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Time For A Little VoIP Reality Check

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If you follow the blogs, it would seem that VoIP is the magic potion that can make you live till you’re 125. Well unfortunately that is not the case, and I think it is time to take stock, sort of a reality check. Not trying to belittle the achievements of the industry in past three years, but still, people lets take a deep breath because VoIP is the long haul. Since I am always accused of being a curmudgeon, well let me do it. I pored through two reports – one from Telegeography and the other from Point Topic – during lunch break today, and found some amazing truths. (And a warning to those who indiscriminately invest in VoIP service plays!)

* Point Topic estimates that over 11 million people were using a retail voice over IP (VoIP) service for at least some of their telephone calls at the end of March 2005. Of these 11 million, well over half, 7.2 million, are in Japan. Yahoo Softbank provides the majority of these services, and they come bundled with the broadband subscription. Some have expressed doubts and don’t think that these are pure VoIP subscribers, but lets include them anyway.
* France is the largest market for VoIP in Europe, with 1.2million subscribers by the end of the first quarter. Most of these lines are provisioned by Free and Neuf, using a plug and play set top box.
* Telegeography puts the number of Americans using VoIP: 1.8 million, a number expected to grow to 4 million by end of 2005. In comparison, SBC had 51.9 million access lines.

* For 2004 US VoIP revenues were $200 million. SBC’s first quarter consumer fixed line revenues – $3.9 billion.
* Point Topic says American cable sector is numerically the most important VoIP sector, with around 2.1 million subscribers. This cannot be correct number because at the end of first quarter there were 1.8 million VoIP subscribers in the US, as per Telegeography. Looks like they are including Cox, which is still less than a third VoIP. Nevertheless, Cable MSOs now account for 46% of total VoIP subscribers, and independents like Vonage account for 41%. That number is going to slide downwards.
* Telegeography estimates that by 2010 there will be 17.5 million VoIP users in US and revenues of $5 billion. That is a pittance, and don’t get me wrong, a blooming pittance.

The best bit was at the very end of the report from Telegeography, where they asked 1500 random users about VoIP, and the interest in VoIP was peaked when the prices came in around $20. So there you go folks – cheap is the only reason to go VoIP, and well nobody is cheaper than Skype right now. However, the most interesting part of the survey was that despite all that, more people were going to go all wireless for their voice needs. Ouch… so if T-Mobile offers a $50 a month all you can eat VoIP plan, well you know who gets stiffed. The survey while not exactly scientific tells me that all the fancy features, soft-phones and management consoles don’t mean squat when it comes to mass market. Its all about cheap cheap cheap!

20 Responses to “Time For A Little VoIP Reality Check”

  1. Thomas Hirsch

    Out of curiosity, is there an industry organization for VoIP, like RIAA and many other such orgnizations, which would promote and explain VoIP to the general public and provide (relatively) unbiased information? Speaking as a general consumer, some reliable source of information on VoIP is really needed.

    Om — A revolution is almost always thought to be the replacement of one class by another in power. Thus, the French Revolution and the Russian Revolution. The Internet certainly has not altered the power structure in the USA, as the presence of Mr. Bush attests. In fact, you could say it has helped consolidate the power of the capitalist right-wing. Socialists no longer exist in the USA, nor do any other leftist groups worth mentioning. To use the word “revolution” to mean “change” or “considerable change” sort of wrecks the meaning of revolution. By the way, I am not a revolutionist, quite the contrary.

  2. Henri M


    what’s your point of view on Skype and why did you choose not to mention them in your post? You seem to like Skype and they have a lot of traction. Do you think that Skype is not a VoIP player like the other ones?

    FYI, on the French market: like the other 1.5m French customers, I have at home for 29 Euros/month a triple play set up box with 6 Mbits Internet (some have 20Mbits), 90 TV channels, VoIP with unlimited free nationwide calls and cheap international calls (same price as Skype). I don’t need a computer to watch TV or give a phone call. I can just plug my cordless phone directly. Why would I use Skype? Skype is definitely a poor alternative to the VoIP service I already have.

  3. It doesn’t cause an issue inside of Outlook, (because they kill all scripting). In other IE views (feed previewer preview, and internal IE based viewer) which render it as HTML it throws a javascript error, or brings up the security alert.

    Thanks Om,

  4. eric

    not sure what it is – maybe the sticky post is creating that. i would ask my tech folks to look at it. hopefully we can resolve it soon enough. is it doing anything funky in your news reader?

  5. Om,

    What is the javascript in your rss version of this article supposed to be doing???

    window.document.getElementById(‘post-4566’).parentNode.className += ‘ adhesive_post’;

  6. Jack

    there were a lot of those who doubted the Internet. I didnot. I am not doubting the potential of VoIP but throwing up cautionary flags because of unbridled optimism and exuberance. I have lived through two bubbles and know the signs of what is right and what’s wrong. I am trying to give people a reality check. lets not get over excited, we are in this for a long haul. managing expectations is really what its all about.

    all the punditry aside, one of the better VoIP apps is Skype. And that’s not saying much for a technology that is going to change the world.

