Is VoIP finally ready for prime time?

VoIP has had its share of false starts, so what's different this time around? We asked Jon Arnold, program leader for voice equipment at Frost & Sullivan, for his top five reasons this is the year for VoIP:

Since 1995, VoIP has been a work in progress, with an equal number of steps forward and backward. However, in the past two years, most of the steps have been forward, and since late 2003, the stars have largely been lining up in VoIP's favor, much like the convergence everyone dreams about with voice, data and video. Here are the key developments that make it different this time.

[ILLUSTRATION OMITTED]

1. First, and foremost, competition is driving the market, especially in the United States. The technology has been ready for a while, but the absence of competition has kept VoIP on the sidelines. Competition is coming from both existing and new sources, with all major types making plans for VoIP--RBOCs, ILECs, MSOs, CLECs, ISPs, IXCs. Aside from this, there are the new players--the VoBB (voice over broadband) providers. Vonage is far and away the leader in this space, but many others are in the mix, such as Packet 8, Voiceglo, Voicepulse, Broadvoice, and in its own way, Net2Phone. They all share a common element--they are virtual providers, in the sense that they are not facilities-based and do not own the local loop. However, they bring enough of everything else to the table to quickly become bona fide threats to the incumbents.

2. The technology is good enough for the mass market. VoIP's technical shortcomings are well known, but offerings have now matured to the point where carriers have enough confidence to go to market in a big way. VoIP is still not carrier grade for true primary line replacement in the residential market, but it is certainly good enough for second line service. And for those who can deliver VoIP over managed networks, primary line replacement is a legitimate option. Shifting to the enterprise market, VoIP has certainly had good traction in the Tier 2/3 markets, but the Tier 1s are now coming around. A lot has changed in a year, and once the RBOCs and ILECs get behind enterprise VoIP, the market quickly ascends to a new level.

3. End-user demand is starting to materialize. In absolute numbers, the subscriber base for VoIP is negligible, but VoIP is clearly moving out of the early-adopter phase, and for the first time, VoIP is becoming demand-driven. Certainly, in the United States, the economics of VoIP are attractive, and so long as the service works reasonably well, growth will come for those who are looking for nothing more than a cheaper way to make calls.

4. The regulatory environment is becoming clearer and is pro-VoIP. This has been a contentious issue, especially since Vonage raised the ire of state-level regulators last year. VoIP is fundamentally different from TDM voice, and once this is understood, tremendous implications follow, many of which are death to the traditional business models of the incumbents. Until December 2003, the FCC's position on VoIP was not clear, which served to keep VoIP plans on hold for many carriers. Since then, rulings continue to be favorable, and it appears that VoIP will remain largely unregulated, at least in the United States. The situation is less clear in Canada, but in the United States, the climate is more receptive, and as a result, VoIP is thriving.

5. Broadband adoption is picking up. More than anything else, VoIP's success depends on access to broadband. The United States has been lagging the world in this area, and with it, VoIP. As competition intensifies, U.S. service providers will accelerate their broadband plans, which is exactly what is happening now. Broadband adoption in the United States is sharply up from 2003, but is still barely at 20 percent of house-holds. As such, VoIP is still far from being a mainstream service, but roll-outs are going in the right direction. Furthermore, VoIP itself could stimulate broadband, as people discover that it is a great reason to get high speed.