16 billion mins of intl traffic in 2000 IP Telephony as % of all intl calls in 2004 Tarifica forecast 40% Analysys forecast 25% In developing countries, the majority of IP Telephony calls are incoming

16.5

Web Talk revenues, US$bn

0.208 2000 2004

Source: IDC.

Bitrate growth in data networks is higher

Total average bitrate 106 Gbit/s 103
Telephone total

10-3

Internet

10-6 1985 1990 1995 2000 2005 2010 2015 Year 2020
Source: ICN M CM, ITU, ISOC

The internet becomes a second universal network besides the voice network.

VoIP Vs PSTN charges

Net2Phone Monthly charge US night .99 .039 AT&T $7.95 .05

UK
China Australia, France,Ireland

.079
.25 .079

.10
.32 .17

Philippines

.21

.27

Source: Interactive Week, June 5, 2000

VoIP Telephony Restrictions

Albania Argentina Bahrain Botswana Bulgaria Cuba Cyprus Egypt Estonia Ghana India Israel Jordan Kenya Mexico Nepal Pakistan Panama Philippines Slovakia South Africa Thailand Turkey Uganda Venezuela Vietnam Yemen Zimbabwe

Source: C. McTaggart & T. Kelly, ITU, IPTEL/03, My 29, 2000, p. 22

CASE STUDY:
Chinas telecom market profile

Population GDP per capita Tele density Internet hosts per 10,000 people Users per 10,000 people No. of ISPs PCs per 100 people Int. capacity

1,255M(99) US$ 734(98) 6.96(98) 0.14(98) 16.7(98) 200(98) 0.89(98) 351Mbps(1/00)

Promoting the Internet

Government cut twice in 1999 the cost of IP access switching stations rental: from 600 to 280 yuan p/month national LD digital lines:from 431,000 to 80,000 yuan p/month Digital data line fees: reduced by 45% 2Mbps national connection to an international digital line US$26,579 p/month.Europe99: US$2.5 billion investment in broadband during 2000 US$24 billion by 2005: transmission systems=US$15billion access networks= US$6billion data communication hardware=US$3billion

Chinas IP Tel market

MII licensed 3 operators in April 1999 for a 6 month trial in 26 cities These licenses ended a de facto long distance and legal international monopoly of China Telecom Four IP telephony licenses granted in March 2000 China Telecom China Unicom Jitong Communications China Netcom Forthcoming IP Tel license to China Mobile

China Telecom IP Tel

First to launch services in April 1999 initial roll out in 25 cities US$2 million network(100E1s) Setup time=60 days IP Telephony cards:on;y one sales counter and very limited number of IP cards Over 500 people per day sign up after the announcement

China Unicom
US$ 241 million invested in 12 cities Between June and November, Unicom acquired nearly 700,000 customers for its IP Tel services The network reached full capacity in only 80 days instead of 180 days initially By Nov. 99 Unicom was generating several million minutes in monthly China/US traffic and internet calls accounted for 50% of its IP business.

Jitong Communications
Sold more than 50,000 IP Tel cards in just five cities From June to August 1999 the total revenue from sales of IP phone cards stood at US$ 35 million

China Netcom
IP Tel trials in 15 cities since October 1999 20 Gbps fiber optic network backbone Ready for operation by late 2000

Linking corporate and government buildings in major cities directly to the IP backbone

MIIs IP Telephony tariffs

Services

Telephony (nonIP) tariffs 0.9-1.1 Rmb/min

IP telephony tariffs 0.3 Rmb/min (US$.04) 4.8 Rmb/min (US$.58)

Domestic long distance International

12-15 Rmb/min

Pakistans telecom market profile

Population GDP per capita Tele density Internet hosts per 10,000 people Users per 10,000 people No. of ISPs PCs per 100 people Int. capacity

131.6M(99) US$ 490(98) 2.2(98) 0.22(98) 4.35(98) 41(99) 0.39(98) 153Mbps(99)

Standardization
ITU-T SG 16 concentrates on Multimedia Terminals and Security; develops IP Telephony Standard H.323; TIPHON provides input for this group. (www.itu.org)

International Telecomm. Union

IETF investigates interworking between Internet and Intelligent Networks. TIPHON influences via member organizations.
Internet Engineering Task Force

(www.ietf.org)

TIPHON

TIPHON/ETSI is globally accepted as leading body for internet gateway standardization. (www.etsi.org/tiphon)

Summary for International services

Total no. of intl PSTN circuits Total no. of FDM ccts on Satellite Total no. of IDR (PSTN) ccts on Sat. Total no. of intl ccts on SMC Total no of intl ccts on M/W and C/C Total bandwidth of IPL circuits 5944 210 4612 Ana 220 Dig 547 221 152992.6 Kbps

