Assessing VoIP's financial impact on PSTN and cellular networks

VOIP's impact on PSTN and Cellular Systems

Assessing VOIP's Impact on Public Switched Telephone Network (PSTN) and Cellular Systems

The long-term financial impact of Voice over Internet Protocol (VoIP) on existing communications networks, systems and related technologies is significant as it is reordering the economics of entire industries. The collection of systems and technologies that form the foundation of VoIP have been specifically designed to capitalize on the pervasive and proven foundation of Public Switched Telephone Network (PSTN) and high -- performance cellular and Wi-Fi network architectures (Drucker, 2004). At the risk of oversimplification of this complex series of technologies, a foundational definition of VoIP is defined as a series of systems and subprocesses that translate voice-based analog signals into digital signals that can be captured and turned into data that can be transmitted across the Internet (Cheung, Kwok, Jackson, 2005). The first several generations of VoIP systems were used the majority of the time over PSTN-based networks (Drucker, 2004). Current estimates of the distribution of VoIP traffic by network type show 65% being on cable networks, 26% over traditional PSTN networks and 9% pure or entirely VoIP-based IP address-based networks (Juan, Pluckebaum, 2010). One of the fastest growing segments of VoIP traffic is on cellular systems, with the rapidly adopted 4G standard being one of the primary catalysts of overall market growth (Nunn, McGuire, Crowe, 2010). The heterogeneity of platforms and standards are having a cumulative effect of dropping the switching costs of these technologies relative to traditional phone and communications systems (Juan, Pluckebaum, 2010). The cannibalization of traditional PSTN and cellular networks will accelerate in the next five years as advances in the core VoIP technologies continues. The initial concerns regarding security (Zhang, Fischer-hubner, Ehlert, 2010) and quality (Reynolds, Rix, 2001) continue to be addressed at the protocol and Application Programmer Interface (API) levels of this communication standard.

Analysis of the Current State of VoIP and its Future

Given the proven ability of VoIP technologies to drastically reduce the costs of communicating locally and across wide diverse and broad geographic regions (as shown by Skype for example) VoIP is predicted to be one of the fastest-growing technology sectors of telecommunications (Nunn, McGuire, Crowe, 2010). According to market research firm IBIS Research, the VoIP industry is expected to experience compound annual revenue growth of 8.9% per year through 2017, generating $42B in revenue globally, with $17.4B in the United States alone (Juan, Pluckebaum, 2010). The adoption of Federated VoIP technologies that alleviate the bottleneck caused by traditional PSTN frameworks are being pioneered by Google with GoogleTalk, in addition to Microsoft with Skype (Nunn, McGuire, Crowe, 2010). Federated VoIP technologies will continue to revolutionize this area of the telecommunications for decades to come, further lowering operating expense (OPEX) levels of spending and eliminating very large sections of Capital Expense (CAPEX) budget constraints (Nunn, McGuire, Crowe, 2010). The reduction in CAPEX initial upfront costs and the continual erosion of OPEX costs for enterprises will ensure a high level of VoIP adoption over the long-term. This adoption will come at the expense of traditional PSTN systems and networks, which will gradually be replaced with enterprise-wide VoIP systems.