4.2.2 Comparison of VoIP and Conventional Telephony

This section compares the similarities and differences between VoIP and conventional dial-up telephony.

What Makes VoIP Similar to Conventional Dial-Up Telephony?

A number of factors indicate that consumers increasingly view VoIP as “functionally equivalent” [1] to conventional telephone service, including:

Increasing numbers of consumers use VoIP as an alternative to conventional service. In making this choice, consumers are trading off a reduction in quality and some loss of features, for a lower price,
Improvements in VoIP service have reduced the difference in quality between VoIP and conventional service,
Many carriers partially route calls over the Internet without their customers’ knowledge. In many cases, consumers are unable to detect differences in quality between VoIP and conventional service,
VoIP customers can now obtain a telephone number and receive calls originated on the PSTN,
There is evidence that local exchange telephony subscriptions, total switched long distance minutes, and revenues for conventional dial-up services are declining. This suggests that many consumers are switching to VoIP. (A number of other factors may also contribute to this trend. For example migration from wireline to wireless services, the proliferation of private line and virtual private line services that can access the PSTN, and the commingling of voice and data services on the same telecommunications link.)

What Makes VoIP Different from Conventional Dial-Up Telephony?

VoIP differs from dial up telephony in a number of significant ways, summarized in Table 1.

Table 1: VoIP versus Conventional Telephony

	VoIP	Dial-up telephony
Switching	Packet switching.	Circuit switching.
Quality	Can be a lower quality service (echoes, temporary drop outs or even dropped calls).	High quality service.
Service features	VoIP is portable. However, the service typically cannot provide information on the physical location of the caller (e.g. for emergencies, or for national security reasons).	Operator can provide information on the caller’s location.
Service availability	May not be available on a public, ubiquitous basis. Most VoIP operators have not positioned themselves as “common carriers”. Service often requires a broadband link, which limits availability.	Conventional voice service is generally a public, ubiquitous service. Many traditional operators are required to offer service to anyone that requests it.
Cost structure	Costs typically do not vary with the distance of a call or the time of day that the call occurs. VoIP providers are able to exploit differences in regulatory treatment to qualify for lower cost network access (arbitrage).	Although costs largely do not vary with usage, some regulators require network operators to recover non-traffic sensitive costs on a metered (per minute) basis. Despite similar underlying costs, operators usually charge different rates for different call types / carrier types (domestic or international, wireless or wireline, or Internet).
Billing / metering	Packetized traffic measured on bandwidth used.	Traffic metered. Billing based on minutes of use, distance of call, time of day/week.
Interconnection charges	Arrangements vary depending on negotiation and market power. Smaller ISPs may have to pay for the whole link. Zero fee “sender keep all” interconnection between very large ISPs. VoIP providers may configure calls to avoid paying any local exchange access fee.	Local access interconnection charges usually based on forward looking costs of the network. For international calls, network operators generally share costs by splitting the estimated cost of a link in half.
Regulatory treatment	Internet services are generally unregulated. As a result, VoIP providers are often exempt from certain regulatory fees, such as universal service contributions.	Network operators, and in some cases other telephone service providers, must pay regulatory fees.