Digitalization
Transmission system Switching system

Percentage
91.97% 91.56 %

Total no. of destinations

Direct countries 39 Transit countries 168

Traffic percentage
92.17 % 07.83 %

Percentage increase in Intl revenues

30 25 20 15 10 5 0 1992- 1993- 1994- 1995- 1996- 1997- 199893 94 95 96 97 98 99

Series2 Series1

Revenue breakdown for the year 1999-2000

Local calls Addl rev by time metering NWD calls Line rent Installation fee Foreign outgoing Internet & Data lines Installation fee Leased lines & VAS Foreign incoming Telex & Telegraph Grand Total

Revenue(M) 9,674 938 8,441 4,783 856 4,666 85 6 861 20,573 304 51,187

% age of total 18.89 1.83 16.49 9.34 1.67 9.11 0.16 0.01 1.68 40.19 0.59

Revenue breakdown for the year 1999-2000

Revenue(M)

Foreign incoming 40%

Local calls 19% NWD calls 16%

Foreign outgoing 9%

Line rent 9%

INTERNATIONAL TOTAL INWARD TRAFFIC GROWTH

1997-98 1998-99 1999-00

80

Circuits (Jun 00)=6737

Traffic in million minutes

70 60 50 40 30 20 10 0
Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

Circuits (Jun 99) = 5380

Circuits (Jun 98)= 5128

17 16 18 20

12 24

21 19

18 12

13 18

18 13 21 25 28 22

2 25 15 28 12 31

Yearly Growth: 98/99 VS 97/98= 15.89%

99/00 VS 98/99= 21.49%

Total Inward Traffic in Million Minutes

900
1997-98 1998-99 1999-00

Traffic in Million Minutes

800 700 600 500 400 300 200 100 0

557.84 646.48

785.39

%age Growth

15.89%

21.49%

INTERNATIONAL TOTAL OUTWARD TRAFFIC GROWTH

1997-98 1998-99 1999-00

9
Traffic in million minutes

8 7 6 5 4 3 2 1 0
Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

5 6

9 4

6 1

-1 2

3 1

3 -2

6 6

2 4

4 0

5 0

5 2

3 -0.2

Yearly Growth: 98/99 VS 97/98= 4.04%,

99/00 VS 98/99= 1.98%

Total Outward Traffic in Million Minutes

90
1997-98 1998-99 1999-00 89.2

Traffic in Million Minutes

89 88 87 86 85 84 83 82 81
84.07 87.46

%age Growth

4.04%

1.98%

INTERNATIONAL INWARD TRAFFIC FROM USA

97-98
30

98-99

99-00
Circuits (Jun 00)= 1208

Traffic in million minutes

25 20 15

Circuits (Jun 99)= 1087 Circuits (Jun 98)=1237

10 5 0 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

3 -30 -18 17 23 29 31 66 36 -1

16 24

28 15 23

13

22 39

34 53 39 60 48

Yearly Growth: 98/99 VS 97/98= 7.68 %,

99/00 VS 98/99=37.14 %

Total Inward Traffic from USA in Million Minutes

300
1997-98 1998-99 1999-00 274.1

Traffic in Million Minutes

250 200 150 100 50 0

185.6 199.87

%age Growth

7.68%

37.14%

INTERNATIONAL OUTWARD TRAFFIC TO USA

97-98
1,600,000 1,400,000
Traffic in minutes

98-99

99-00

1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

-18 -18 -22 -30 -28 -22 -21 -22 -18 -23 -15 -9 -1 -6 -2 -3 -4 5 2 -24 -14 -3 -12 -14

Yearly Growth: 98/99 VS 97/98= -19 %,

99/00 VS 98/99= -12.17 %

Total Outward Traffic to USA in Million Minutes

20
1997-98 15.63 1998-99 1999-00

Traffic in Million Minutes

15

12.65 11.11

10

%age Growth

- 19.00%

-12.17%

Total Inward Traffic from UK in Million Minutes

200
1997-98 1998-99 1999-00 171.77

Traffic in Million Minutes

150
115.16

100

80.34

50

%age Growth

43.33%

49.16%

Total Outward Traffic to UK in Million Minutes

25
1997-98 1998-99 1999-00 16.81 17.96

Traffic in Million Minutes

20 15 10 5 0
14.72

%age Growth

14.23%

6.84%

Total Inward Traffic from SAUDI ARABIA in Million Minutes

120
1997-98 1998-99 1999-00 84.65 102.745

Traffic in Million Minutes

100 80 60 40 20 0
81.54

%age Growth

3.81%

21.38%

Total Outward Traffic to SAUDI ARABIA in Million Minutes

10
1997-98 1998-99 1999-00 9.07 7.84 7.09

Traffic in Million Minutes

8 6 4 2 0

%age Growth

10.58%

15.67%

Total Inward Traffic from ETISALAT UAE in Million Minutes

120
1997-98 1998-99 1999-00 99.532 88.03 77.36

Traffic in Million Minutes

100 80 60 40 20 0

%age Growth

13.79%

13.07%

Total Outward Traffic to ETISALAT UAE in Million Minutes

14
1997-98 1998-99 11.48 9.91 1999-00 11.651

Traffic in Million Minutes

12 10 8 6 4 2 0

%age Growth

15.84%

1.49%

Situation analysis
For the year 1999-2000: PTCL total outgoing traffic is 89.2 million minutes, while its incoming traffic is 785.39 mm.

