Maybe the VOIP-Provider Model is Broke?

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AT&T’s disappointing number of sign-ups, and the mixed bag performance of other independent VoIP service providers tells me two things – Vonage works because it spends more money on marketing than that in the US treasury in signing up customers. Second one, admittedly is that the price-sensitive parasitic VoIP model does not simply work, and VoIP is best left to more established players with control of the pipes.

The model is going to become even more unattractive when FCC decides that its okay for PSTN companies to charge access charges from VoIP providers. Light Reading reports that FCC is going to deny Level 3’s forbearance petition, which doesn’t necessarily mean that FCC is approving the access charges on VoIP calls. It will be interpreted in many ways.

Carriers may interpret the denial in a variety of ways — one of which would open up VOIP companies to lawsuits over access charges from incumbent carriers. elecom carriers, on the other hand, believe that the FCC will deny the petition — period. “We believe that there is currently a majority to deny the petition,” says Mike Balmoris of SBC Communications Inc. (NYSE: SBC – message board) regulatory affairs (Balmoris is also a former FCC officer). As for the second option of a rule change: “We don’t count three votes — we don’t believe there is a majority for that order. “At a high level SBC believes that under current law the access charges apply to this [VOIP] traffic,” Balmoris says.

That my friends will be the end of Skype’s business as well, since this will take the money out of their money making business “SkypeOut.” Indeed dark clouds were gathering over the independent VoIP business.

Aswath Weblog: There continues the ‘bellheaded’ thinking that there is gold in POTS. With IP Communications there is no additional money in voice communications. If we reconcile to this, then as a group we will not be distracted by the gold rush and would be developing features that truly revolutionizes end-to-end communication.

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Philip Urso

Om,

The regulators will have a hard time if VOIP traffic reaches the tipping point where enough calls are IP to IP and there is no phone company at all. Could you tax email? Users would simply download inter-operable voicemail applications onto their IP phone and call other IP phones. IP addresses become phone numbers (indirectly). Simply, it depends on Metcalf’s law, that the value of the network increases by the number of “nodes.” In this case, nodes, or phones, that are free of the plain old telephone network.

The area of value, as you point out below, will be in the quality of the connection, which will allow this type of network to work reliably. Also, as JC Francois points out below, we don’t know what will be acceptable quality for VOIP. We do know that given a “better” internet connection, the liklihood of quality service inproves on one side of the call. The call itself has a cost of zero. And that is alluring.

No one knows if we will reach this tipping point, but if we do, I do not know how it could be directly regulated.

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