10 Million VoIP Homes, But Challenges Ahead Remain

By Greg Scoblete -- TWICE, 4/9/2007

NEW YORK — More than 10 million U.S. homes have at least one active VoIP user, according to research firm In-Stat, but a report from Forrester Research warned that pure-play VoIP providers can't rest on their laurels if they hope to win over the waiting majority of landline users.

The number of U.S. VoIP users has risen from 9 million in the third quarter of 2006, thanks largely to cable operators and Vonage, In-Stat noted (In-Stat is owned by TWICE parent company Reed Business Information).

According to In-Stat, "client-based" VoIP providers, such as Yahoo! or AOL, have seen their growth slow thanks to cable's ramp-up. The only client-based service to show gains through the fourth quarter of 2006 was Skype, the firm reported. Skype has increased its lead, the firm said, while other competitors in the client category have lost ground.

International calling is driving the use of client-based IM services, In-Stat said, with such users reporting that 52 percent of their calls are overseas vs. just 6 percent for cable or adapter-based providers.

In-Stat also shed some light on how consumers are behaving when they adopt Internet telephony. More than 61 percent discontinue their landline service, including 76 percent of those who use adapter-based services like Vonage.

Business use is also up, with 51 percent of VoIP subscribers saying they use the service for a mix of personal and business calls and 4 percent reporting that they use it exclusively for business.

Yet despite the rise of VoIP services, local telecos still account for 77 percent of the home voice market, according to a new study from Forrester Research. What's more, 87 of surveyed consumers have no intention of switching, or canceling, their home voice service.

"Just as with the access, mobile and TV markets, consumer intent to switch residential voice service rests mainly on price," wrote the study's author Sally Cohen. "Of the consumers who say that they will change their home voice provider or drop their service altogether, 44 percent blame the high cost of their current service."

Of the 13 percent of users who will churn, only 10 percent intend to adopt a pure-play VoIP provider vs. 34 percent intending to use another teleco provider and 28 percent who intend to use their cellphone.

"This does not mean that all consumer VoIP adoption will stagnate," Cohen observed. "It means that pure-play providers have a struggle ahead of them."

To keep subscriber momentum going, providers will need to embrace fixed-mobile convergence as 22 percent of consumers indicated they would switch to a voice provider that offered a single number for multiple handsets, while 20 percent would switch for a single voicemail box.

Another approach will be to beat cable companies at their own "triple play" game. Cohen advised that pure-play VoIP providers should partner with "stand-alone entertainment providers to create a new kind of bundle. These strategic partnerships, based on a commonality of access, will co-market VoIP with content services that run over broadband or with networked consumer devices that enable or enrich communication with content."