Senate Bill Mandates VoIP E911

Several years ago some VoIP proponents argued that regulators should not impose "legacy" emergency calling rules on new VoIP providers. That was back when some providers were aiming to replace legacy calling services with a variety of new applications or services, not all of which logically seemed to be "like" public network services. That largely remains true for services that remain in the PC-to-PC domain. But it appears the battle to avoid emergency calling regulations for all "replacement" services is moving inexorably to a conclusion.

Though similar legislation will have to be passed by the U.S. House of Representatives, the Senate has passed the IP-Enabled Voice Communications and Public Safety Act, a bill proposed by Senator Ted Stevens (R-AK). The legislation now moves to the House of Representatives for further consideration.

The bill requires all VoIP companies to provide enhanced 911 (E911) services to all subscribers. The bill gives the Federal Communications Commission authority to add 911 requirements into all new phone services as they evolve, without needing Congress' involvement. Elemental fairness, some would say.

For providers who once hoped relaxed regulatory oversight would provide a price advantage in the market, that hope increasingly is dashed. VoIP services that are effective replacements for public network calling will carry the same tax, safety and regulatory burdens legacy services do. And some would say that's just fair.

VoIP Markets: Is Europe the Future?

Though those of us in the U.S. community tend to overlook the fact at times, the consumer VoIP market in Europe is quite different. In Western Europe there were 21.7 million VoIP customers at mid-year 2007, up from 15.6 million only six months earlier.

TeleGeography estimates that the ranks of European VoIP subscribers had grown to 28.9 million by year-end 2007.

While VoIP is often associated with competitive carriers and cable companies, many European incumbents have counterattacked by launching their own VoIP services. France Telecom has emerged as by far the largest consumer VoIP provider in Europe, while BT, Telecom Italia, and KPN all rank among the top ten European VoIP operators.

The European consumer VoIP market remains fragmented and highly diverse, featuring a wide range of provider types and business models, says Stephan Beckert, Telegeography analyst.

In some countries, incumbents dominate. In others, competitive carriers have gained the advantage. VoIP adoption also differs widely across nations. For example, 34 percent of all French households subscribe to VoIP, compared to only 11 percent in Germany.

At some point, the U.S. markets are going to start resembling the European market. At some point incumbent carriers are going to start pushing VoIP services actively. Recall the pattern set by Digital Subscriber Line services. The technology was available for quite some time. But telcos didn't have a business driver to deploy it aggressively (they feared cannibalization of T1 lines) until the cable operators forced their hand by launching rival cable modem services.

To be sure, an argument can be made that revenue is better managed by allowing traditional phone line sales to shrink gradually, rather than massively converting to VoIP, with the attendant cost and reduced revenue across the board. At some logical point, the benefits will be close to the costs, and the switch will happen.

Vonage Shifts Tactics

In its efforts to control marketing cost, Vonage has been targeting geographic regions where it has a greater chance of signing up customers with high need to call international destinations. For the most part that means urban areas with large immigrant populations.

So although Vonage's marketing up to this point has been able replacing other landline services, the new value pitch is more nearly the "cheaper long distance" segment whose buyers might otherwise be looking at calling cards, dial-around or other ways of calling globally for less money.

The move highlights a perhaps under-appreciated aspect of the voice communications business. Though most executives think "voice is a commodity," and are right in most respects, an argument can be made that voice is not actually a "commodity" in a classic set, but rather a set of "commodities," or perhaps not a classic commodity at all.

Sugar, salt and flour generally are classic commodities. But sugar is not a substitute for salt or flour. In that sense, mobile communications is not generally a substitute for landline voice, a business phone system, PC-to-PC communications or texting, though in some ways each of these modes is partially a substitute for each of the others.

Even email, surely something most people would say is a commodity, is not completely so. Mobile email is a different product than Gmail, or else everybody would be using mobile email. The point is that the mode of consumption, the cost of consumption, the places and time where consumption occurs, as well as the essential required features for successful use, are not so substitutable as to make all of them fully interchangeable commodities.

And the point of that observation is that industry proponents sometimes do not work hard enough at understanding the real differences that make each of these modes and use cases "different products." Which is to say, no commonly interchangeable commodities.

The point at hand is Vonage's new marketing pitch. True, for some users Vonage is a substitute for legacy wired voice service. For others, it is a substitute for long distance calling, calling cards, callback service or dial-around.

To say voice is a scale or volume business, a low-margin business or even a "bulk" business is one thing. To say it is a "commodity" business might be more correct within a single segment or use case. It is wildly incorrect across the full range of use cases that "voice" now represents.

Some might point out that short message service (text messaging) is a distinct business. Others will say it is part of the mobile voice business. Some might say it sometimes is part of the mobile business, and sometimes a "PC-initiated" and "mobile terminated" business.

If such opinions can exist, it is confirmation of the "non-commodity" (in the sense of non-interchangeability) nature of the business.

That isn't to say differentiate is easy. It is hard. But to argue it cannot be done, because voice is a commodity, is off the mark. That isn't to say it is easy to differentiate without obtaining scale. Providers might rationally choose not to differentiate. But that is different from arguing "they cannot."

