Both Substitution and Augmentation

The common sense expectation we all seem to have is that VoIP ultimately replaces POTS, and that's correct in a technological sense. Their respective business futures might be less certain. We mean "business" here in the sense of revenues that can be generated from services and features associated with POTS, even if the platform changes. Those of you who lived through the analog to digital switch transformation understand this. Revenues sometimes grow when a new platform displaces the old, because there are new things to sell, and costs sometimes drop at the same time, allowing a retail price to reap more margin, even on the legacy products.

And one of the things about POTS is that there are latent values beyond the switch and transport technology that might be the real reasons customers buy POTS service. If you think in terms of "user communities," the PSTN outstrips nearly anything else we've built so far, with the exception of wireless. But if wireless is seen as untethered access to the PSTN, then the PSTN community is where one wants to be.

In other words, the PSTN directory is far more developed than any directory you or I have built ourselves. A "buddy" list can be built for the small number of people you communicate with regularly. Beyond that, the PSTN still rules. That's valuable. One might argue, at least at this point, that POTS is more reliable, in just about every sense, compared to just about any VoIP alternative. That has value for end users, and might continue to, even when the infrastructure changes.

Also, the business value of the PSTN, which is voice-oriented, arguably is enhanced when integrated with instant messaging, text messaging, conferencing, Web access and other features. All of that might help explain why just half (49 percent) of residential customers who adopt VoIP say they discontinued a traditional phone service when they got their VoIP services, according to a recent survey by In-Stat. Put another way, VoIP displaces half of existing POTS line purchases, but also augments POTS half the time.

Also, in addition to "cord cutters" who rely exclusively on wireless for their personal voice communications, In-Stat finds that nearly 12 percent of respondents say their only VoIP service is based on the use of soft clients. That's further evidence of the growing importance of IM-based voice, presumably including "call out to the PSTN" capabilities.

And blurring the distinction between "business" and "consumer" uses, half of the VoIP users say they use their residential VoIP service either in part or in whole for business purposes. The trend is especially pronounced among VoIPers who are softphone-only users. More than 40 percent of such people use VoIP for business applications.

There are lots of suggestive niches here. Even in the consumer space, it appears there are augmenters, displacers, "no phone" users, "no phone" business users, IMers and maybe people who don't like "gizmos" of various sorts (probably the same people who dislike cable decoders and other CPE).