End of VoIP as we know it


FCC finally came down on VSPs and made e911 mandatory, giving them 120 days. The decision, at least to me was expected. For a while I have been saying if you are going to be like PSTN, then you have to meet the PSTN standards. Consumers expect their “phone” to work like a “phone” whether the calls come over narrowband or broadband. FCC’s decision, however tells me the freewheeling days of VoIP, the game of price arbitrage and mom-and-pop operators are over.

You will see more subtle regulation of the space, and as Andy points out that the development/hardware costs are going to make it impossible for the little ones to get out of business. The evolution of VoIP will follow the time-tested pattern: free for all, rapid consolidation, leaving four odd players in control of the market. In case of VoIP it might be six – three phone operators and three cable operators. Rest of the market will be fighting over scraps.

In my opinion, this is the best thing that could have happened to VoIP. Why? Because, as a PSTN replacement, VSPs were truly limiting the potential of the technology. For last 12 months I have argued that VoIP has to become transparent, voice embedded in everything.

If you think about it, the first generation VSPs are caught in a demographic death trap.

You have a large portion of US population – baby boomers – who are aging, and will find it hard to change their usage patterns when it comes to phones. They will be happy to buy cheaper (VoIP) phone service that comes bundled with cable connections. At the other end of the spectrum you have the below-21 crowd, that is more presence inclined. Allan Tumolillo of Probe Research pointed out two years ago that changing demographic are wireline phone service’s worst nightmare. Jeff Pulver and I chatted last week about this, and came to conclusion that today’s generation growing up on IM will find a fixed line phone service that runs on broadband, a 20th century anarchism.

What are going to be some of the new applications of Internet Voice? I don’t have clear idea right now, but rest assured, for I am on the job, trying to find answers and sharing them with you. Meanwhile, if you have any thoughts, do let me know.

Here are select reactions to what others think about the e911 ruling:

Jeff Pulver: Maybe the FCC’s E911 ruling will prove to be the kick in the butt that the IP-based communications community needed to move towards the end-to-end IP future. I’ve always found it unfortunate that too many people associated VoIP with PSTN long distance arbitrage. Frankly, the economic advantage and ability to arbitrage has been like heroin to many in the VoIP community keeping us from realizing our true potential while we collect revenue by arbitraging against the PSTN pricing umbrella.

Jon Arnold: The FCC can’t be seen as idle when fatal events occur and are being blamed on 911 letdowns. I don’t know how many times 911 mishaps have resulted in fatalities with subscribers to incumbent carriers, but the nature of the FCC’s decision seems heavy handed in the context of its potential impact on the emerging VoIP sector. The implication here is that the Kevin Martin administration may end up being less friendly to VoIP, and more friendly to the RBOCs, who would not mind seeing a few roadblocks out there for VoIP.

Tom Evslin: Because the HELP! Packet will come to the responders as IP, applications like mapping and call transfer – even to a mobile unit on its way to respond – can more easily be implemented than with today’s phone call based system. Devices like heart monitors will more easily be able to make their own IP 911 requests for help.

Andy Abramson: Today’s ruling by the FCC about E-911 may spur consolidation within the growing next generation VoIP industry here in the USA for one big reason. Development cost.

Voxilla: The action is anti-competitive, will prove costly to consumers and actually stifles the type of innovation that could lead to more robust and efficient emergency calling services.



The sad thing about the 911 issue and VoIP is that this is a problem that could have been easily solved without having to wait for people to die over the matter because people at the RBOCs couldn’t be bothered to be reasonable about allowing access to their 911 call centers. No, instead, the RBOCs typically told the likes of Vonage and others to basically become their own telco RBOC and THEN they would work with them on 911 hookups.

Additionally, like has been mentioned earlier, this problem for 911 is nowhere even close to new. E911 mandates for mobile phones have been taking forever, but because of work done in that arena the VoIP E911 issue is a solveable one. It just required co-operation between VoIP providers and RBOCs, but mostly from the RBOCs.

VoIP providers are also at fault however since they sell VoIP as if it was PSTN service and I dont care how many disclaimers, warnings, stickers, email notices, and the like you get. VoIP + No 911 != PSTN service. Period. People died because they thought it was comprable to PSTN service. People died because of assumptions. People could care less about the technical workings of the service so long as it works how they expect. When it doesn’t perform that way then you have a big problem to deal with. Give us VoIP with 911 capabilities and then you can market it like PSTN service.

