Consumer VoIP Providers See Rosy 2004 (includes ntop)
newtelephony.com
January 8, 2004
Vol. 3, No. 1
By Michelle Rydberg
and Charlotte Wolter
Newtelephony
Although consumer voice-over-IP service providers have faced a tough couple of years, launching new services in the midst of an economic downturn, there is little pessimism and almost unbridled optimism as they look at the issues of the past year and the year to come.
If they can survive the past two years of horrific economic times, they say, they can forge on to making their services better, better known and, soon, profitable.
Talking to several of the leading consumer service providers, themes that surfaced again and again in their thoughts were the 911 issue, the legitimacy of voice over IP, the rays of hope at the end of 2003 and the continued challenges the industry faces in 2004.
VoIP Achieves Legitimacy
The breakthrough for 2003 was that the industry, after two long years of economic hardship and relative anonymity, became viewed as a serious alternative to traditional telephony. "2003 marked the year that VOIP stopped being a "technical gimmick" and "became a way to make 'real' calls," says Paul White, CFO of deltathree, a provider of retail and wholesale consumer voice over IP.
For deltathree, one of the first companies to bring consumer VoIP services to market, "It has been great to see the now-widespread adoption of the technology overall," White adds.
Craig Walker, CEO and president, DialPad, agrees, pointing out that VoIP has achieved "top-of- mind recognition by consumers and industry participants that voice over IP is no longer just a struggling up-start technology but is a true potential disruptive technology that contains every facet of communications."
Walker says Vonage is the one to thank. "Vonage has spend a lot of money on promotion, PR, and it has really banged the drum on the voice-over-IP story," he says. Their promotional effort has "brought it back to prominence, just to people's minds that 'Hey, this is a technology that is ready for prime time.'"
On the Radar Screen
In addition to greater legitimacy, the other big change in the last year was "Awareness," says Sarah Hofstetter, vice president of communications, Net2Phone. "Until recently, most people outside of the close-knit VoIP industry associated VoIP calling with computers.
"Over the past year, the financial community and the media have become more aware of the power of VoIP and how it has come a long way from PC-to-PC communication, which is critical for the continued success and evolution of the industry."
"I think we are finally accepted and publicized by the mainstream press, says Bryan Martin, chairman and CEO of 8x8 Inc. "All of the attention here in this last quarter really has given technology a sense of legitimacy, and I think that was very fortunate in this industry."
The end of 2003 saw numerous announcements of new voice-over-IP services. "We started seeing big players offer VoIP services to consumers besides Vonage," says Louis Holder, executive vice president of product development, Vonage. "AT&T announced this morning that they are going to start offering voice services to consumers, Time Warner announced two days ago that they are going to be offering it. ... We are seeing guys like SBC and Qwest also mention that they are going to do trials for VoIP, and I think that is really huge. For the work that we have done over the past two years, that actually validates the VoIP concept."
Individual Accomplishments
Many companies counted the launch of new services or reaching business goals as high points of the past year.
"For us it is clearly the successful launch of our Packet8 service," says Martin of 8x8's Packet8 unit. "We actually launched our service right at the end of last year. I think without a doubt the company finally has successfully found a way to package and offer technology to consumers. It's really exciting to finally see this technology being able to rolled out and used by everyday people."
"The most important thing for Skype this year was the beta launch at the end of August," says Janus Friis, cofounder and vice president, strategy. Skype provides consumers with the ability to make free phone calls using their PCs. "We are very pleased with how well Skype is being received by the general public," Friis adds.
VoicePulse joined the ranks of home and small-office VoIP providers in April. "We launched our service in April of this year after a relatively long period of engineering," says Ravi Sakaria, CEO and president, VoicePulse.
deltathree has seen "simultaneous and significant revenue growth, margin growth and bottom-line improvements in recent quarters," says White. "This plus a strong balance sheet, no debt and our public company status will continue to propel deltathree forward in 2004."
For Dialpad, "The most important thing is that we became profitable," says White, as CFO the one responsible for watching the bottom line. "We continue to grow our business about 100 percent per year, ... and we expect to continue to grow and remain profitable."
For Vonage, "We increased our customer size by ten times over. Last year at 7,500 customers and now we are over 80,000 customer which is a great accomplishment for us," says Holder.
The Regulation Monster
As an industry that, so far, has seen virtually no regulation, many in voice over IP were first alarmed, then horrified, as the State of Minnesota Public Utilities Commission decided to regulate voice-over-IP provider Vonage as a traditional telephone service. The was quickly followed by a similar action in Wisconsin and investigation in California.
