Internet Protocol: Cheap Phone Calls to Full Convergence?

China's Killer Application?

Internet Protocol (IP) could be China's "killer application", according to Kaili Kan from the Beijing University of Posts & Telecommunications.

Available over a regular telephone line, one IP application, Voice over IP (VoIP), is expected to take 30% of China's long distance call market this year. VoIP delivers long distance service, for as little as half the price of calls made over the conventional Public Switched Telephone Network (PSTN) service. In spite of lower charges, providers claim that VoIP is extremely profitable. Enhanced IP services will become available, which will accelerate Chinese communication networks towards a full convergence of voice, video and data transfer services.

Undeniable Attractions

VoIP in China was first publicized when two brothers were arrested in March 1999 for using the internet to provide cheap long distance services to local customers. They succeed in court because there were no regulations banning the provision of such services.

Despite the threat it represented to China Telecom's monopoly over long distance services, the Ministry of Information Industries (MII) granted VoIP operating licenses to China Mobile, China Netcom, Jitong Communications and China Telecom. The latter three were involved in a six month trial of the service across 26 cities. The MII issued the Notice Concerning the Opening Up of China's IP Telephony Business, which granted full VoIP operating licenses to the above telecoms providers. Now, disposable IP cards ranging from Rmb50 to Rmb500 are readily available, and billboards advertising their access numbers dot the nation's skylines.

Foreign Participation Down the Line

VoIP involves the conversion of analogue signals into packets of digital information that are transmitted over the internet and re-converted at the other end. No such service is included in the "Classification of Telecommunications Services" attached to the PRC Telecommunications Regulations (中华人民共和国电信条例)(Telecom Regulations). Basic telecoms services are defined in the Telecom Regulations to mean "the business of providing public network infrastructure, public data transmission and basic voice communications services". VoIP may be considered to be a form of basic telecoms services. If so, foreign investment in VoIP will only be allowed in the cities of Beijing, Shanghai and Guangzhou within three years of China's accession to the WTO, and foreign equity will be initially limited to 25%.

Foreign firms are entering the Chinese market as vendors of IP applications and equipment. In April this year, one US firm announced that it had concluded agreements with the major Chinese telecom providers to provide IP software solutions. The company stated that its products had received Network Access Licenses for Telecommunication Equipment certifications. Reports that China Unicom and China Netcom are planning to build networks based on IP, suggest that similar opportunities for foreign participation may become available.

Beyond the Common Measure

To make these IP dreams a reality, IP service providers may face some regulatory hurdles. Indeed, the revolutionary nature of IP may put it at odds with telecom regulations covering service quality, service standards and billing procedures. The broad availability of enhanced IP services will add further fuel to China's ongoing network convergence debate.

VoIP has a name for poor quality service standards. In an effort to defend its domination of long distance services in China, China Telecom, itself a VoIP provider, placed a series of advertisements questioning the quality of VoIP services.

Articles 39 and 40 of the Telecom Regulations allow users to launch administrative appeals with MII against providers to complain about sub-standard services. Other provisions, such as the new Quality Measures mentioned in last month's bulletin, have affirmed the government's commitment to raise industry standards and protect users' rights.

IP's compliance with prevailing standards might be difficult to gauge if existing methods are used. Conventional network-based measures fail to provide an accurate reading of service standards over IP networks. Quality assessments must be made at the end-user or gateway service level - this requirement being unique to the IP standard. For enhanced IP services, the provision of sufficiently accountable billing practices required under Articles 40, 41 and 74 of the Telecom Regulations, will require the use of new metering technologies now available.