VoIP Still Threatens Legacy Carriers

Voice over IP hasn't been the truly disruptive technology it was expected to be, but it still has the great potential to be so, according to a new Heavy Reading report, "Disruptive VoIP Services: What Carriers Need to Know."

"The first phase of VoIP providers thought they were going to be disruptive," says Robert Poe, analyst-at-large for Heavy Reading and author of the VoIP report. "But they weren't innovative in terms of business models. They used VoIP to essentially emulate what the telcos were already doing."

Players such as Vonage Holdings Corp. (NYSE: VG) or even major cable operators using VoIP as part of their Triple Play bundle were able to steal market share from the major telcos, but are still charging for voice service, Poe says. These players quickly discovered that the telcos were capable of using VoIP technology as well, in their backbone and transport networks, to drive down the cost of their own voice services and compete with VoIP offerings.

Skype Ltd. was the only truly disruptive player, since it offered free IP-based calls within its subscriber base, Poe says.

The next generation of VoIP providers has the potential to truly change the game. Companies such as Voxbone SA and Google Voice could make voice calls free, getting money off things other than the voice service itself.

"Voxbone SA has persuaded the ITU to create a new country code for VoIP subscribers," Poe says. "Anyone can dial a number with that country code, and it will ring through to a VoIP subscriber, making any call in the world a local call [within the VoIP community]."

Voxbone is also offering HD voice, which it connects with Skype's HD offering. This enables, through work with Nimbuzz Group , a mobile VoIP calling scheme that doesn't use WiFi or 3G. Calls can be forwarded to other phones, including a cellphone, from a VoIP number, essentially creating an international toll-free calling scheme, Poe pointed out.

Voxbone still has "hoops to jump through," including persuading the carrier community to enable its VoIP country code, which is 883, to be reached without an access code, Poe says. But the company is predicting ubiquity for its calling scheme within two years.

Google Voice poses a different kind of challenge, since Google (Nasdaq: GOOG) won't charge for voice services and will make its money through advertising.

One goal of the Heavy Reading report is to inform service providers what they need to do to prepare for this type of real disruption, Poe says. Their ultimate solution could well be to move to an all-IP scheme, away from the public-switched telephone network -- an approach AT&T Inc. (NYSE: T) has even suggested to the Federal Communications Commission (FCC) , Poe notes.

The legacy telecom providers have proven resilient, he notes, and while they don't tend to innovate on their own, they do acknowledge innovation, which has led in the past to acquisition, such as BT Group plc (NYSE: BT; London: BTA)'s purchase of Ribbit Corp. and Telefónica SA (NYSE: TEF)'s purchase of Jajah Inc. , one of the fastest growing new VoIP players.

In a tough economy, telecom operators may represent a best option for innovative startups, Poe noted.

"Companies like Ribbit and Ifbyphone are making it possible for anyone to develop their own applications without being an expert or having any real telecom expertise or having any infrastructure," Poe says. "But in the current economic climate, investors don't want to put that much money in -- a lot of these startups have a very short runway. Telcos are in a position to wait and see which ones might be viable and buy those."

— Carol Wilson, Chief Editor, Events, Light Reading