  7. thomas

    revolution – i mean the trsnformation of century old circuit switched based PSTN networks to more IP based networks. revolution, because it will cause an upheaveal, and bring a deflationary pressure on the business like never before. it will be different from how we thing about communication, but as i said it will take a lot longer.

  8. In terms of business VoIP, the revolution has happened. We’re beyond that. In fact, the new revolution government has already been set up, the revolution is being taught to children in history books and images of the revolutionaries are being sold on t-shirts.

  9. Thomas Hirsch

    om — You write,

    “revolution is going to take a lot longer.”

    Could you explain what you mean by “revolution.” VoIP will make telephoning/televideoing cheaper, just like the Internet has made exchanges much cheaper. But revolution in the traditional sociological sense? I don’t see that at all. Your reasons for expecting a “revolution”? Thanks.

  10. Om, I can remember back in the early 1990’s – I’d say about 1993, give or take a couple years – when a lot of tech writers were saying that most people would never want to use this newfangled thing called the Internet. They probably talked to a lot of people out of going into the ISP business, people who are still kicking themselves for the missed opportunity.

    One reason I feel that VoIP will eventually take off is because of the unbridled greed of the phone companies. Just this morning a I read a report from the Office of the Ohio Consumers’ Counsel , showing how SBC has actually increased the rates on various features in Ohio, for example Call Forwarding and Three Way Calling. It is my belief that at some point consumers are going to get sick and tired of getting “nickled and dimed to death” by the big phone companies. Many of them will simply drop their landlines altogether and take cellular service only, but a significant number will still want a wired phone in their home that in effect is tied to the place, not necessarily to a particular person, and that is one market for VoIP. The other future market, if the Wi-Fi providers can get their act together, is cellular replacement, where Wi-Fi VoIP phones are used to bypass the per-minute charges associated will cell phone service.

    Both traditional phone companies and cell companies are vulnerable because they are not offering what many consumers really want, which is a flat-rate service with no added charges for extra features. No type of service fits everyone’s needs but I think trying to predict the future of VoIP from what we see today is like trying to predict the future of the Internet looking at the number and type of people who were using it in, say, 1991.

  11. Martin, clearly the impact of VoIP is beyond dollar and cents. I think many of us are forgeting that it is a means, not the end. i think the focus got shifted away from VoIP real wonderment – its amazing ability to transport voice at low low prices.

    listen PSTN comparison makes absolute sense because that’s precisely what everyone from Vonage to cable MSOs are selling. A PSTN replacement. You might have noticed Skype is not in the mix.

    Some folks are making an argument about PBX etc. Just to remind you – this is retail/consumer market data only. Martin, i think in the corporate sectors we are already seeing the impact. Also many of the readers skipped the part where I say – it is the long haul, and that’s what we should be focused on. revolution is going to take a lot longer.

  12. I’m not convinced that $ are a great measure of the impact of VoIP, particularly when done in an apples-and-oranges against PSTN calling which includes connectivity charges bundled with service. Since it’s a trivial service, you would expect VoIP revenues to remain, well, trivial.

    It feels now a bit like the cellular market circa 1990, after 15-off years of tentative lukewarm commercialisation, the explosion of adoption is just now looming. These things take time, but by the time the mass start adopting it’s too late to formulate your strategy.

  13. Your survey only seems to care about VOIP as a PSTN replacement, but IMHO it’s a much bigger win as a PBX replacement. Instead of getting locked into BigVendor’s high-$ proprietary PBX, you get an open market of competitive products to choose from. I went this route at my office and modulo the installation learning curve, we’ve been very happy.

  14. Om-

    The numbers are actually higher – nearly 14 million at the end of 1Q05. And those are Voice over Broadband – which is what this is really all about.

    In Japan, VoBB has reached 44% penetration of broadband subs, Hong Kong is 20% and France is 19%. Globally it is 8%. In the U.S. it is about 5%, with Vonage continuing to serve more than 1/3 of the total.

    The Cable MSOs provide circuit switched telephony to about 3.3 million subs and another 780K get VoIP. Their VoBB penetration rate is at 3%.

  15. Thomas Hirsch

    Something to watch for: PCs with built-in VoIP capability, making it easy to switch from POTS to VoIP. A relevant example would be ethernet built into PCs, thereby spurring growth of broadband via cable.

    Note that businesses will lead the way in VoIP because their IT and telecommunications staffs quickly understand the benefits and know how to install VoIP. It will take time for the average customer to feel comfortable with VoIP — there has been extremely little public education so far. My guess is that by far it is technology people who have converted to residential VoIP so far.

  16. Cheap may have rolled off the tongues as the first and foremost consideration, but I still believe other factors are tightly interwoven. “Cheap” by itself has never been a good business case for anything. Even McDonald’s burgers used to taste pretty good.

  17. Thomas Hirsch

    Om — Glaring omission from your VoIP “survey” — business use of VoIP. Huge growth there, with very big numbers. Does business use of VoIP lead the way? Will consumers follow? Note that SBC is very big in business VoIP, nonexistent in consumer VoIP.

    Also, cable statistics may refer to households that could sign up for VoIP, not those that do. The old meaningless statistic about households “passed.”