What is Happening in the U.S. VoIP Market?

It’s hard to tell precisely what is happening in the U.S. residential VoIP market. According to the most recent Federal Communications Commission data, there were 32 million VoIP subscriptions in service at the end of 2010, representing a growth rate overall of about 22 percent. FCC data

The 149 million wireline retail local telephone service connections in December 2010 included 40 percent  residential switched access lines, 38 percent business switched access lines, 18 percent residential VoIP subscriptions, and three percent business VoIP subscriptions.

The FCC data suggests that 81 percent of VoIP services bought in bundles, representing in turn about 84 percent of all VoIP subscriptions, were supplied using cable modems, meaning that cable operators sell about 81 percent of VoIP connections in bundles, which in turn represent at least 84 percent of all VoIP subscriptions sold in the U.S. market.

But third quarter 2011 data at the company might suggest either that the adoption rate has slowed fairly dramatically in 2011, or that suppliers other than cable operators or telcos have suddenly begun adding more subscribers than ever before. That seems highly unlikely, based on what has been happening in the U.S. VoIP market so far.

Though telcos and independent VoIP providers have represented some VoIP market share up to this point, the FCC data show it is the cable operators who have been responsible for most of the sales and customer volume.

Company results from wireline voice service providers through the third quarter 2011 might suggest that demand is moderating, since most new VoIP subscriptions are sold by cable operators, and cable sales of VoIP clearly are slowing.

Legacy voice services offered by phone companies have continued to decline during 2011, while "digital voice" line growth from cable operators has slowed. What's happening in fixed line VoIP?

AT&T lost 10.5 percent of its wireline voice connections compared to the third quarter of 2010., Verizon lost 7.6 percent  of its total wired voice lines, and CenturyLink reported losses that would total about 6.8 percent annually on a pro forma basis for the 12-month period ending September 2011.

Offsetting  those loses are incremental new telco VoIP connections. AT&T's U-verse Voice connections increased by 119,000 sequentially while 648,000 subscribers over 12 months. HD Voice makes steady progress in mobile networks

But the volume of activity in consumer VoIP has been driven by cable operators, and it now seems as though sluggish economic conditions or wireless substitution might be issues for cable VoIP services.

But there could be other factors at work. Perhaps few, if any observers think telco voice share will dwindle away to “nothing.” For any number of reasons, including product bundles and customer preferences, the likely ultimate outcome is some reasonably stable market share structure. That means cable will reach some “natural” limit in voice, as telcos might reach some “natural” limit in video share.

It could be that cable operators are reaching the “natural” limits of demand for cable voice products. Comcast, the largest domestic cable operator, now has 9.2  million VoIP lines in service representing a 17.6 percent penetration rate of homes passed at the end of the third quarter 2011, up  from a 16.1 percent penetration rate in the third quarter of 2010.

Time Warner Cablehas 4.6 million voice customers, but added only 5,000 new VoIP lines in the third quarter of  2011.

That dramatic slowing suggests cable has reached a natural limit, but also that strong growth of wireless services now is simply as big a problem for cable operators as it has been for fixed-line telcos.

Wireless substitution continues to slowly grow virtually every year, according to the CDC, which estimated in 2010 that 29.7 of homes had only wireless telephones during the last half of 2010.

Republic Wireless Launches, What are Implications?

Republic Wireless has launched a limited beta program of its $19-a-month hybrid wireless service using, to start, the LG Optimus smartphone running Android 2.3. 

Aside from the low price, Republic Wireless is going to test consumer demand for a "Wi-Fi-first" mobile service that defaults to any available Wi-Fi network first, then switches to the mobile network only when that is not possible. 

"Republic is a Wi-Fi network," the company says. "Anything cellular can do, Wi-Fi can do better (and for less)." Wi-Fi better? 

The immediate logical question is the degree of traction Republic Wireless can get in the wireless market. But perhaps a more-important question is whether Republic Wireless will affect the thinking of fixed-network VoIP providers. 

There is, to be sure, a market for fixed-line VoIP services. But it is hard to ignore the broader shift to use of wireless devices as the "default" mode for consumers globally. To be sure, wireless service providers someday will embrace mobile VoIP in a more-active way. In the meantime, there remains a market opportunity for providers who can enable a shift "now."