Om Malik

good point funk trunk … i think the whole issue is going to get bogged down in lawsuits and all that stuff. still this is a more serious development from a regulation perspective


The FCC may mandate it, but I won’t hold my breath till the paramedics arrive after dialing 911 from VOIP.

Does anyone remember the FCC’s E911 mandate from ’96? It required that all cellular operators implement technology (GPS, etc.) to locate mobile 911 callers with a defined degree of accuracy, by October 2000. Almost five years later, the only place you can see this technology in action is by renting “Enemy of the State” with Will Smith.

DG Lewis

Craig –

The FCC order isn’t out yet, and likely won’t be for a month or two. The press release is available at http://www.fcc.gov (look for the Press Release under the 5/19 Headlines). It “does not place obligations on other IPbased service providers, such as those that provide instant messaging or Internet gaming services.”

Thomas –

The “tiny local telephone companies” you cite as profitable, well-run small companies are subsidized six ways from Sunday. They receive direct USF payments; they’re eligble for extremely low-interest RUS loans for capital improvements; their access charges are on average more than double those of the RBOCs. Those are not benefits that any small VoIP providers will be able to get; without them, the “tiny local telephone companies” would be out of business in no time.

Aswath Rao

Customarily it takes a few days for FCC to post the official ruling. Right now what we have is the official press release. As I argue elsewhere, in this case even the official ruling may not be sufficient.


Ok, I have read that the following.

” internet based VoIP services built in to instant messengers are not required to meet the mandatory E911 ruling.”


where is the FCC”s ruling in writing?



Your condescension is pretty annoying. Deltathree has certainly made progress over the past several years, however they are the exception not the norm. If you had read a bit more of their 10Q, the management discussion states:

Liquidity and Capital Resources

Since our inception in March 1996, we have incurred significant operating and net losses, due in large part to the start-up and development of our operations. As of March 31, 2005, we had an accumulated deficit of approximately $152 million.

As of March 31, 2005, we had cash and cash equivalents of approximately $6.0 million, marketable securities and other short-term investments of approximately $0.6 million, long-term investments of $10.0 million and working capital of approximately $1.3 million.


I give them credit for surviving the downturn, but if you continue to dig deeper you should not feel comfortable using them as the model of VoIP health.

Look, Om is right. He is discussing the general trends in the broader billion dollar VoIP marketplace- regulation, consolidation, and competition. You are arguing over the table scraps that will be left for the also-rans to fight over.

Om Malik


point well taken – you were right i was wrong. but i still think this is going to be a consolidation – it happened in the ISP business, where UUnet was the wholesale provider. but you do have a point – i take. i confused delta three with deltacom

Thomas Hirsch

Om — I really believe you have absolutely no idea about VoIP business models. For instance, regarding the many small providers of VoIP. Very many are customers of Deltathree. They pay Deltathree about $5 to $9 per month, and Delathree does the rest, even giving the provider its own nameplate and hiding the name deltathree. The provider pockets maybe $15 per month, Delathree gets the rest. Great business for both.

Anyway, VoIP is just starting so it seems very arrogant for a poorly informed guy to make sweeping generalizations. Vonage has 650,000 customers. That’s way more than the hundreds of small, local, very profitable wireline telephone companies out there. (You knew they existed? Heh, heh.)

It seems to me that you and Andy are very, very poorly informed. It is one indicator that blogs are junk in 99 percent of cases.

Deltathree is a small company, with not nearly the revenue and losses you ascribe to it. In Q 1 it was nearly profitable. Please read its earnings release:


You might also listen to its recent presentation at the CIBC telecommunications conference. CFO White said delathree has hundreds of thousands of customers.

Recently, some doofus bloggers have written that there are 1,400 VoIP providers, or whatever. Very many of those small companies are merely reselling Deltathree or other services.

A well-small company can be very profitable. Look at the many tiny local telephone companies. (Not nationwide resellers but companies limited to a couple towns in a rural area.)

By the way, I would never purchase VoIP from a cable company. My company, Cox, just went down inexplicably for hours last Monday. Comcast failed recently as well.

May I humbly suggest you do research before shooting off opinions. Otherwise, people will wise up to your shallowness, and your blog will be history, as will virtually all others that fall below the standards of Yahoo! message boards.

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