VoIP is one of the few technologies of today that have the potential to dramatically change the telecommunications landscape of tomorrow. Traditional phone lines are slowly being phased out as businesses and households around the world embrace the benefits that VoIP technology has to offer. Also known as Voice over Internet Protocol, Voice over Broadband, and IP telephony, VoIP is a technology that lets people use the Internet as a transmission medium for telephone calls. By using VoIP, callers can avoid long distance phone charges and save on expensive telephone infrastructure costs.
The concept of VoIP originated in 1995, when hobbyists began to recognize that sending voice data packets over the Internet rather than communicating through standard telephone services had great potential. Since 2000, usage of VoIP technology has increased at astonishing rates. Analysis from a leading research firm estimates that the North American residential VoIP services market alone was $1.22 billion in 2005, and has been growing since at a 31.1% CAGR.
As VoIP adoption continues to accelerate, traditional phone companies will face fiercer competition from VoIP-enabled service providers. Over time, they may see their customer base disrupted and find their operating margins and growth prospects decreased. This disruption may drain traffic from discount long distance service providers, and decrease demand for the services of third party voice/telephone companies. By contrast, the companies that provide access services, manufacture the VoIP equipment, software, and semiconductor chips used in developing VoIP networks will have the greatest opportunity to steal market share from incumbents and accelerate revenue growth.
VoIP regulatory issues, including regulatory fees and 911 access problems, have become key concerns for regulators, service providers, and customers alike. For example, in June 2005, the FCC imposed enhanced 911 obligations on providers of VoIP interconnect services, resulting in increased operating and capital expenses for all providers. Many companies are afraid to implement VoIP due to concerns about future government regulation of the technology, which could result in additional taxes and fees. Since VoIP is a relatively new technology, it could be years before we are aware of the full breath of regulatory restrictions. For example, the FCC is currently deciding whether it is okay for fixed-line phone companies to charge VoIP providers for access fees.
Cable “Triple Play”
The rapid growth in “Triple Play” (the bundling of internet, VoIP, and cable services) from cable companies will likely continue to generate greater IP-telephony adoption rates. Cable companies are not only providing VoIP for consumers, but also for small and medium sized businesses. Cable companies’ ability to successfully bundle broadband telephony with other relevant services will continue to drive customer adoption of cable-based VoIP, which currently accounts for 71% of the VoIP telephony market in the U.S. Growth in cable-based VoIP may drive the market going forward. After more than 10 years in the telephony business, cable operators have finally struck a chord with customers, as demonstrated by the acquisition of about 3.6 million new cable VoIP customers in 2006 alone.
Many companies are afraid to implement VoIP due to concerns about future government regulation of the technology, which could result in additional taxes and fees. Since VoIP is a relatively new technology, it could be years before we are aware of the full breadth of regulatory restrictions.
For businesses, in addition to direct call savings from not having to pay for long distance, VoIP cuts costs by replacing separate voice and data networks with one common infrastructure, eliminating duplication. Thus, instead of paying phone companies to carry their voice traffic, companies can send much of it over the spare capacity on their existing data networks.
Increased Functionality and Reliability
VoIP users can benefit from functionality that is not a standard feature from most phone companies, such as caller ID, 3-way calling, call attendant, call forwarding, call blocking, voice mail, etc. VoIP enables a new usage model which has been extremely expensive or difficult to deploy in traditional enterprise phone networks. For example, incoming phone calls can be automatically routed to an employee’s VoIP phone wherever the employee plugs it into their network. In addition, with the growth of “telecommuting,” employees using VoIP can easily work from anywhere with a good Internet connection.
VoIP reliability is crucial to adoption, especially at the enterprise level where downtime is often unforgivable. Many potential VoIP customers are waiting to see voice quality improvements before making a purchase. Quality of Service (QoS) technologies are being deployed in many VoIP networks in order to prevent call loss, jitter, delay, and other troublesome quality issues.
Qwest Communications International (Q), Verizon Communications (VZ), and AT&T (T)–all Regional Bell Operating Companies (RBOCs)–are the giants in this business and they all will be harmed as telephone customers continue to disconnect their phone lines in favor of VoIP. The smaller type of telephone companies, known as Competitive Local Exchange Carriers (CLECs), which include CenturyTel (CTL), Embarq (EQ), and XO Communications (XOHO), also stand to lose as VoIP popularity rises. According to a leading telecommunications research firm, U.S. RBOCs lost nearly 150,000 subscriber lines per month in 2006. While many RBOCs and CLECs have started to provide VoIP services to their customers, they risk cannibalizing their existing telephone voice services in the process.
ACT Teleconferencing and Premier Global Services are examples of third-party service and technology providers who will see demand decrease as users migrate to feature-rich VoIP. Examples of features that are or will be standard with VoIP, but are premium services with traditional lines, include caller ID, call waiting, audio conferencing, and call attendance. New features are constantly being added to VoIP, and will continue to disrupt the businesses of other telephone voice services providers.
IDT Corporation and Primus Communications are examples of long distance discount service providers who may continue to be weakened by the free/low cost long distance services of VoIP. IDT sells long distance prepaid calling cards, and Primus Communications is a discount long distance provider.
Alltel and United States Cellular (UZV) are two examples of mobile carriers who could be negatively impacted by VoIP. VoIP’s free/low-cost economic model could impact wireless in the same way it has impacted wire line by shaking the crusty economic foundation of a mobile industry built around price per minute (ppm) and minutes of usage. The regional wireless carriers, who have spent billions on proprietary network infrastructures, will continue to face tough competition from upstarts such as Skype/Ebay, whose network client software is enabling wireless voice. Some carriers are taking aggressive steps to stay ahead of the mobile VoIP revolution. Sprint Nextel plans to spend billions to deploy networks using VoIP compatible WiMax technology.
Vonage Holdings (VG) and Packet8 are VoIP independents who, although included here under positive exposure, are struggling to retain market share and preserve their businesses amid escalating competition from cable companies and established telcos offering VoIP. In markets like the U.S., independents could see market growth freeze if regulators decide against them on the net neutrality issue now being fiercely debated by regulators and legislators.
Comcast (CMCSA), Cablevision Systems (CVC) and Time Warner Cable, Inc. (TWC) are examples of three large cable television companies who are leading the convergence of voice, video, and data communications over a single broadband connection (often referred to as “Triple Play”). VoIP has created new revenue opportunities for these companies, who can now bundle voice services with their television and internet services, effectively circumventing traditional phone companies.
Cisco Systems (CSCO), Nortel Networks (NT), and Alcatel-Lucent (ALU) are among the leading equipment manufacturers who will see the demand for their VoIP equipment increase with the surging adoption of VoIP. These companies, who also provide equipment for traditional phone networks, are making sure to include the new category of VoIP service providers as customers. An equipment-focused research firm estimated that $1.73 B was spent on VoIP network equipment in 2004.
Broadcom Corporation (BRCM) and Texas Instruments (TI), two VoIP semiconductor manufacturers, will see demand for their chips, which are embedded in network hardware, grow with the demand for VoIP equipment.
Ebay/Skype(EBAY), Microsoft (MSFT), and Google (GOOG) have all moved into providing VoIP software, which is just as essential as hardware for making VoIP work. Software is commonly used on PC’s as softphones in order to convert analog voice to digital packets. VoIP software can also reside in handsets, gateways, VoIP servers, and VoIP web conferencing equipment.
IPvaani Free VoIP service provider. IPvaani offers free peer-to-peer VoIP phone service and free video phone service called IPdarshan. Computer not required to use IPvaani VoIP service.