Grappling with VoIP: the technology has grabbed a tiny toehold in the voice market, but it's on every carrier's radar. A worldwide telco voice battle looms

America's Network, Jan 15, 2005 by Robert Clark

Other experts point to the huge branding power and marketing reach of incumbent telcos.

Yankee Group senior analyst Kate Griffin says the first-to-market advantage of "Vonage-like providers" will be "short-lived." Their market share is declining under pressure from VoIP offerings from trunk carriers like AT&T, cable firms like Time Warner and ILECs such as Verizon.

The major carriers' resources "dwarf even the largest of the alternative VoIP providers," says Griffin. "The local VoIP market is already crowded with more than a dozen players vying for local consumers."

JupiterResearch senior analyst Joe Laszlo believes new VoIP players would be important in jump-starting the market, but it was "unlikely that start-up VoIP providers will become a significant threat to the incumbent phone companies."

But if there's one market that is going to test just how much value VoIP can bring to consumers, it has to be Hong Kong. Five main fixed-line service providers (four of which have built out extensive access networks) have brought VoIP offerings to the market.

"Hong Kong is going to lead the region if not the world in how this plays out," says Caspari of Cisco. "Plenty of other markets in the world are offering these services, but no one is offering all these at the moment."

The punch line for VoIP players could be that their real rival is not each other, or even the incumbent, but the fastest-growing part of the voice business: cellular.

"For attracting young adults, VoIP's biggest competitor may prove to be mobile operators, not the Bell companies," warns JupiterResearch's Laszlo. He recommends that VoIP providers offer plans for consumers seeking only a low-use back-up to their mobile.

The huge bundles of cheap minutes offered already by 3G operators point to the fierce contest ahead for the voice dollar, Ovum's Main points out. The future voice market will be a battle between hungry 3G players, aggressive VoIP startups and incumbents stoutly defending their patch.

"It's something of a land grab right now," says Main. In a few years will be the inevitable shakeout. Incumbents are accustomed to challenges to their market. With mobiles on one side and VoIP operators on the other side, the battle for voice could be the biggest battle of all.

Defining the rules for VoIP

For a service that is not even classified as belonging to the telecom sector, VoIP is causing plenty of headaches for industry regulators. In fact, it is the very nature of VoIP that is the heart of the problem; it supports voice, but in no other way resembles a telecoms service.

VoIP thus presents a paradigm-busting dilemma for progressive regulators. They don't want to stand in the way of fresh technology but know they will be first to blame for any kind of service disruption.

So, regulators from Singapore to Europe have embarked on industry consultations on VoIP, dealing with the same slate of issues.

"It's pretty unusual to see everyone working on the same issue at the same time," observes Paul White, executive manager of standards and compliance with the Australian Communications Authority (ACA). The ACA lists 21 questions in a consultation paper issued in October.