In this case, given the limitation of service to domestic calling, Republic Wireless won't be a competitive substitute for Vonage, for example, as used by people who mostly need to call internationally. But lots of people do not need to make many international calls, and might now evaluate Republic Wireless as a substitute for a fixed voice line. 

And that makes the competition as much fixed voice line service as much as "mobile service."

Sprint will be Republic's first cellular partner, but other partners might be added as well. 

The cost of the phone and the first month of service will be $199, with unlimited voice, data and texting costing $19 a month thereafter. Other phone models will be announced later, the company says. No contracts are required. 

Republic Wireless Readies $20/Month Unlimited Mobile Service

Republic Wireless is a new mobile phone service from Bandwidth.com that will be launching on November 8, with some features some users will find compelling. Republic Wireless teaser

Among those features is the price, said to be $20 per month, with unlimited talk, texting and data. The plan is also touted as truly “unlimited” with no bandwidth caps. $20 a month unlimited smart phone service?


Republic is a mobile virtual network operator, but is integrating Wi-Fi connectivity and software that will switch connections between the mobile network and the Wi-Fi network automatically.

The hybrid service essentially will default to Wi-Fi whenever possible, and use the mobile network only when Wi-Fi is not available. 


That should translate into lower calling costs for end users, since Bandwidth.com will be able to use fixed network VoIP much of the time.

Public Wi-Fi usage

In all likelihood, pricing will set at levels much lower than what users typically expect from mobile service plans, and without need for a contract. Republic Wireless


Users will have to buy a new device specially created by Republic Wireless, which undoubtedly will prove a barrier to some users. But $20 a month, with unlimited data access, texting and calling, is going to be attractive to lots of people.



Smart phone owners are using Wi-Fi hot spots in increasing numbers, both in the home and out in public.  A recent study by WeFi shows an uptick in smart phone data consumption, much of it by users on the Android platform, for example. That might explain why the Republic Wireless service will use Android devices.  Smart phone Wi-Fi usage

Mobile VoIP About to Explode?

Mobile VoIP Forecast

Mobile VoIP subscribers will grow from 47 million in 2010 to almost 410 million by 2015, Infonetics Research forecasts. That is not a good thing for service providers.


Mobile service providers globally earn about $500 billion a year providing voice services.


In 2010, mobile operators made $13.21 per user, per year, from mobile VoIP services. That works out to about $1.10 per user, per month, demonstrating how little revenue there is to be made from over-the-top mobile VoIP services. Mobile VoIP forecast.


Consider that, even after a 20 percent decline over the last three years, monthly average mobile revenue is about $27.77 a month. That points out the complicated business impact of IP telephony and VoIP. 


So what happens if 363 million more mobile VoIP users are active by 2015? Assume the same revenue metrics for the additional 363 million mobile VoIP users, which is $13.21 per user, per year, compared to a typical payment of $27.77 a month for legacy voice services, or $333.24 a year.


If the 410 million mobile VoIP subscribers use nothing but VoIP, they would spend $131 billion less with mobile service providers than they used to.


That suggests a loss of about 26 percent of total mobile service provider revenue in four years. Mobile VoIP About to Explode?

T-Mobile USA Extends VoIP Features

T-Mobile’s Bobsled service, a VOIP-based communication platform that initially allowed smartphone owners to call their Facebook friends from their mobile device, has been expanded to provide free calls to any mobile or landline number in the U.S, Canada or Puerto Rico from anywhere in the world, simply by using their desktop browser.

The move is one more example of what normally happens in competitive markets, which is that the contestants lagging most in a market are most likely to embrace disruptive changes.

Whereas before, Bobsled would allow you to call Facebook friends from a dedicated smartphone application, the service has been adapted to give users the opportunity to call numbers in North America directly from the browser using their desktop computer and iOS or Android tablets or smartphones.

The Android/iOS version currently only supports calls direct to Facebook contacts, but that will be upgraded soon, one assumes. If an iPhone or Android user wants to make free general calls, users will need to log in through the browser interface instead of placing calls directly from the mobile.

Still, using the mobile apps, users already can make Bobsled to Bobsled calls, cross-platform between Android and iOS, and leave voicemails that show up on Facebook contacts’ walls.

It’s also possible to record a voice message and leave that pinned to someone’s wall, rather than actually talk to them.

In effect it’s a clever way for T-Mobile to potentially get onto hundreds of thousands of iPhone home screens, despite being the only major US carrier not offering the new iPhone 4S. The immediate revenue for T-Mobile is nil, of course, but the potential for mind share and awareness at least is enhanced.

