Voice Over IP

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Voice Over IP (VOIP) is a form of packetized, digital telephony that uses the Internet Protocol (IP) as its transport mechanism. VOIP is a disruptive technology that is rapidly gaining ground in world markets. In Japan and South Korea, up to 10% of telephony subscribers, as of January 2005, have switched from traditional landline phones to VOIP. There are many IP Telephony providers in the market (such as Packet8, Skype, Vonage, and Sunrocket), and some market studies suggest that over 40% of the world's population will have switched to VOIP by year 2010.

Due to the need for speed at the IP level (latency and jitter being the biggest concern for VoIP admins), VOIP packets typically are sent using the Real-time Transfer Protocol (RTP) over the UDP protocol. The underlying technology for VOIP is considerably more complex than for chat or text-based instant messaging, providing a potential entry barrier for smaller companies looking to enter this arena. VOIP first has to digitize (sample) a 3000Hz analog voice signal. Sampling yields a starting digital bandwidth of around 128Kbps, too high for real-time use over the internet, so the digital bandwidth has to be compressed into relatively small bitstreams (around 15Kbps might be typical).

Compression algorithms that encode for these small digital bandwidths may be proprietary and require license fees. VOIP services also typically need to connect with the Public Switched Telephone Network so that callers can reach some places where VOIP might not be available, and this also is neither financial free, not without additional technical difficulty. For example, VOIP call setup and teardown must interact with existing PSTN call control services such as Telephone Number Mapping, and the software for this must also be developed.

Despite these issues, VOIP services tend to cost less overall than the traditional landline based PSTN voice telephony services, because VOIP can be offered without needing to provide any physical infrastructure (long-haul fiber optics, or short-haul outside copper plant) that traditional telephone companies had to provide. Also, VOIP has been relatively free from regulation due to its being internet-based, as opposed to PSTN companies which are regulated heavily in the United States by the Federal Communications Commission (FCC) and by other regulatory bodies in other countries. These factors have put traditional PSTN companies at considerable disadvantage in the voice call market because, even it they can retool their own voice calling technology to take advantage of IP-based calling, they still have to maintain expensive physical resources.