"The low for 2003, for me personally, was when we got a letter from the State of Wisconsin that charged us with not operating legally within their state, basically telling us that all of our bills to our customers in Wisconsin were void and uncollectible," says 8x8's Martin. "Chief executive officer is a great job, but that was is one of the worst times to be a CEO."
After Vonage sued and won a quick federal court decision overturing the Minnesota action, one could almost hear a deep breath of relief from the industry. All in all, the experience was "a low first, then it became a high," Martin says.
"The most important thing in the industry is the federal ruling that came out of the Minnesota case," says VoicePulse's Sakaria. "The federal ruling really showed a great understanding at the federal level of the technology and implications of regulating or not."
In the wake of Minnesota, "The most important challenge facing the industry today is finally to get a federal policy on what VoIP is," says Walker. If the FCC (Federal Communications Commission) does not act "decisively and does not take a position to pre-empt the states," he adds, "there is a potential to end up with 50 different sets of rules in 50 different states."
Walker sees VoIP as having the potential "to bring some true competition to telecommunications." The technology is better for consumers. "It allows the end user to personalize their service. They have many more high-quality features at virtually no additional cost. You don't want to squelch that by forcing the industry to go through the burden of regulation," Walker concludes.
The company that started all the fuss, Vonage, sees some middle ground. Between today's heavy regulation for traditional services or no regulation at all for "information" services, "And I personally believe in a third decision, that the FCC should step in and make certain rules especially around consumer protection for both providers," says Holder.
Calling 911!
Emergency 911 service or the lack thereof was an issue that troubled many of the consumer services, particularly those offering a service that uses traditional phones rather than PCs. The lack of traditional 911 service was cited by the State of Minnesota in its decision to require Vonage register as a phone service.
"I don't know if it is specifically within the next year, but I think that the most important challenge facing not only our company but the industry as a whole is coming up with some kind of solution to the 911 issue," says Sakaria. "Voice over IP phone providers have to work together to provide emergency services for the public, not only from a business standpoint, but there is an imperative there that at a moral level to provide that service."
Holder says Vonage's 911 alternative, where users enter their current address in a database, is an important accomplishment. "It shows customers that we do care about their safety. This is very important to us." He adds, for "the state of Minnesota, after Vonage was providing them with [911] services, actually trying to regulate Vonage for 911 solution is ironic."
As for the future, Holder says. "The FCC should mandate all VoIP providers to offer some sort of 911 for their customers, and that is what I think we'll see in the long term in 2004."
Challenges for 2004
Many service providers are looking forward to the challenge of building on the early successes of 2003.
"The most important challenge is to continue to provide excellent service and support while we continue to grow at a fast rate. It's always a balance of growth and being able to have managed growth," says Walker. "That is just the basic management challenge that is always there in a growing industry."
Dialpad plans several new products and services in the new year. "Making sure those get developed on time and positioned priced appropriately is also a challenge for us internally, but it is also a great opportunity," says Walker.
"At this point we need to be really innovative and offer really cool features, features that move Vonage away from the pack to show that we are a really good product," says Holder. "We will see new guys come in and kind of go through the growing pains that we went through initially when we started two years ago, but what we'll get to do this year is focus on building up the product make it a lot better."
For Net2Phone, the challenge for the coming year is to "continuing to differentiate ourselves as a best-of-breed provider of toll quality voice services over IP networks globally," says Hofstetter.
"The challenge is to take Skype from the level where it is now to be used by 10s of millions of people," says Friis, "and to expand the user experience of Skype to beyond your PC."
Caution amid the Enthusiam
However, there are concerns that the industry might repeat past mistakes. White of deltathree observes, "There are several private companies that are once again driving themselves toward irrational pricing models when it comes to consumers. The worry is that similar behavior in 1999 led to several bankruptcies, and the collapse of many small private companies,"
Although, he says, deltathree did not compete in that arena, "it was caught up in the negative stigma that was generated by consumers that were disappointed when these companies went under."
Regulation on the international side also continues to be a concern. "Many countries have agreed in principle to open their telecom markets for competition, including VoIP, but have not finalized their plans and actively opened the market," says Net2Phone's Hofstetter.
"When competition for long distance and international phone service becomes a reality in many emerging markets, then we will have really overcome a major challenge and will be able to offer competitive phone service to markets that have not been able to afford voice communication in the past." |
