VoIP Growth Accelerating

By Greg Scoblete On May 23 2005 - 6:00am

The prospects for residential Voice over Internet Protocol (VoIP) phone service may be rosier than initially predicted if the results of several recent surveys are any indication.

While earlier surveys pegged VoIP subscriptions to grow to roughly 17 million by 2008, a survey from Boston-based Infonetics put the number higher, at 20.8 million. And a report from Framingham, Mass.-based IDC predicted a more bullish 27 million subscribers by 2009.

The IDC report noted that there will be 3 million VoIP subscribers this year. The growth will be “fueled in part by consumers looking to add value to their telephony service,” IDC said.

According to William Stofega, senior analyst, IDC, between the hardware and service, residential VoIP will be a $10 billion business in 2009.

Infonetics was more optimistic, pinning VoIP service revenue at $19.9 billion in 2009, from 2004 revenue of $1.3 billion.

The key to future success, Stofega said, hinges on whether IP service providers can break away from the current model of marketing VoIP as simply a lower-cost alternative to traditional landline telephony.

“Applications are going to have to drive this, or else it becomes a price war and few companies can win in that scenario,” Stofega said.

It will also entail a shift in marketing from the major cable companies and telcos which frequently don't even mention that their Internet-based phone service is in fact VoIP. “If the cable companies don't differentiate, the field is open for companies like Vonage, but clearly time is of the essence” for the smaller companies to establish a solid customer base before larger providers gobble them up, Stofega said.

Despite an influx of large carriers and cable companies which typically acquire customers through direct marketing, Stofega said that retail will still play a role in promulgating VoIP as a host of new routers, modems and cordless phones become equipped with IP technology. “Cable companies used retail to sell modems, so they'll still use that channel for VoIP.”

One of the key means of differentiation in the looming contest will be mobility, combining a cellphone with wireless VoIP into one handset, Stofega said.

Sales of these dual-mode IP/cellular phones could reach 100 million globally, according to a recent study from Port Washington, N.Y.-based ABI Research.

"The advantages of dual-mode handsets and services, when they arrive, can be summed up in two words: seamless and economical," said Philip Solis, ABI Research's senior analyst. According to ABI, the future looks like this: A phone call starts at home over a Wi-Fi network. When the user leaves his home and gets in the car, the call switches over to the cellular network, only to switch back to a VoIP network when the user gets to the office.