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While Vonage clings to the top stop among VoIP providers pitching landline replacement services, cable companies have rapidly eclipsed the smaller start-ups, wielding the competitive cudgel of the triple-play bundle to land voice subscribers by the thousands.
Cable companies currently account for four of the top five VoIP firms, according to the research firm TeleGeography, and they acquire customers at a blistering pace. In a single quarter in 2006, Time Warner Cable added more subscribers than the total number of users claimed by 8x8 or SunRocket since those services began.
To endure against this onslaught, stand-alone VoIP companies like 8x8, SunRocket, deltathree and others will have to stress more advanced calling features in addition to cut-rate pricing, providers and analysts say.
"How does a pure voice company survive? It can't just be cheap voice," said Tom Flanagan, technical strategies director, Texas Instruments.
While many independent providers believe that low-cost, all-you-can-dial calling plans will continue to constitute the backbone of their value proposition, they acknowledge that the triple play has made value alone a harder sell.
Instead, packing on additional features, free of charge, will help smaller companies "survive in the niches," said Shimmy Zimels, CEO of deltathree, which sells a residential service under the iConnectHere brand in addition to providing private-label VoIP services for Verizon and ICQ, among others.
"2007 is the year we'll stress true enhanced communications that you can only do with VoIP," said a Vonage spokesperson. Dialing services that send local weather forecasts or traffic reports to a user are one example of where Vonage sees its VoIP offering developing in the coming year, the spokesperson added.
Robust feature sets will also help VoIP companies retain customers and reduce churn, said Stephan Beckert, TeleGeography research director.
Presence — the ability to see if a caller is available — is a feature widely available from the PC-based services but could also be incorporated into landline replacement services, Flanagan said. Wideband audio for a high-definition voice call is another avenue open to VoIP providers.
The key to enabling many of these features is peering — the linking of disparate IP networks together to enable pure IP-to-IP calls. Services like Skype and Yahoo! can offer presence features because all of the users connect in the same network environment, but for landline replacement services, calls terminate to landline and mobile phones outside of a VoIP provider's network.
"We're very happy to do it, but the benefits of peering only appear once you have a substantial number of people making VoIP calls," said Huw Rees, sales and marketing VP, 8x8.
With peering agreements in place "the economics get a lot better for us," said Rob Chandock, chief product officer, SunRocket. The Vienna, Va.-based SunRocket recently completed one such agreement with Global Crossing.
The "nomadic" nature of independent services also works in their favor, providers say. A VoIP adapter can be taken around the world, while cable-delivered service is rooted (often professionally wired) to one spot.
"With our services you have a number for life and can take it with you wherever you go," Rees said.
The fact that independent providers have a national market while cable companies are limited by their own regional footprints will allow the independents to own roughly 40 percent of the total VoIP subscriptions by 2010, Beckert said.
Cable companies will not sit still however. There have already been major trials of TV caller ID and Comcast's voice portal gives its digital phone subscribers the ability to check voicemails online and forward calls selectively.
"As consumers get more comfortable with the Internet, we will market more advanced features," said Tom White, VP, Comcast. White added that Comcast is not focused on competing against start-up VoIP providers but on taking business away from the telecos.
There may not be a "killer-app" available to stand-alone VoIP providers but "we do feel our platform offers more flexibility," Zimels said. Smaller companies can easily add new features or innovations before their larger cable rivals, he added
While continuing to promote a residential service, 8x8 will put a greater emphasis and resources into its small business offering, Virtual Office, to differentiate itself going forward. "We are definitely stressing the business customer because they are a higher margin customer. The residential service gives us scale."
Vonage also sees greater potential in small businesses, a spokesperson said.
How independent VoIP providers fare in the coming years will also depend on the progress of fixed mobile convergence — the ability of cellular call to seamlessly transfer over to a wireless home network to avoid dead spots when consumers enter their homes. That Wi-Fi call will travel over the Internet as a normal VoIP call which presents VoIP providers with the opportunity to carry that traffic, but a labyrinth of business agreements and technological advancements need to be navigated before it becomes a reality.
The back-end business deals necessary are more daunting than the technology, said Rees said.
There are currently 30 "converged handsets" certified by the Wi-Fi Alliance, said Karen Hanley, senior marketing director, Wi-Fi Alliance. Work is underway to standardize call hand-offs between cellular and Wi-Fi, she added.
"It's a bear to get working — we're going to be taking baby steps," said Will Brown, technology associated VP, D-Link.
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