"Bobsled Calling" allows users to make high quality calls to Facebook friends and any number in the United States, Canada or Puerto Rico from anywhere a user has an Internet connection, even when they phone isn't available. Bobsled

To download the application on your smartphone or tablet device, click here.

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Mobile Broadband Will Drive U.S. Telecom Revenue 2011 to 2016

Mobile data will be the largest contributor to U.S. telecom service provider growth over the next five years, says Pyramid Research. That not-unexpected assessment is simple recognition of the fact that growth must be driven by services that have obvious demand drivers, fit network and other organizational capabilities are not already fairly saturated and highly competitive. Right now, in the U.S. market, mobile broadband to support smart phones and tablet devices is the only clear service that fits all the parameters.

Voice services are expected to dwindle, on both the fixed and mobile networks. There will be growth in the video entertainment, VoIP and high-speed access segments, but at modest rates. 

The U.S. telecom market generated $367 billion in service revenue in 2010, an increase of 3.1 percent over 2009.

"We expect the market to grow at a 3.1 percent compound annual growth rate over 2011 to 2016, reaching $443 billion in 2016. U.S. telecom revenue forecast

While it was the fourth-largest service segment in 2010 (after mobile voice, fixed voice and pay-TV), Pyramid Research projects mobile broadband will have a 12.7 percent CAGR over the 2011 to 2016 period.

That means that mobile broadband services will overtake mobile voice, fixed voice and entertainment video  to become the single largest revenue stream in the U.S. telecom industry by 2016.

As demand for fixed circuit-switched voice decreases, fixed VoIP will increase, growing at a 12.2 percent CAGR from 2011 to 2016. But VoIP still will be the smallest of all revenue streams over the forecast period. There might continue to be some small dial-up Internet access revenue, but it will be negligible. 

How Much Effort Should Some Service Providers Put into Voice Innovation?

Voice services represent a troublesome issue these days, in most developed markets, for service providers. In the landline segment of the business, subscribers are abandoning their subscriptions and relying on mobile service for voice. Users also are talking less and per-unit prices are falling.

In the mobile segment, users in markets with high costs are figuring out ways to use alternate subscriber information modules to spend less, are switching to less-costly VoIP services or substituting text and instant messages where a voice call is another way to accomplish a task.

The troublesome issue is what to do, and how much to do, to innovate in voice. You might think those are easy questions, but they require investment, so the issue is “how much” a service provider ought to spend on a service that many would argue already is well past the peak of its product life cycle.

The typical advice for firms is to launch new products that will replace lost revenues as older products begin to decline. Some might argue that mobile service is that replacement product.

But there is an investment corollary to the product life cycle. At some point, a rational provider should stop investing in a declining product. Some people argue that innovation will extend the life of voice, or even create new markets for voice.

Others might bluntly argue that it isn't really worth the effort, though few might say so in public. The argument that "not much can be done" is weakest for business voice products, strongest for consumer voice products. In the consumer space, it might be tough to compete with Skype, Google Voice, MSN and others.

Consider "videoconferencing." Up to this point, appliance-based approaches have not made inroads, compared to use of Skype. That doesn't mean change is not possible; simply that in the consumer segment, Skype is hard to beat as a platform for consumer videoconferencing.

Innovation opportunities are strongest for IP telephony in the enterprise and business markets, many would say.

Another big issue is whether VoIP and IP telephony are replacement products for legacy voice, or only the latest version of the voice product. The earlier analogies would have included each generation of voice provided by a new generation of switches.

In other words, was voice provided by an analog switch a different product than voice provided by a digital switch? Or was the use of digital switches “merely” the next generation of an existing service? Your answer will determine whether you think of IP telephony as a “new product” or simply the “latest version of voice.”

Your decisions on investment might vary accordingly. To be sure, at some point, a complete transition to IP telephony and VoIP will be necessary. But there still is room for strategic choices that are "minimalist" in terms of investment, and other strategies that are "maximalist." 

Every voice provider will supply IP-based voice, it is clear. What is discretionary is the amount of effort a service provider wants to put into creating new applications around IP voice, in the context of pressing needs for investment in other areas such as mobility, broadband, video, machine-to-machine apps, mobile banking and payments, mobile advertising and vertical market applications for some key business segments. 

