Hysteria about Voice over Internet Protocol is apparently not without cause, as VoIP is claiming a big (and-getting-bigger) piece of the communications market.
Earthlink Inc. and Linksys, a Cisco Systems Inc. subsidiary, late last week teamed up to offer retail shoppers at 30 Fry’s Electronics stores on the West Coast VoIP startup kits featuring Earthlink’s trueVoice Internet phone service and Linksys phone adapters or wireless routers.
“EarthLink and Linksys are making it easier for consumers to replace their traditional telephone with a less expensive, feature-rich Internet voice service,” said Kevin Flaherty, vice president of retail channel sales at EarthLink.
The companies said customers who sign up for their VoIP service will receive unlimited local, regional and long-distance calling on their home phones, along with free voice mail, three-way calling and call forwarding-starting at $15 per month.
“This collaboration between Linksys and EarthLink will help drive the use of VoIP for making phones calls at home,” said Glen McLaughlin, vice president of North American retail sales at Linksys. “The ability to market hardware and service together enables us to make it easier for customers to purchase and set up VoIP on a home network, allowing for a better overall user experience.”
In a recent report, Juniper Research noted that the tipping point for the adoption of VoIP by businesses will be reached shortly. Juniper expects revenues from VoIP services in the business sector to reach $18 billion by 2010. By the same year, Juniper says hosted VoIP business revenues will climb to $7.6 billion.
The report indicates that VoIP growth will be driven by the replacement of existing business circuit-switched connectivity; the lower cost of calls; massive growth in the Chinese telecom market; businesses reaping the efficiencies of carrying voice and data traffic over one network; and the realization that integrating voice functionality into business critical IT applications will improve business productivity.
“VoIP has the potential to transform business communications, in terms of call costs, cost of operations and integration with business processes,” stated Juniper’s Barry Butler, author of “Global VoIP-Hardware, Software & Applications: Business & Enterprise Markets, 2006-2010.” “However, as with other IP-based platforms, VoIP is a disruptive technology which will reshape the business communications service provider community.”
While small-business broadband connections will reach 40 million lines by 2010, Juniper says the lost telecom service provider revenues resulting from businesses moving to VoIP could amount to $36 billion per year by 2010, and losses incurred by traditional telecom providers will be exacerbated by the rise of Internet telephony service providers and VoIP peering houses.
For equipment vendors, VoIP equals revenues.
Juniper’s report indicates that revenues from the sale of business VoIP hardware and software could reach $5.5 billion by 2007 and will be driven by rapid new business growth in China, the adoption of VoIP across existing western businesses and the echo of the year 2000 equipment purchase boom. After 2007, Juniper predicts that sales of VoIP gear will stabilize and revenues will begin to fall as the Chinese market begins to mature, the Y2K echo subsides and competition from low-cost suppliers in China and India chips away at prices. By the end of the decade, VoIP equipment revenues will total about $3 billion per year, Juniper predicted.
Other VoIP equipment statistics Juniper reported:
- The market for IP-PBXs will reach over $1.6 billion in 2007-the largest markets are likely to be North America and China
- IP phone sales associated with IP Centrex/hosted system sales will reach nearly 16 million units in 2010.
- The VoIP applications market will show sustained growth, passing through $500 million by 2010.
“From an equipment perspective, vendors like Nortel, Avaya and Cisco have seen adoption of their IP servers pick up recently,” said Rob Prudhomme, head of the IMS/Convergence Business Strategy Group at InCode. “And they’ve built in managed services capabilities because as companies implement VoIP, there’s a lack of skilled know-how in-house.”
Nortel Networks Ltd., with all of its financial problems, seems particularly well-suited to serve the VoIP equipment market, and doing so could help line up potential merger partners for Nortel. Prudhomme noted that the company is at the top of the heap of vendors selling IP infrastructure gear to cable operators, CLECs, Sprint Nextel Corp. and Cingular Wireless L.L.C.
And speaking of merger partners, Prudhomme points to Lucent Technologies Inc.’s strong VoIP equipment market share as a driving factor in the company’s acquisition by Alcatel Inc., whose own VoIP market share isn’t nearly as strong.
