Is VoIP ready for prime time?
Published: 15 Jul 2003 11:43 BST
The case for 'true VoIP'
Only two things are required for a VoIP call from a home. One is a broadband connection. The second is an Analog Telephone Adaptor (ATA), which plugs into a home phone. An ATA costs about $100, but is often given away by VoIP providers. Businesses have a more expensive undertaking, having to buy gateways, which act as an ATA for hundreds of phones at a time.
So far, most cable companies have sold what's known as circuit-switched cable telephony to about 2.3 million people.
Just like on telephone networks, these calls use a series of switches to navigate a cable company's fibre-optic network. It's a bandwidth-hogging set-up because the switches create a connection between the two phones for the length of the call. In some VoIP cable services, you can't make a call and surf the Web simultaneously.
The switches also can't distinguish between voice and other kinds of data, raising concerns that cable providers won't be able to guarantee a level of performance on par with a traditional phone line. Voice calls have a low tolerance for delay, typically requiring systems to give them priority.
As a result, cable companies want to upgrade from circuit-switched voice to more modern versions of VoIP, which solves many of these problems. In pure VoIP, the digital packets containing the voice calls can be prioritised. Users can surf and make phone calls at the same time because voice service doesn't completely lock up bandwidth.
Also, unlike its predecessor, next-generation VoIP is standards-based. The standard, called PacketCable, has the backing of key cable equipment provider CableLabs, which has just begun certifying equipment from manufacturers.
"The cable industry has been waiting to roll out VoIP service until it standardized all the protocols needed for a high-quality service," said Matthew Bartlett, a Bank of America Securities analyst.
Problems for Vonage
With cable companies likely on the VoIP sidelines until at least 2004, VoIP's immediate future remains in the stewardship of small start-ups like 8X8, deltathree, Net2Phone and Vonage DigitalVoice. For as little as $20 a month, customers get unlimited dialling, plus caller ID, voice mail and other usually premium services.
But Vonage and other small-time providers may be hard-pressed on their own to push VoIP to a national market and challenge to the dominance of traditional phones companies Verizon Communications, Qwest, Bellsouth and SBC.
"The biggest impact Vonage might have is the response from the major carriers," Jupiter Research analyst Joe Laszlo said.
During a recent interview, Vonage chief financial officer John Rego admitted the company is too small to register on the competitive radar of major telephone providers, but he says that will soon change.
"Although we're proud of our 34,000 customers, they don't make a dent in the 60 million Verizon has got," he said, but added the company projects one million subscribers by late 2004.
Even though most VoIP providers appeared in mid-2002, there's already been enough of a price war for some analysts to see no other end than consolidation.
The most recent price cut involved 8X8, which sells a VoIP service under the name Packet8. 8X8's monthly unlimited service now costs $20, about half the price of competitors including Vonage.
The Bells are also locked in a price war, which promises to lower the cost of their unlimited traditional dialling plans and further erode a VoIP provider's price advantage. Rego acknowledged Vonage will likely have to lower its prices for home plans downward in the future to keep pace.
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