The decision will be easier for contestants that do not have realistic prospects of creating brand new businesses too far afield from basic data access, video entertainment and voice services, and primarily compete in the land-line segment of the business.

The point is that it is one thing to say "innovation is good." It is. But innovation is required across every product category, and resources will be limited, so choices have to be made. Different actors will choose different levels of commitment.

But some level of commitment is necessary. Consider the matter of “turning off the public switched telephone network.” At some point, as fewer and fewer customers are using the legacy voice network, the costs of supporting the network will grow to the point that it simply makes no sense to keep using it. At that point, we’ll have to shut down the PSTN, as mobile operators in the past have had to shut down analog mobile networks. The only issue is when it will be needed, and when to get started, much as set a date for turning off the analog TV network.

In fact, at its June 29, 2011 meeting, the Federal Communications Commission’s Technology Advisory Council ("TAC") received a report from its "Critical Legacy Transition Working Group" projecting that by 2018 only six percent of U.S. households will still retain a traditional copper wireline local exchange access line as their primary voice service, not having "cut the cord" and replaced their wireline phone with wireless or some other "new" technology.

By 2014, the United States will have fewer than 42 million voice access lines in service, the TAC predicts. By 2014,  U.S. consumers will use 31.6 million VoIP lines accounting for 42.5 percent of all U.S. voice access lines. TAC report highlights

Based on that projection, the Working Group proposed that the TAC call on the FCC to "target 2018 as the end of the PSTN."PSTN sunset

This will be a politically sensitive issue, as lots of participants in the ecosystem will be hurt by such a move. Some service providers and some suppliers whose business depends on the existence of the legacy PSTN will be harmed. Suppliers of gateway products, for example, explicitly assume the existence of the PSTN and the need to launder traffic and messages between IP and PSTN domains.

For some, the issue is whether 2018 should be the date. But no matter when the full transition happens, the practical issue will remain: how much effort should particular firms put into their voice innovation efforts?

The answer will depend on how much revenue a provider thinks that investment will yield.

Is Telstra Getting Out of Fixed Line Consumer Voice?

In what might strike you as an odd statement, Telstra executives say that VoIP is not sufficiently reliable to sell to consumers.

While launching a new IP telephony services aimed at small business customers, Telstra CEO David Thodey said the company was only continuing to review consumer VoIP services.

“As we think the product is mature enough, and has enough technical backup, we’ll bring that product to market,”Thodey said. However, Thodey didn’t appear to believe a Telstra VoIP offering would appear soon, according to Australian content provider Delimiter.

“We don’t think the quality and reliability is there," Thodey said. "We could bring it to the market tomorrow, but we don’t want to."

That explanation might strike some as quite odd, given the success carriers are having with consumer VoIP.

In fact, some of us might speculate that something else is afoot, namely an unwillingness to invest in consumer VoIP because Telstra might not want to sell consumer VoIP when it starts to buy wholesale access services from the National Broadband Network.

When that happens, Telstra, like other retail service providers, will have a choice of customers to serve. Given Telstra's belief in 4G Long Term Evolution, Telstra might be planning to rely on wireless for consumer voice, staying out of the consumer fixed-line voice service.

That might strike you as odd, but keep in mind that Telstra also operates separate cable TV facilities, running on separate networks. While you might think Telstra is giving up a "triple play" opportunity, it isn't. Telstra can deliver broadband access using the NBN, video entertainment on its existing cable TV networks and voice and mobile broadband on its planned 4G network.

In principle, Telstar could deliver voice using its cable networks as well, but Telstra might simply have concluded that mobile is the best way to sell voice to consumers.

http://links.eqentia.com/520b2ad1536d771f/?dst=http://delimiter.com.au/2011/05/02/consumer-voip-not-reliable-says-telstra/&utm_campaign=visibli&utm_source=cisco&utm_medium=twitter

Voice Apps Beyond Dial Tone: A Discussion

A discussion of custom apps beyond dial tone.

Most VoIP LInes Sold as Part of a Bundle

Most VoIP service is sold as part of a bundle, data from the Federal Communications Commission shows.

About 79 percent of IP telephony or VoIP lines sold by cable companies or competitive local exchange carriers are sold as part of a bundle, and intended to be used at a fixed location.

About 90 percent of IP telephony or VoIP lines sold by incumbent telcos are sold as part of a bundle, and intended to be used at a fixed location.

