Internet Telephony or Circuit Switched Telephony: Which is Cheaper?

Telephony is an Internet application that has the potential to radically alter the telecommunications environment. This application may a ect traditional regulatory structures, subsidy structures, business models, etc. Today, users can transmit telephone-like voice tra c over the Internet at zero incremental price, unlike circuit switched telephony, which has a per-minute incremental price. While these economics make this a compelling application for international users in particular, this research was carried out to determine whether Internet Telephony (Itel) was a fundamentally cheaper approach to the intero ce transmission and switching of voice, or whether the price di erence was the result of an implicit regulatory subsidy (i.e., ISPs are not required to pay the CCLC). This paper is intended to be a rst estimate of the switching and intero ce transmission costs for Itel and circuit switched networks. To evaluate these costs, we build a \green elds" network for an area and a population equivalent to the US state of Rhode Island ( 1M people in 3140 km) in both technologies using \normal" engineering standards for voice quality service and compare the costs. To realize the comparable packet switched voice service with circuit switched, we dimension the Itel network to have a service quality generally similar to conventional telephony. The networks are developed in Comnet III to support the appropriate dimensioning of the networks. In this initial computation, we assume that the local loop costs are identical for both technologies, and that the services provided are identical. We nd that the switching and transmission costs for Itel are 38% lower than the costs for circuit switching. We further nd that this cost di erence is largely due to the reduced intero ce transmission capacity required by Itel. This is consistent with the ndings in [10] and what many potential ITSPs (Internet Telephony Service Providers) claim[1].