Blog Post

The State of VoIP – Pretty Good

If the market trends remain the same, then we will have around 4 million VoIP subscribers in the US by end of 2005, up nearly 300% from a million subscribers at the end of 2004, according to latest data from Telegeography. The revenues have ramped up equally fast – up 473% from 3Q 2005 to $304 million.

The 3Q 2005 numbers show that the growth has been especially strong amongst the cable guys, though the endless marketing budget has helped Vonage defy the odds and stay at the top of VoIP rankings. So have other smaller players – for example, 8×8’s subscribers have grown more than 132% in the first nine months of 2005. Stephan Beckert, who tracks the VoIP business for Telegeography points out that all the e911 stuff hasn’t really had any material impact on the business. Even the recent spurt in outages and degrading services (in some cases) hasn’t slowed down the momentum. As seen from these numbers, when VoIP-based phones are sold as simply phones by Cable companies, consumers are happy to switch.

The number of voice-over-broadband subscribers increased 33 percent in the sec-ond quarter, from 2.7 million to 3.6 million. Voice over broadband subscribers have grown 400 percent since the third quarter of 2004, when only 714,000 VoIP lines were in service. The stronger-than-expected growth in the third quarter has prompted TeleGeography to increase modestly its forecast of total subscribers at year-end 2005 from 4.2 million to 4.4 million

Stephan Beckert, who tracks the VoIP business for Telegeography asks the important question, when he says, “how long before the subscribers shut off their main phones.” I think a lot of that is going to happen when Comcast ramps up its marketing machine, and rolls out the service in all its regions sometime in 2006. Initial checks in geographies Comcast has been offering their digital voice service, nearly 60% of consumers are switching away from the Bell phone system. Another point Beckert brought up was that the “revenue per subscriber for cable guys is much higher.” The growth in cable subscribers is one of the main reasons why the average VoIP monthly tab is up from about $27 a month to $28 a month.

19 Responses to “The State of VoIP – Pretty Good”

  1. Andre Oppermann

    Om, that’s not what I’m saying. I say the cable guys don’t sell VoIP. They sell a POTS analog plug. A local loop going over the cable network. Their use of VoIP (the technology) for their backhaul doesn’t matter in the grand scheme of things (other than for the equipment makers that is). They’d have used whatever if it were cheap and fit with their cable technology networks.

    It would be interesting to know how many Vonage customers chose them for their VoI (Voice over Internet) capabilities (that is plug in anywhere) and how many chose them because they were simply cheaper than their Telco, either in subscription/feature/call-plan fees. The latter customers are latent switchers to cable phone (note: not cable VoIP).

    Conclusion is that Vonage is competing in two different areas for two subsets of their customers. In one they compete against the telco’s and cable guys and in the other they compete against other VoI services.

  2. andre, you are saying exactly what i pointed out – cable guys are making it simple, and keeping out the VoIP gunk from their sales pitch and consumers are responding nicely to it. I think rest of it is semantics…

  3. Andre Oppermann

    One more thing. Time Warner Cable customers are not aware they are VoIP subscribers, they just bought cable phone. Whereas Vonage customers have specifically bought a VoI(P) service.

  4. Andre Oppermann

    This growth graph mixing VoIP (as in VoIP the technology) with Voice over Internet is a fallacy. It compares apples to oranges.

    The cable guys do not directly offer VoIP service, they just use VoIP technology to carry the call from the home to the cable headend (and maybe further). Most of the time the cable voice is on a different channel on the cable network and very strict QoS is done. If you control the wire that’s not much of a problem.

    What TWC and the other cable guys don’t offer is VoI (Voice over Internet). You can’t plug in your Cisco VoIP phone to the Cable Internet port and use their voice service. You can’t take your ATA with you, plug it in somewhere else and be reachable under the same phone number. You only get an analog POTS port to connect your normal in-house phone wiring installation and analog phones (with sometimes severe limitations, modem and fax calls don’t work anymore).

    Voice over Internet using the VoIP technology on the other hand separates the basic connectivity part from the phone service part. You may attach any compatible VoIP technology phone and use it with your VoI service. You may attach said device anywhere you’ve got a sufficient fast Internet connection no matter where you are geographically. You may use a softphone on a PC or Mac computer.

    So VoIP and VoI is not the same thing and should not be mixed. In fact a clear distinction should be made but unfortunatly in the current hype nobody does.

    VoIP (Voice over IP) is a technology that packetizes voice into IP packets.

    VoC (Voice over Cable) is a service that presents a POTS port to the user and uses VoIP as a means of transporting the voice over a (QoS) managed cable network outside of any Internet functionality and connectivity.

    VoI (Voice over Internet) is a service that allows to connect a VoIP compatible device anywhere to the Internet. It may perform calls by routing calls end-to-end/peer-to-peer (Skype) or through central or distributed gateways (Vonage).

  5. martin luke

    I have had Vonage for over 18-months and never had an outage. My ISP is Cablevision cable.

    When I looked at 8×8 stats I was not surprised at all. I have tried them twice (with a year in between tries) and both times had to return the gear because their stuff did not work. I was very surprised — no signal have the time and other would complain of RNA (ring no answer) while I would not hear a thing -:)


  6. James Herrington

    Om, I prefer to make a distinction between providers who own their networks vs. those that don’t. The cable companies and ILECs have the ability to prioritize their traffic above the VOIP traffic of other providers if they so choose and can easily rollout services of whatever quality they want it to be. But it’s the providers such as Vonage, Broadvoice, Voicepulse, Broadvox, etc. that are truly offering a differentiated service in the VOIP market. The first time I setup a voip line with Vonage, it was about 2 1/2 years ago. I ordered my service around 1:00 AM sitting in front of my PC. In less than three minutes I had my number assigned and my calls forwarded to my cell phone with my voice mail forwarding to my email inbox. This is where the phone companies and cable companies don’t get it. People (maybe the newer generation of people) aren’t necessarily looking for 5 9’s quality in their home phone service any more. Mobile phone replacement of landline phones are indicative of the lower priority on voice quality that the newer generation of voice service consumers place on their buying decisions.

  7. CableLabs does set standards for the cable companies and they are using Voip codecs by Gips and Broadcom. They are narrowband codecs, not wideband, but they do have a standard.

  8. I didn’t think I would ever be using the word “wonderful” to describe my cable company, but that’s exactly how I feel after using the Cablevision VoIP, broadband and cable TV package. The phone service in particular is very reliable and the sound quality is great. And just a few months ago they sent me a letter saying that they are LOWERING my monthly bills!

    I haven’t been happier ever since I switched off my Verizon land line and their awful DSL service.

  9. on the point you bring up – look at the gains being made by the cable companies. they are ones with fewer issues than so called independent VoiceIP providers. i think most of the problems have been localized to guys like sun rocket, vonage, broadvoice etc. (verizon and T as well). i think its all about grooming the traffic downwards…

  10. It might be growing but you may want to answer Heather Green’s post on her BusinessWeek blog as to why VoIP is so unreliable as to not be counted on.

    My DSL provider (Frontier) does not allow “naked” DSL, you have to have a regular phone line. I don’t need it as I have cell but until they change the policy, my DSL is in effect, twice as expensive as they advertise.
    My local cable company requires at least basic digital service so they are no better.