There is 49.79mm (55.81%) outgoing traffic for the four destinations; USA, UK, Saudi Arabia and UAE
The incoming traffic from these four countries is 648.14 mm (82.52%).

 The % age change in the outgoing traffic is showing a negative trend for the following destinations:

1997-98 1998-99
TOTAL USA UK UAE 84.07 Mm 15.63 14.72 9.91

1999-2000

87.46 Mm (4.04%) 89.2 Mm (1.98%) 12.65 (-19.00%) 11.11 (-12.17%) 16.81 11.48 (16.81%) (15.84%) 17.96 11.65 (6.84%) (1.49%)

Important factors for the declining international traffic and revenues

Refiling Call-back services Leaky PABXs Illegal VSAT links Internet telephony

SWOT Analysis
Strengths
Monopoly Financial stability Optical fiber based core network Own access network infrastructure Large customer base Skilled technical manpower

 Weaknesses
Bearucratic structure Long decision making No MIS Unavailability of cost-based tariff Poor customer care Lack of corporate culture Poor marketing strategies

 Opportunities
Large untapped markets Value added services VoIP WLL and xDSL in access network NAP ATM based national backbone MIS Better utilization of HRM and available infrastructure Improved marketing strategies and customer care

 Threats
Deregulation Competition Decreasing international revenues FCC benchmarking VoIP Traffic migration to internet/cellular Low GDP Inflation

International accounting rates

Pakistan is among the top ten net settlement surplus countries. Despite the growth in international traffic, reducing the settlement rate from 90 cents to 23 cents mean eroding the revenues to 1/4 of the current level. According to the ruling, Pakistan will have to implement a benchmark settlement rate of US$ 0.23/minute by 1st January 2002 with the US carriers. PTCL has signed agreements with US carriers for a settlement rate of US$ 0.90 per minute unit by June 1998. This implies that post June 1998, PTCL will have to reduce its accounting rate by approximately 28% per annum in order to meet the decline.

Proposed VoIP network for Pakistan

PRIs
VoIP Gateway

ATM Switch

Lahore

Satellite dish

ATM Backbone

PRIs
ATM Switch Transit exchange VoIP Gateway ATM Switch

Islamabad

Lahore

Satellite dish

PRIs
VoIP Gateway with Call agent Local exchange Gatekeeper with IVR and call accounting sy stem

PTCL Concerns
PTCL have made a significant investment in traditional TDM switching, to remain successful we should preserve the existing networks, while migrating to the new networks. We must interface PSTN with the packet-based networks of the future for the delivery of features via packet-based data network infrastructures Impact on PTCL revenue due to substitution Duplication of investment for providing parallel VoIP network The IP protocols are not yet uniformly developed. End to end connectivity requires proprietary equipment The quality of service can not be guaranteed due to absence of international standards The bilateral TAR settlement with incumbent telcos may come under pressure

Strategy
IP telephony is legal in USA and most of the developed countries so it is very difficult to stop it. China has also allowed VoIP PTCL should form a subsidiary for providing VoIP services. Presently, PTCL outgoing traffic is 89.2 million minutes , out of which 49.79 million minutes traffic 55.8% of the total is for the following four destinations: Destination Outgoing traffic Percentage UK 17.96 million minutes 20.13% UAE 11.65 million minutes 13.06% SA 9.07 million minutes 10.16% USA 11.11 million minutes 12.45% As there is a declining trend in the outgoing traffic flow, we should adopt a strategy to safeguard our investments in the telecom infrastructure and increase the declining revenues.

Strategy
In the first phase PTCL should start VoIP service as a pilot project for the four destinations i.e. UK, UAE, SA AND USA in the three major cities of the country (i.e. Islamabad, Lahore and Karachi) by installing VoIP gateways with SS7 capability with the transit exchanges there. VoIP service should be marketed via the pre-paid cards by introducing international pre-paid cards. Currently majority of the calls are incoming, by introducing low rate outgoing calls the volume of the outgoing traffic will increase so the declining revenues can be increased substantially. A comparison of the existing rates and the new VoIP rates are: Country Existing Telephony rate Proposed VoIP rate UK Rs. 54 per minute Rs. 10 per minute UAE Rs. 42 per minute Rs. 10 per minute SA Rs. 50 per minute Rs. 10 per minute

Strategy
To invite quotations for the best possible international voice terminating and voice carrying rates from/to USA ,UK and other countries To make alliance with a Tier1 company To make arrangements to start the service by 1st of July 2001, and from the feedback of the service, it can be extended from other cities of the country to other countries in the second phase by expanding VoIP network In the third phase, start VoIP service within Pakistan as an economy service between major cities on reduced rates. To offer PTCL international prepaid cards in USA, UK, Middle East and Far East for expatriates and Pakistanis travelling abroad.