Google Voice to Integrate with Gmail

Google apparently is testing a new feature that makes Gmail chat more useful: users are able to make and receive Google Voice calls from inside the Gmail application, as they would using Skype on a PC.

A new phone icon opens a Gmail chat window with a dialpad, an option to find contacts, a credit balance and a call button.

Google Voice to Integrate with Gmail as a VoIP Service:

Tesco Abandons VoIP Market

U.K. retailer Tesco, which began selling consumer VoIP service in 2006, now is pulling the plug, though it will continue to sell mobile service. Without reading more into the news than is warranted, the move is illustrative of the fact that consumer VoIP might be less an innovation than some had hoped for, and certaintly is a less-robust business than anticipated, especially compared to mobile service, at least for the moment.

That is not to say other competitors, with different assets, can fare better. But the April 27, 2010 shutoff at least suggests that the "VoIP" market has not proven to be the lucrative business Tesco once believed it was, given its ability to support and market the business, as well as the evolution of end user demand, which arguably has tipped in the direction of mobility.

Earlier in the last decade, there was much more apparent optimism that fixed-line VoIP would "change telephony forever," creating significant new opportunities for non-traditional providers.

One might argue that VoIP's primary impact has been to accelerate voice price erosion, without creating a significant new market, though it has been the way cable operators have taken market share from telcos.

Tesco says "trends in technology have moved forward since we launched Internet phone so that this is no longer a sustainable service". One might infer that means mobility now is the "hot" service.

"Tesco Internet Phone" was basically a Skype-style PC offering, though the supermarket did offer a Vonage-style terminal adapter version as well.

That is not to say further innovation in voice services is impossible, or in fact unlikely. There will be advances. The issue is whether the scale, impact and economic importance of such voice innovations is going to approach the advances being made in mobility, broadband, Internet and Web services.

related article

VoIP Will be a Mixed Blessing for Mobile Service Providers

This prediction for use of mobile VoIP by about 2013, made by In-Stat, might suggest the reasons why incumbent voice providers have been somewhat hesitant to fully embrace VoIP.

The pie chart suggests that a majority of VoIP activity on mobile phones will be provided by third party, over-the-top providers, not the "service providers" themselves.

That's roughly the same experience fixed line operators have had: most of the usage is enabled by third-party application providers or competitors, notably cable companies.

Some might find it odd, but VoIP actually has been a mixed blessing for incumbent voice providers. It represents the next generation of voice, but the next generation of voice turns out to be an application "anybody" can provide.

VoIP proponents have hammered away at the theme that VoIP is about new features, not price. The market keeps demonstrating by its spending that price is what VoIP "really is about." Features are nice, especially in the business market, but consumers seem to buy based on their ability to "save money," rather than for the whiz-bang new features.

The fundamental dilemma for an incumbent voice provider is that they essentially must invest more money, to provide new features end users won't pay for, at lower or the same prices. To a certain extent, that's the similar problem service providers face when upgrading to fiber-to-home or fiber-rich access networks. Video services are truly new. But broadband access has been following a "more speed for the same money" trajectory, for the most part. Fiber-rich access networks have made possible new faster tiers, sold for more money, to be sure.

But it would be tough to make the argument that the new sales of faster access, plus revenue from new video services, have earned sufficient return to justify the investments in a classic sense. More often, such investments are strategic, intended to ensure that a provider still has a business, more than investments that immediately produce attractive revenue lift.

VoIP has been a mixed blessing for incumbent telcos, though it has been very satisfying for cable operators and some over-the-top providers.

60% of Calls are Video-Enabled on fring in W. Europ

After just two months, video over Internet calls account for more than 40 percent of fring's global call traffic, on devices capable of doing so, and more than 60 percent of its call traffic throughout Western Europe, where fring mobile video call usage doubles the leading PC-based video call services, fring says.

Fring launched the world’s first interoperable service between mobile video users of fring and Skype last November, enabling users to conduct video calls to other fring users as well as with Skype users using aWi-Fi or 3G mobile Iternet connection.

The majority of fring's mobile video calls are international.

Keep in mind that fring only works on devices running the Symbian or Apple mobile operating systems, including all Symbian 9.2 and 9.3 Nokia devices including the E71N95, N95 8G, N83, N97, 5800 and other Nokia touch-screen S60 devices and the iPhone and iPod touch.

