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Continuing the discussion on VOIP in developing countries and in particular in Pakistan, this post looks at the issues with regulating VOIP and the Grey telephony market. Pakistan Telecommunication Authority (PTA) defines Grey telephony as: the use of illegal gateway exchanges to bypass legal PTCL gateways and terminate/originate international traffic, including through VoIP gateways, GSM gateways, WLL phones, mobile SIMs or other related equipment. This traffic may then be distributed onwards using WLL and mobile numbers. It is claimed that gery telephony costs losses of over Rs. 3 billion annually.

Of course the laws regarding unauthorized or illegal use of VOIP vary from country to country. Developed countries regulate the technology to protect consumers and to encourage competition. Developing countries view VOIP as a legal and revenue issue and try to exert control over it. Many times its the law which is vague and does not clearly specify clearly when VOIP is allowed and when its not legal. Last year in Pakistan there was lot of hue and cry when a software company in Islamabad was harassed on suspicion of illegal VOIP activity – it proved to be a completely baseless allegation. See this article for a good roundup of the story and for the different scenarios of VOIP usage in Pakistan. This kind of blatant use of authority and regulatory uncertainty combined with lack of technical knowledge by the authorities is a major obstacle for VOIP adoption and hurts the business deeply. Operators deserve to have a clear and predictable regulatory framework that helps to guarantee returns on investment. Please note that the picture above of a VOIP lab (courtsey Flickr) is just for illustration.

In the paper Future of voice and VOIP, referred to in my last post there is some interesting discussion which I’ve included below with my comments.

Grey markets can offer cheaper rates because of the high profit margins that may be charged by incumbents that enjoy a monopoly (such as PTCL which had a monopoly a few years ago). For example, a caller might have to pay the 100 Rs for an international call that costs the incumbent operator about 3 rupees. Against this background, and despite legal crackdowns in various countries, the grey market looks set to flourish in Africa. According to Russell Southwood of Balancing Act, in most African countries the grey markets can be substantial (accounting for between a quarter and a third of international call revenues), and this has exerted strong downward pressure on prices.

Here’s some more commentary from the report about Pakistan’s VOIP situation:

PTA has issued technology-neutral licenses. VoIP services may be offered by Long Distance & International (LDI) and Local Loop (LL) licensees. 11 companies in Pakistan offered VoIP in 2005. Some new operators are looking to deploy IP-based networks and PTA is working on the necessary arrangements to tackle issues of QoS, numbering plan, internet telephony and costing methodologies etc. ISPs are not allowed to offer VoIP.

ISPs are licensed as either Electronic Information Service (EIS) or Non-Voice Communication Network Service (NVCNS) providers, neither of which permits licensees to allow voice over their data circuits.

PTA has issued policy guidelines to ISPs, PTCL, cellular mobile, LDI, LL and WLL operators to address illegal call termination/origination. Different guidelines have been issued to licensees, depending on the nature of their businesses. Licensed operators are responsible for maintaining updated client records, monitoring clients (in specific categories such as heavy users, users with a specific pattern of usage etc.), the correctness of their customer’s antecedents, and for overseeing clients on the transportation of voice on data circuits and formulation of their SOPs /procedures to discourage illegal activities and helping PTA. A clear strategy and a Vigilance Committee have been established to eliminate grey traffic and illegal call termination in June 2006, comprising the Pakistan Telecommunication Authority (PTA), the Ministry, PTCL and other operators. PTA now regulates international bandwidth rates and has directed PTCL to review its rates to promote broadband in Pakistan, building on Pakistan’s Broadband Policy published in December 2004.

In Pakistan, illegal grey traffic is estimated to cause losses of around Rs.3 billion annually. Pakistan has established a clear strategy to eliminate grey traffic and reduce illegal call termination. In June 2006, a Vigilance Committee on illegal telecom traffic was established, including the

Ministry of IT & Telecom, the Pakistan Telecommunication Authority (PTA), PTCL, telecom operators and other concerned agencies. The Government of Pakistan sees grey market telephony as a serious concern, causing revenue loss not only to Government, but also to all stakeholders. DSL operators and Internet Service Providers (ISPs) were asked to provide antecedent static IP addresses to PTA on monthly basis so that suspected IP users can be located. The PTA has developed Call Data Record (CDR) analysis that enables PTA to identify illegal sources of call termination. This may result in Long Distance & International (LDI) licenses being cancelled. Steps are being taken to curb the illegal call termination business. Last year, PTA reduced the Accounting Settlement Rate by 38.6 per cent to reduce the financial incentives for grey telephony and conducted 20 raids against illegal call termination business (with the help of PTCL and the FIA). Technical solutions to monitor grey traffic are being explored.