Some telcos, in the wake of diminishing demand for their landlines, are taking an if-you-can’t-beat-them, join-them-approach.
“VoIP and wireless are killing their business,” said Prudhomme. “Vonage and Skype are nipping away at regular access lines, as are cable operators. Some telcos are hedging their bets, gambling that customers will choose their guaranteed quality of service rather than the equivalent of a third-party level of service.”
Prudhomme says all the incumbents have a VoIP strategy, and the ones that likely will do well are the ones that don’t hang on to legacy technology for too long. While some plot out VoIP deployments and attempt to hang on to their customers, others will hold on as long as they can and only offer VoIP when they feel they are forced to do so.
As for wireless VoIP, or Voice over Wi-Fi, the hysteria level is not so high. During a VoIP Mobility Conference at the CTIA Wireless 2006 show in early April, panelists agreed that the wireless VoIP market is heating up as enterprises combine cellular service with their WLANs for data delivery and look to use VoWi-Fi for IP-PBX voice systems.
Consumers, on the other hand, are holding out for the seamless handoff of a dual-mode phone from a Wi-Fi network to a cellular network. ABI Research says such a handoff is still a rare phenomenon in most places, but conceded that small steps are being made in the way of specialized Wi-Fi access points designed to support VoIP. ABI said that once connected to a VoIP network and phone service, these access points can provide VoIP’s cheaper services to cellular subscribers within range of the Wi-Fi transmitters. In addition, the access points may offer better-than-cellular indoor coverage. If the user leaves Wi-Fi coverage, these devices will also hand off calls from Wi-Fi to cellular, but this is only possible if their carrier supports such services.
“If such products prove successful, it will validate the idea and the importance of voice-over-Wi-Fi,” said Philip Solis, senior analyst of wireless connectivity research at ABI. “Even a system providing a limited service, without operator-supported handoffs, offers rewards in the form of cheaper calls and better indoor coverage.”
If VoIP/Wi-Fi access equipment enjoys considerable market success, ABI said to expect a boom in dual-mode cellular/VoWi-Fi devices. However, the industry has a long way to go-agreements must be made for charging and billing of services and minutes before seamless handoffs become an attractive proposition to most carriers, ABI explained.
“ABI Research would urge mobile operators who lag behind in offering converged services to pick up the pace, or risk losing revenue to their nimbler competitors, or because their customers find lower-cost workarounds,” Solis added.
But VoWi-Fi handsets have a ways to go before consumers are likely to adopt them on a large scale. Monika Gupta, a product line manager at Broadcom, predicted that the consumer market will heat up once dual-mode handsets can be bought for $150 or less and batteries can support at least eight hours of talk time. Steve Wilhoff, technology standardization manager at Nokia Corp., added that carriers must be able to offer seamless roaming between cellular and Wi-Fi to remain competitive with dual-mode-craving consumers.
So far, competition for the carriers is pretty likely going to come from Skype Ltd. At 3GSM in February, the VoIP provider declared 2006 the year that it would “go mobile,” and announced that international carrier Hutchison Whampoa’s 3 group operators in several countries are ready to offer Skype-enabled mobile devices.
More recently, Skype said it’s planning to buy VoIP technology developer startups Sonorit Holdings A.S. and its U.S. subsidiary Camino Networks Inc. for $27 million. “The acquisition will allow Skype to add some of the leading experts in online voice engineering to its own team of technologists to help design and develop Skype for the future.”
In other words, the deal gives Skype direct access to the technology and the expertise that eventually will improve the quality of VoIP calls.
Clues about Skype’s plans are all around. For instance, check out www.skypemobile.com, which looks a lot like the main Skype Web site, but with a domain name like skypemobile, it’s logical to assume that Skype is planning to offer mobile services. And when you add the acquisitions and the comments about going mobile this year to the equation, it’s downright telling.
Level 3 announced a newly expanded deal to supply consumer VoIP technology to Earthlink. And though nobody has said that Earthlink has any plans to offer mobile VoIP, it’s hard to imagine that the winner of high-profile municipal Wi-Fi contracts in Philadelphia and San Francisco isn’t thinking about a mobile VoIP play.
