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The diffusion of VoIP (voice over internet protocol) fosters the

process toward the info-communication industry

CECERE GraziaPhd student in economics

Dime workshop « Distributed networks and the knowledge and the knowledge -based economy » 2007

Université Paris Sud 11, Laboratoire ADIS, FranceJoint Supervision University of Torino, Italy

Visiting Student University of Sussex, SPRU, United Kingdom

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Outline1. Technical characteristics of VoIP-modularity

2. Analysis of VoIP economical characteristics, such as indivisible, fungible, cumulative and complementary in respect to internet protocol.

3. Layer model

4. Telecommunication industry toward the info-communication industry knowledge dynamics.

5. Two main models of VoIP application and the criteria for distinguished them.

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Two main applications •IP network Voice service” providers are Internet Service Providers (ISP), technology applied to the broadband networks; they offer free calls and other bundling services, examples are Iliad/ Free, Talk-to-Talk, Vonage, FastWeb -1999 and 2001 •“VoIP software- service” allows communication PC-to-PC, thus the communication is made thanks to free software downloading, such as Skype, Yahoo voice messenger - 2002 and 2003

Incumbents have applied the technology only for enforcing the backbone- no new offers for consumers (less competitive)

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Objective • The article shows how the VoIP

technology is transforming the telecommunication industry into the info-communication industry. How these generate knowledge dynamics into the industry as it became IP based and how these changes generate welfare for the consumers.

• Evolutionary approach and knowledge economy

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1. Technical analysis

• Distinction among packet switching technology and circuit switching (traditional public switched network-PSTN)

• VoIP reduces the cost of communication

VoIP could be considered as a module

modularity- (Baldwin Clark, 1997; Steinmuller, 2005)

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Economics characteristics of VoIP

VoIP is coming from a “general purpose technology” (Bresnahan, Trajtenberg, 1995; Verspagen, 2007) the internet protocol. For this reason, I assume that it has the same characteristics of knowledge: indivisibility, cumulative, fungible and competitiveness.

(Scotchmer, 2005, Antonelli, 2005)

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Knowledge dynamics

Technological convergence (telecommunication/internet)

Convergence of Services/applications

(voice+ value added services)

VoIP software

Cumulative and indivisibility

(voice send on the internet network)

Fungible

(more internet based applications are possible

IP network voice providers

Cumulative and indivisibility

(applied to the TCP/IP network)

Competitiveness

(the merger/combination of voice and value added services)

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Layer method: static and dynamic analysis

Layer Activity Firms

V Application layer and content diffusion/production

Ebay, iTunes, Myspace, VirginMega

IV Navigation (browsers engines, electronic payment security)

Google, Yahoo

III End-to-end connectivity (email, VoIP) Skype, PayPal (ISP-internet service providers et ASP-service acces providers)

II Network transmission (optical fibre, ADSL, cable, wireless -Wifi, Wimax)

Incumbents and new entrants on the network building

I Equipments and software (transmission equipments, switches)

Alcatel/Lucent, Cisco, Nortel

Fransman (2002b), Fransman Krafft, (2002) avec actualisation de l’auteur

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Inter and intra layer convergence Firms Former layer Layers occupied today

Yahoo

Google

IV –navigation middleware

IV – search engines

III – VoIP and email service

V - Information, translation

Skype V- kazaa inventors (music downloading)

II – wireless service

III- VoIP

IV- games, number telephone searching

Iliad/

Free

II – internet providers and network

II- physical and wireless internet connections

III- email service

IV- search engines

V – video diffusion

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Some economics evidences

• Explanation into the resource based view (Penrose, 1959)

• Creation of economy of scale and scope (Davies , 1996, Maeda al. 2006)

• Vertical integration of production

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Info-communication industry vs. old telecommunication industry

• Open innovation system• Low barriers to entry

many innovations• Based on general

purpose technology• Innovation incentive –

new technologies and applications

• Rapid, concurrent, innovation

• Closed innovation system• High barriers to entry• Few innovations• Fragmented Knowledge

based • Medium-powered

incentives• Slow, sequential,

innovation

Fransman (2003)

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Criteria for categorizing IP network voice service and Voice software-service

Network layer

(layer 2)

Providers’

CapabilitiesMultimedia options

Cost of communication

Consumers VoIP perceptions

IP n

etw

ork voice

service

Internet service providers

Connectivity layer capabilities

Bundle triple play service (video)

Subscription fees (unlimited calls)

No different perceptions

Vo

ice so

ftwa

re-

service

Exploit the bandwidth of internet network

Navigation & middleware layer and the application

layers

Video conferencing, sending file

PC-to-PC :free

PC-to-phone: extremely cheap

Consumers

Download

the software

and use

handset for

communication

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Conclusions

• The Knowledge dynamics has been a vehicle of welfare for consumers

• Policy implication, VoIP diffusion fosters the widespread of broadband internet connection