Two years and counting...

Communications minister Ivy Matsepe-Casaburri released her ministerial directives in September 2004, which, among other things, legalised voice over Internet Protocol (VOIP).

VOIP officially became legal on 1 February 2005 and the Independent Communications Authority of SA (ICASA) issued 087 number ranges to the value-added network service (VANS) providers in November 2005. At the time of writing, progress had been slow at best, but at least it has been made.

Widespread VOIP adoption is dependent on several things, the first being affordable bandwidth. While it is possible to use VOIP over low-speed lines with high contention ratios, as many Skype users do, this is not feasible for corporate users.

The second is interconnects. There is no point in trying to call a cellphone via a VOIP phone unless the cellular provider and the ISP have an agreement to pass traffic from one to the other.

The take-up and usage of the 087 numbers ICASA allocated to the VANS in late 2005 is also dependent on the interconnect regime. No company is going to go to the enormous effort of changing its numbers only for said number not to be available to people dialling from Telkom phones, for example.

Good and bad news

The good news on the interconnect front is that the bulk of the major carriers and VANS have either finalised or are in the process of finalising agreements. The bad news, however, is that the interconnect rates offered by Telkom and Vodacom, in particular, are sufficiently high that, in many cases, it costs more to interconnect than it would do to use least-cost routing.

There is no value in doing local calls.

Greg Hatfield, voice product manager, IS

Says Internet Solutions' voice product manager Greg Hatfield: "Telkom is offering interconnect rates of between 25c to 35c, which is not cost-effective. The cost of infrastructure is significant, so effectively, the cost climbs. While there will be a decrease in market prices and costs [due to competition], you'll not be able to make a national call for 30c unless the service provider elects to run at a loss."

Hatfield says IS expects to see a 20% to 30% price reduction, which will be primarily on national calls. "There is no value in doing local calls," he says. "Although we can offer a lower price, it is not materially lower."

Orion Telecoms director Jacques du Toit says that, at the moment, "it is blue sky talk". "It will be two to three years before customers see a fully interconnected VANS network. Capacity will be a problem," he states. "As we add customers to the network and as the interconnected VANS community grows, we'll need to add links. And we need to get those from Telkom."

Hatfield concurs: "Telkom is hampering the process in terms of its lack of resources."

Telkom, like the mobile operators, is also trying to deal with interconnect applications from approximately 300 VANS.

Says Storm director Dave Gale: "I've been trying to push the idea of a central point of interconnect since iWeek [ISPA's annual conference] in September 2006. It could be a very sweet deal for the bigger players. Vodacom has expressed concern about how to handle interconnects with multiple VANS, how to cope with it from an administration point of view. Vodacom has enough of a headache with three interconnections with Cell C, MTN and Telkom. How will they handle administration, disputes, credit collection and contract management? It's a bit of a nightmare.

It could be a very sweet deal for the bigger players.

Dave Gale, director, Storm

"The concept I'm pushing for, with other players that are interested, like MWeb, is a central, logical point (not necessarily a physical point) so that all the providers can connect with one third-party entity whose sole reason for existence is to connect you to the others. That way you have one contract, one record of call details and settlements. This third-party would also handle the database that lets you know if you can route a call with them or not. How open are you with your competitors regarding your allocated number range?" he asks.

I'm talking to you

While the VOIP market has, by all accounts, grown significantly in the last year, and particularly since various providers started making announcements around interconnect agreements, the community is still relatively small.

Says IS's Hatfield: "Interconnect between the VANS is of limited value because of the number of customers each VAN has. They may brag that the community is large, but as a percentage of all the people you could possibly call, it is insignificant."

VoxTelecom MD Jaco Voigt points out: "If you look at the existing numbers versus the potential numbers, it is significant. Look at Telkom's spread - it's about a R40 billion market. We're working off those sorts of numbers. I think as rates get more affordable and the quality gets more consistent, we will see demand go through the roof."

Quality, of course, is still a big issue. Says Verizon convergence product manager Louis Pienaar: "We've been switching VOIP on the public switched network for around 21 months. The uptake has been interesting, and the market has had some colourful integration issues as well as quality-of-service issues across the network. We have more VOIP providers than supermarkets at the moment; it looks good on paper, but there are issues and problems. It's taken from the time deregulation took place to date to see the mistakes we've made. The market must now take a step back and focus on quality and the technical aspects - like correct routing policies - and then go forward again."

PABX investments

Allied to that, as FrontRange product manager Paul Bornhutter notes, is the substantial investments many companies still have in traditional PABX systems. "They are not prepared to forfeit those in order to move to VOIP," he says.

"The savings VOIP can offer them cannot offset the losses that would be incurred on the PABX systems. Accordingly, they're prepared to take VOIP on board only in those specific areas, such as the call centre where there is an immediate benefit to be gained."

Most of the VANS also point out that there will need to be a compelling value proposition on the table before corporates will consider changing their Telkom numbers to 087 VOIP numbers, with the associated administration cost that this brings.

There is still much work to be done by the VANS, the regulator - which needs to intervene in the interconnect regime relatively soon - and by the industry as a whole. Creating this value will ensure VOIP does not drown under a wave of unrealistic expectations, reluctance on the part of the incumbent providers to offer reasonable interconnect rates, and the sheer logistical nightmare of trying to interconnect over 300 telecoms players.