VoIP is the New Telephone Exchange

(Published in The Express Tribune, November 15, 2010)

Voice over Internet Protocol (VoIP), or the ability to make phone calls over the Internet, poses a threatening scenario for existing telecommunication firms across the globe. The fact that in the past year alone the Federal Investigation Agency (FIA), in conjunction with the Pakistan Telecommunication Authority (PTA) has cracked down on over 29 illegal VoIP gateways is a testament to the lure of the business.

The number of registered VoIP gateways, however, is few and far between owing to regulatory hurdles and high licensing fee. The illegal gateways are able to compete in terms of price with large telecoms by avoiding taxation and licensing costs but more importantly, because of the fact that VoIP is far more cost effective for international calls than conventional telephone exchange systems.

If you have ever made a call from Skype or used MSN/Google’s video chat services then you are probably already aware of the cheaper, or even free, calls available through the Internet – not discounting the fact that they boast video as well.

In fact, even smartphones like the iPhone can now be used to make calls through the home WiFi connection which offers free calling to computers and cheap calls to phones, while not tying the caller down to the computer.

VoIP gateway setup

The setup for VoIP gateways exploits cheap Internet-based calls through a fairly simple mechanism. Since calls from one computer to the other are free, these gateways use this ability to connect international gateways to each other.

However, to connect the phone to the Internet, these gateways use thousands of SIM cards to make the connection from the computer to the land line or other mobile phones, thus completing the connection from one phone to another.

VoIP gateways sell their services either through illegal phone cards or they operate in the shadows by offering their services to other legitimate gateways or telecoms. More often than not, these gateways will overload a slow Internet connection with dozens of calls in order to cut costs. This explains the poor call quality on some of the cheaper phone cards.

VoIP-based phone card companies are slowly evaporating as PTA’s collaborations with international partners to locate and identify the offenders have helped reduce the illegal activity. At the same time, larger telecoms also now employ VoIP gateways to offer competitive pricing and marginalise the illegal ones out of the market.

Either way, VoIP is good news for consumers and forward-thinking telecoms.