Voxbone Adds Text Messages to Global Phone Numbers

Proponents have argued that  new IP-based communications would offer many innovative features not possible on older telephone networks. Voxbone, for example, now provides "global phone numbers" that are not tied to a specific country, and now has added text message support for those numbers, a feature that will be welcomed by users who see the advantages of a single, global telephone number.

Voxbone’s carrier and enterprise customers now can offer their subscribers one global number that can receive SMS messages at competitive rates, on mobile phones that do not have Internet access. In other words, it works the way the current services do, in terms of user interface and experience.

The move marks something of a potential breakthrough in "iNum" usage, as wireless subscribers from a growing number of prominent carriers, including Vodafone, T-Mobile, Orange, Virgin, and Boost Mobile, now are able to send text messages to iNum "phone" numbers.

The service is already available in the United Kingdom, France and the United States, at prices ranging from 10 to 20 pence per message in the United Kingdom., for example.

Voxbone will be adding reachability from more wireless carriers in more countries in the coming weeks.

The new feature highlights another interesting angle: Landline phones have not traditionally been able to receive text messages. It isn't entirely clear how many people would find this interesting or useful. But it could be done.

All iNum numbers have a prefix of +883, the International Telecommunications Union-assigned international code for the Internet, just as +44 is the code for the U.K. and +1 refers to the U.S.
As a wholesaler of direct-inward-dial numbers and IP transport provider, Voxbone receives calls, and now SMS messages, to numbers with this code and delivers them over IP to its carrier customers, for delivery to their end users.

Google Voice Extension for Chrome Browser Now Live

Google Voice now is available as an extension for the Chrome browser. Adding the extension
adds click-to-ccall functionality to Web pages. If there is a phone number on a Web page, or your online address book, it will now have a hyperlink. Click it and Google will open a pop-up window asking which phone you want to use to set up the call, and does.

Google Voice, you will recall, is not an IP telephony or VoIP application n the sense that Skype or Vonage are. Basically, Google uses the Web to set up and complete calls using your existing mobile or fixed connections, adding some interesting call management features.

The extension also adds a small icon in the upper right of the browser. You can type in a name or phone number and call or send a text message from the browser, and read recent text messages and transcribed voicemails (Google automatically transcribes voicemails, usually not all that well).

Many observers think Google ultimately will add softphone functionality, allowing Google Voice to function as an VoIP client.

How Will Global Telecom Revenue Sources Change Over the Next Two Years?

Looking at global telecom revenue sources over the next couple of years, some basic trends can be seen (click image for larger view).

Fixed network services other than broadband continue to decline.

Wireless revenues continue to grow, as does broadband access revenue.
Dial-up access revenue continues to decline.

Keep in mind that these are global, aggregate numbers, buoyed by huge broadband and especially wireless growth in developing regions. The patterns can be quite distinct in specific national markets.

In the U.S. market, it is conceivable that video and content revenues could be a somewhat significant factor over a decade-long time frame. Wireless growth will be highly susceptible to broadband and data services growth, balanced by a certain amount of "harvesting" of mobile voice revenue, which will decline, relative to broadband, over the decade.

It is worth noting that voice revenue trends have been through two fundamental cycles, with a third on the way. At one time, international long distance was the highest-margin product, followed by domestic long distance. That changed fundamentally between 1997 and 2007. Over that 10-year period, long distance, which represented nearly half of all revenue, was displaced by mobile voice services.

Since about 2000, fixed voice lines and revenue have been steadily declining, at least in the telecom service provider segment, with the cable segment able to grow the role of voice in overall revenue.

In the third change, mobile voice will follow a trend similar to that of long distance.

In each of the shifts already occurring, several things happened. Prices and profit margins steadily were compressed. And new competitors picked up significant share of the remaining business. In each of the three periods, the product has changed.

Between about 1997 and 2007, "long distance" became loosely coupled with local calling and local access. Long distance increasingly could be consumed "over the top," using prepaid calling cards or separate providers for "long distance" on a local line, for example.

Between 2000 and 2009, it became possible to use mobile phones to similarly displace both local and long distance calling, as well as to substitute mobility for fixed voice, while both over-the-top and IP-based calling options became available.

Over the next 10 years, both voice itself and long distance calling in the mobile and fixed realms likewise will be increasingly disaggregated and amenable to "over the top" consumption.

At the same time, the number of settings where voice is used likewise will disaggregate. Voice will be used as an embedded feature of many types of applications and experiences, using many types of terminals and featuring multiple revenue models.

