[VoIP] Apocalypse delayed
Jul 28, 2006
Telecom Asia
[FAC: The author makes some unclear estimates concerning IP's history. He must mean "VoIP" when he states that IP has been carried over telecom backbones for a dozen years, because IP has been in use since the Seventies. And IDD, as noted below, stands for International direct dial. When manual, or operator assisted, calls were converted to user-initiated automatic dialing to points overseas during the Sixties and Seventies, the new model here in the states was called IDDD, or Int'l Direct Distance Dialing. The equivalent term abroad is IDD, for International Direct Dial.]
americasnetwork.com
Thanks to broadband, IP has in the last few years become an indispensable utility, available in any building and increasingly on the street.
It’s a networking protocol originally developed by the US military, adopted by the computer industry and which has trumped frame relay, ATM and everything else dreamed up by telcos to become the world’s favorite networking standard.
Ask a network engineer what comes after IP and you’ll get a blank look. Which is why it’s like electricity – IP is the transport engine for digital data and will be for a long time into the future.
That said, IP isn’t particularly new. It has been carried in telco backbones in a major way for a dozen years or more. The first efforts at IP voice go back as far as 1995.
Which is a roundabout way of coming to the point of this week’s column, which is that operators have had a long time to prepare for the all-IP world.
So when you read proclamations of the coming “VoIPalypse”, the “VoIP nightmare” and the rest of it, you should regard them as the Chicken Little pronouncements that they are.
Sure, competing against “free” sounds tough no matter how low your voice rates are, and incumbent carriers in particular have high fixed costs.
For their part the challengers, portal companies like Google, Yahoo, e-Bay/Skype and AOL, have a lot of cash, marketing clout, business smarts and existing customers.
Context
But before we all start transferring our pension funds into the Internet firms, it’s worth getting this into context.
First, telcos have the reputation and the ability to provide quality voice calls. You can’t say that about the PC-based services; if you’ve used any of them you will know what I mean. Sure, Skype to Skype on-net works very well. But the commercial PC-based Yahoo and Skype services that terminate in the PSTN use the same cheap IP voice minutes that everyone else does – and it shows. The portals have a big quality gap to bridge.
Price, you say? The problem with charging nothing is it’s not much of a business model. Yahoo, MSN and Skype would love to charge a fee for their customers who aren’t currently paying anything for email, IM or on-net calls. But free to fee is a big jump; most customers will turn to another provider.
The portal firms do have low costs, but they also lack the customer support and maintenance crews that the telcos all provide. If your Skype phone isn’t working, you’re going to have to lug it to the Skype service center.
Finally, never underestimate the inertia factor. That was surely one of the lessons of all the years of IDD deregulation. BT, after 20 years, still has 74% of the UK IDD market. If the phone works, and the bills are within expectation, most customers will take years to churn. If ever.
According to Yankee, the US VoIP user population will be 28.5 million 2009. That’s a good number, but hardly an apocalypse.
VoIP is yet another arbitrage proposition threatening telco margins. To be sure, for carriers in protected, high-priced fixed-line markets like China and India, it is a disruption.
But for markets like Japan, Hong Kong and the UK, where competition is high and IDD rates are low, VoIP is a market tremor, not an earthquake. The telecom apocalypse is not yet upon us.
Robert Clark is a Hong Kong technology journalist and Editor at Large for Telecom Asia rclark@telecomasia.net
(The views presented in this article series are those of the author and in no way reflect those of Lucent Technologies)
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