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Summary:

When the very people whose business you are supposed to put you out of business don’t take you seriously, you know you are in trouble. VoIP start-ups should not take the comments of SBC CFO Rick Lindner lightly. In an interview with Reuters he said, “The […]

When the very people whose business you are supposed to put you out of business don’t take you seriously, you know you are in trouble. VoIP start-ups should not take the comments of SBC CFO Rick Lindner lightly. In an interview with Reuters he said, “The fears of what may happen there are overblown.” The incumbents confidence comes from the fact that they are pretty apt at adapting to any new technology that threatens their existence. Remember DSL!

I find it quite amusing that only those who have no experience in the phone business or those who have not tussled with the phone companies are making wild eyed predictions that voice will be free. Ebay CEO Meg Whitman might just be trying to justify the mega-billion price tag for Skype.

Port blocking and other traffic grooming techniques which I have written in the past are clearly going to make things difficult for anyone who threatens the incumbents livelihood. What we will see is move away from the billable minutes paradigm to flat rate, which in the end may not be such a bad thing at least for cable companies, who are used to the flat rate life.

There are some tell tale signs of looming trouble in the VoIP start-up land. A new report from Infonetics Research, likely to be released tomorrow predicts that by 2008, there will be 24 million subscribers and $8.4 billion in sales. In comparison we had sales of around $255 million and 1.1 million users in 2004. Infonetics says that for now the cable companies are in the driver seat, and are increasing their share in the consumer VoIP market place. Vonage’s share of the over market in the 2Q 2005 skidded from 36% in Q1-2005 to 32%. Time Warner’s share of the total voip market for the same period was up 4% to 25%. Imagine, when Comcast finally gets it VoIP-on!

Kevin Mitchell, the Infonetics analyst told me that in areas where Comcast has started rolling out the service, the demand for its digital phone (a consumer name for VoIP service) is pretty high. “I don’t understand the fascination with Vonage and why Skype got such a high valuation,” he says. Even if Vonage does go public or get acquired, I wonder what are exit options for the newer and smaller players such as Sun Rocket. Things are not looking good in the small and medium sized business category either. And I have not even taken into account what happens when Bells finally get their VoIP act together.

“The incumbent telcos have insubstantial subscriber share at this time, but we expect them to make a bigger impact in coming years, because triple-play services will all be based on broadband infrastructure, and legacy PSTN access will continue to slowly churn away.”

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  1. EVERYONE is suggesting that voice will be free. And I have to be honest, I can’t imagine that it WON’T be free at some point. Then again … I’ve never worked in the phone business nor tussled with the phone companies …

  2. Will tactics like port blocking be effective in a world where folks are using GoogleNet (or Yahoo!Net, even eBayNet)? In essence, if the telcos and cablecos put up enough roadblocks, could they find that they’ve been routed around?

  3. It’s free until the company offering the free service goes bankrupt. This “Free” concept is a nice catch phrase, but really the costs are there – billing, QoS, support, engineering, etc.

    I’ve always questioned why a Verizon or Bell South would let a third party voice app ride their expensive networks without compensation.

    On the flip, I can see ISP’s and advertising funded services (i.e. future Skype and Google) providing “free” phone services. Again, that is if they can ride the last mile.

    Last mile is critical, IMO. And the last mile IS NOT FREE!

  4. Telcos understand, and are built for, scale. 500,000 paying customers is peanuts. Try provisioning, billing, servicing, maintaining 15 million. I agree with Om, the incumbents have the upper hand.

  5. FWIW, I have Lingo at home–unlimited local and long-distance, unlimited to Mexico (where I have family), and virtual line in Mexico (so they can call me for free) all for $40/month. As soon as 911 service is up to par with my landline I will cut my Qwest line immediately!!! I have no use for regional monopoly telcos. They just charge me fees and offer me high priced add-ons (all free of course with VOIP) that I do not need or use.

  6. I recently cancelled my Vonage account – http://www.moskalyuk.com/blog/saying-bye-bye-to-to-vonage/845 – after being a customer for more than a year. Occasional service outages, hiccups on the phone line during “peak” hours, Vonage’s inability and unwillingness to work on the quality of international calls – screw that, an SBC phone line with a phone card for international calls is more reliable, and cheaper, too.

    Granted, the phone company charges you for little things like 3-way calling and caller ID, but they’re not that important to me.

  7. VoIP service providers need to worry because they are not offering VoIP service; but instead they are offering directory service and NAT traversal. Both of them are incidental services and not worth charging for as demonstrated by the current crop of service providers offering them for free. Since “equal access” is built into IP networking, there can not be a monopoly.

    As far port blocking, the question is whether the ISP is offering internet access or something else. If it is the former, they should only control the amount of resources consumed at the networking layer rather than base the control logic based on the nature of applications. Even if they do, they will fail because it is contrary to the layering principle.

  8. I always ask the question “who do you trust?”. POT providers, why should I trust them? In most of the European countries they have been quite sucessful monopolists initially as service providers and later as infrastructure owners. The price for the consumer has been too high.

    If infrastructures were built to meet citizen/user requirments, and services providers could purchase access to these infrastructures at a cost without being in competition with the infrastrucuture provider, then citizens/users would benefit. We have yet to see this in practice.

    VoIP services over the Internet is the first time we have the chance to monitor infrastructure independant services. If only the infrastructure providers could manage to stay away!

  9. While it is always prudent to observe what any 800 pound gorilla will be grabbing for, we should remember centrex the PBX killer, boy, that was great to sell against. Remember little teensy things like product/service packaging and good customer service will always win with people who have a bad taste from all the excellence their telco has delivered in the past.

  10. People, i think the best thing to do is go and re-read what aswath is saying about the current value proposition of the voip services. I could not agree more with him. I have used a ton of these VoIP services, and none come close to replacing the convenience of my cell phone. at $80 for nearly unlimited calling, anywhere and anytime, i am not sure I need anything else.

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