Telecom Italia Sparkle, iBasis Activate First All-IP Bilateral Operational

iBasis and Telecom Italia Sparkle have migrated all their bilateral traffic between Italy and the Netherlands to IP, using i3 Forum specifications. "We are pretty sure this is the first all-IP bilateral agreement," Chris Ward, iBasis senior director says.

All traffic over the connection uses iBasis premium voice service, with quality of service guarantees.

"I already sense some real energy about what we are doing, where there is greater access to the full range of resources at KPN," says Ward, because of the recent acquisition of all of iBasis by KPN.

Right now iBasis represents about seven percent of KPN revenue, but KPN obviously expects that to grow significantly. In part, that optimism results from a change in iBasis strategy of late.

"We have been very focused on margin growth over the past couple of years," says Ward. "But revenue growth is now more important."

KPN's corporate resources will play a part, but also KPN's status as a "member" of the global carrier club. To the extent that financial stability and resources are an important requirement for carrier business partners, the new ownership structure should prove reassuring.

But the iBasis core strategy hasn't changed. It wants to be a leading provider of global voice operation outsourcing for carriers who frankly have many other priorities and might prefer to focus on customers and products with 30-percent profit margins rather than the four percent to seven percent margins international long distance now provides.

"You can't be Neiman Marcus and Wal-Mart all at the same time," says Ward. "You have to choose."

As carriers migrate traffic to IP, we are a natural partner for outsourced international voice operations, says Ward."It doesn't make sense to run international long distance, for most people, unless you are a specialist."

"It's sort of like email, in a way," he says. "Don't devote resources to it, if you can avoid it."

Skype "Dial Tone" No Threat to Mobiles, Fixed Lines

About 21.5 million Skype users were logged in simultaneously on January 11, 2010, which likely is a record.

Some refer to this as "Skype dial tone."

To give you some idea of how far Skype would have to go to be a credible alternative to other forms of consumer voice, consider that in March 2009 there were 4.1 billion mobile subscriptions in service, according to the International Telecommunications Uniion. The ITU also estimates there are about 1.3 trillion fixed lines in service globally.

So make that 5.4 billion devices that have "dial tone," compared to a third of a percent of Skype accounts, at peak. To the extent communications really does depend on network effects, Skype has quite some ways to go.

Incumbent Telco VoIP Transition is Not Technology-Led

The fact that AT&T has asked the Federal Communications for a definite date to shut down the public switched telephone network is, like most regulatory filings made in Washington, D.C., more complicated than it might appear.

Virtually all telecom service provider executives believe IP voice is the future, whether in the mobile or fixed domains. But the economics of the transition are complicated, at least for an incumbent provider.

Attackers, such as cable companies or independent VoIP providers, have no installed base of customers to cannibalize. Incumbents most certainly do, and that makes all the difference in perspective.

A Verizon executive recently noted that, “at this point in time, the business case does not support a technology-led migration off of the PSTN with the combination of land line loss, the economy, competing priorities and competitive dynamics.”

The key phrase is "technology led." Cable digital voice, Skype and Vonage build on VoIP: the technology directly supports the business case.

For an incumbent telecom provider, the technology in some cases harms the business case. To the extent that VoIP services largely replace an existing service with no incremental revenue, added investment is not met by added revenue. To the extent that VoIP services are priced lower than the voice services they replace, the business case is negative.

Under such circumstances it is rational to harvest PSTN voice as long as possible, despite market share losses. At some point, the logic reverses, however. As the fixed costs of the old PSTN are shared over a smaller base of customers, it will at some point be advantageous to switch to IP voice, strictly on the basis of operating cost savings.

That point has not yet been reached, but it is inevitable. The issue right now is what regulatory regime will apply to incumbents as that transition occurs. And one might argue that is the real point of the AT&T request for the FCC to specify a firm timetable for shutting down the PSTN.

The replacement of PSTN technology with IP telephony also creates an opportunity for new rules about carrier obligations that directly affect the costs of providing such service. That is why the AT&T request also argues that legacy rules must be altered as the transition is made.

Those rules are arcane and of little visible consequence for the typical consumer user of fixed voice. But they have enormous impact on the voice business case, as viewed from an incumbent perspective. Basically, all the rules that govern how networks compensate each other for terminating traffic are the heart of the matter.

So incumbent sunsetting of the PSTN will not be "technology led." The institutional and business frameworks remain the key issue.