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Residential VOIP Will Boom, Says Study

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News Analysis
Light Reading

In a new report, research firm Frost & Sullivan says explosive growth in the North American residential voice-over-IP (VOIP) market during the next three years will be accompanied by a 77-fold increase in sales of “endpoints” -- that is, analog telephone adapters (ATAs), VOIP residential gateways, IP phones, and session initiation protocol (SIP) phones.

That’s good news for companies like Cisco Systems Inc. (Nasdaq: CSCO) and Motorola Inc. (NYSE: MOT), which make ATAs, the little boxes that connect an analog telephone to a broadband modem. D-Link Systems Inc. and Telco Systems (BATM) will also benefit as suppliers of VOIP residential gateways, which are like ATAs with built-in routers. But ATA and gateway makers will eventually face stiff competition from vendors like Clarisys and Grandstream Networks Inc., which make IP and SIP phones -- handsets that don’t require an adapter box to link to a broadband connection.

Frost & Sullivan predicts that sales of residential VOIP endpoints in the U.S. and Canada will grow from $9 million last year to $700 million in 2007. Right now, ATAs account for most of those sales, since few consumers are ready to throw out perfectly good analog phones, and popular residential VOIP service providers like Vonage Holdings Corp. supply ATAs to all of their customers (see Vonage Claims VOIP First). “The ATA will probably remain the dominant device for at least another year or so,” says Jon Arnold, a Frost & Sullivan analyst and author of North America Residential VOIP Market: Everybody’s Talkin’ at Me.

But that will change as residential VOIP service proliferates and consumers replace old handsets. “Ultimately, we’re all going to be using SIP phones or IP phones because that’s just the way the world’s going to go,” Arnold says. “But we’re a long way from that being the norm.” One inhibitor is price. Most SIP and IP phones cost more than analog phones, but prices will drop as sales volumes grow. “In 2007, ATAs will still remain the biggest piece of the puzzle, but the growth of ATAs is going to slow down, and you’re going to see the growth of IP phones accelerate quite a bit."

Frost & Sullivan also foresees strong growth in sales of VOIP residential gateways because they offer more functionality than ATAs. Many gateways come with built-in routers and can support twice as many phone lines as ATAs. As prices for the products drop, “gateways will simply offer more for less,” Arnold says.

VOIP endpoint sales will grow about two-thirds as much as the number of VOIP subscribers in the same period, Frost & Sullivan says. The firm predicts that the number of residential VOIP subscribers in the U.S. and Canada will rise from 100,000 last year to 12 million in 2007.

Frost & Sullivan’s report emphasizes that newcomers like Vonage -- and not incumbent carriers -- will lead the charge into VOIP. Of particular interest to the firm are peer-to-peer VOIP startups like Skyper Ltd., whose free Skype software lets people use PCs to talk over the Internet and bypass the public switched telephone network (PSTN) (see VCs Pump $18.8M Into Skype ). “Within a year or so, these services will be able to connect to the PSTN,” Arnold says. “Then the idea of making free phone calls to anybody is a pretty powerful proposition.”

The trouble is, Skyper will have to pay access fees to long-distance and local carriers, and so far, the company has yet to collect a penny from anyone who uses its free software (the company says over 11 million copies of its program have been downloaded). Skyper has told many reporters that it will eventually charge customers for premium features like PSTN termination.

— Justin Hibbard, Senior Editor, Light Reading

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User Rank: Light Beer
12/5/2012 | 1:48:20 AM
re: Residential VOIP Will Boom, Says Study
Why does Light Reading care about VoIP? LightReading is supposed to be about high-speed optical and the things that affect it.

The equipment in this article is sold at retail, and costs <$100.

Please don't tell be that VoIP is the next bandwidth-eating killer app. The numbers just don't work. Total data exceeded total voice years ago, so even if every single consumer shifted from POTS to VoIP instantly, the total bandwidth would increase by at most a small amount. The number of local land-line telephones is decreasing, not increasing, because of increased use of cell phones. This cuts into the VoIP market (at least until there is a shift to WLAN-enabled cell phones.)

Another calibration point: A heavy residential broadband user might reach the 2GB/month "cap" imposed by some ISPs. This is equivalent to 6Kbps, continuous, 7x24, for the whole month. VoIP is <64Kbps, non-continuous, while the phone is off-hook: call it 10Kbps average while the phone is off-hook. To double broadband usage, the user would need to be off-hook for 16 hours a day, every day.
User Rank: Light Beer
12/5/2012 | 1:48:19 AM
re: Residential VOIP Will Boom, Says Study
"Please don't tell me that VoIP is the next bandwidth-eating killer app. The numbers just don't work"

VOIP is certainly not a bandwidth-eater but it will kill POTS.

If POTS has to be replaced with something that generates revenue (and competes with cable),it has to be optical.

User Rank: Light Beer
12/5/2012 | 1:48:16 AM
re: Residential VOIP Will Boom, Says Study
Not just storage per se. I am starting a business at home. I'm capped at 2GB/mo (residential cable modem) and my terms of service preclude running a server anyway. My service is about $40.00/mo.

Therefore, I rented a virtual server at a hosting provider. It costs $20.00/mo. I have 4GB of disk and 25GB/mo transfer: more than ten times the transfer at half the price: My home bandwidth costs 25 times as much as my hosted bandwidth.

I note that you say:
"Especially the way RoloStar.Com is implementing network storage. They are now giving away 50 MB of network storage for storing and sharing documents. At this rate, they will need more than a TeraByte of storage to support their customer base. Good for the storage industry i guess."

Please note that raw storage is very cheap. You can build a terabyte store for <$1000, in one tower case. In the SAN market, storage currently costs about 20 to 50 times this. The price is artificially high,and will crash with the advent of "storage virtualization" techniques. If you don't believe me, look at Google. Google has perhaps the biggest data store on the planet, and they use cheap IDE disks, not fancy SANs.
User Rank: Light Beer
12/5/2012 | 1:48:03 AM
re: Residential VOIP Will Boom, Says Study
Look, kids, Frost & Sullivan like so many other contract research outfits, is in business to tell their clients what they want to hear. Be skeptical of anything they say.
User Rank: Light Beer
12/5/2012 | 1:40:00 AM
re: Residential VOIP Will Boom, Says Study
After much research, I just signed up with a new VoIP service for my home and I am 100% satisfied! Anyone who is interested should check out Enjoy!
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