VoIP Inc. Gets Out

VoIP, Inc. has gotten out of the independent VoIP business as a provider of services that replace standard phone line service. It has decided instead to recast itself as a provider of "click-to-call" applications. The Company therefore has suspended all of its telecommunications network operations including all current revenue generating operations.

The company also reduced its workforce by 25 persons, eliminating most of its network operations and software engineering staff.

Some participants in the U.S. VoIP marketplace think the next two years will see the demise of most of the independent U.S. providers who do not own their own access networks. The average revenue per user is simply too low, the profit margin too thin and the volumes too low.

Hoping is not a business plan.

France is Leading W. Europe VoIP

The three largest VoIP providers in Western Europe are French: Orange, Neuf Cegetel and Free. According to InfoCom's most recent report on IP-based voice, Orange also is active in the Netherlands, Spain and the United Kingdom.

All in all Orange had 3.57 million VoIP customers in these four countries at the end of June 2007 and was the largest provider of IP voice services that are a replacement for analog telephone service, with a 14 percent market share. Neuf Cegetel and Free (Iliad group) follow. BT ranks fourth while and United Internet ranks fifth.

Skype leads for PC-to-PC VoIP share, though MSN or Yahoo! each get significant usage as well. Generally speaking, consumers do not use Skype, Google or MSN VoIP services as their main phone line in place of their traditional telephone line, InfoCom analysts say.

Indian Company Slashes Voice Rates

India's State-run communications company MTNL has slashed international call rates to one Rupee per minute (about three cents) for its Voice Over Internet Protocol customers to about 100 countries such as Saudi Arabia, Pakistan, Japan, Malaysia and Kuwait.

The call rates to the United States, the United Kingdom, Canada, Australia, Singapore and Hong Kong are already stand at one Rupee (3 cents) a minute. For countries to which the calling rates were at Rs 6 (18 cents), 8 (24 cents) and 12 (36 cents) have now been reduced to Rs 4 (12 cents), 6 (18 cents) and Rs 8 (24 cents) per minute respectively.

For countries where call rates were Rs 2 (6 cents) and Rs 3 (9 cents) per minute, the rates have been reduced to one Re (3 cents) per minute.

The issue now is how market forces will work to lower mobile-initiated or terminated calls, as that's where the future lies in India, China and other markets.

at&t launches VoIP in Detroit

At&t says it will soon launch VoIP for U-verse customers. The service has been launched in the Detroit market. The service is a replacement for traditional landline service and is priced accordingly.

A $40 monthly fee provides unlimited domestic calling while a $20 a month plan provides 1,000 long distance minutes. The service includes an online call manager portal, unified messaging, click to call from the TV, and simultaneous ring of up to four separate telephone numbers.

So the long march towards VoIP by dominant telcos begins. As just about everybody now recognizes, VoIP will in some cases represent an incremental change in user behavior, in some cases a replacement for traditional calling and in some cases a better way to do traditional calling with a better user experience.

Pretty soon we'll start to get some insight into the ways VoIP helps traditional telcos, in addition to representing a threat to established revenue streams. Without widespread fiber-to-customer networks and a complete shut-off of traditional time division multiplex infrastructure, it will be hard to say for certain.

But Verizon executives think they will save operating expense when they are able to shut off the TDM voice network and shift everything over to IP.

Why VoIP Won't Escape Voice Regulation

Telephone subscribers in Oklahoma City and 223 other communities throughout the state will be required to pay a two percent "line inspection fee” on the basic residential rate beginning in February. The fee has been assessed by cities for decades, but up to this point at&t has simply "eaten the cost." It now will pass the fee through to users.

Apparently at&t pays a fee to maintain the rights of way for its telephone lines in 224 of about 490 communities it serves in Oklahoma.

And that's one of the reasons VoIP-as-a-replacement-for-wired-voice will not forever escape regulation of the sort legacy voice services are subject to. There are many vested interests at the local and state level, as well as at the national level, that generate revenue from voice services. As IP-based communications begin to displace huge chunks of the services base, those interests inevitably will move to protect the revenue by pulling VoIP into the older framework.

Now, the way this gets done might change. Where a "subscriber line charge" now is assessed for each "voice line," it might someday be assessed on a "broadband access connection." The revenue won't be allowed to evaporate.

European VoIP Market Soars

Though VoIP might largely be driven by cable companies in the U.S. market, the 22 million-plus VoIP subs in the European market bear witness to dramatically different market dynamics. In part because of robust local loop unbundling rules, independent broadband competitors have had quite a field day, both as providers of broadband access and VoIP services.

In the French market, for example, France Telecom (Orange) is "the number two provider of VoIP in the world," says Carlos DeSilva, France Telecom director. "In France, 30 percent of all calls are VoIP and it is used by about eight million customers."

Skype 2.6 for Mac Now Available

Skype has released Skype for Mac 2.6, the latest version of its communication software for Mac users. For the first time, Mac users will be able to enjoy a new Skype feature before it's available to Windows users.

Specifically, Mac 2.6 offers a new call-transfer feature that is exclusive to the Mac platform. Users can now select More > Call Transfer to transfer an ongoing call to another Skype user on their contact list. It is obvious how this will appeal to small business users, especially lone eagles and remote personnel.

Beyond the exclusive call-transfer feature, Skype for Mac 2.6 incorporates a number of nice Skype features that were previously only available on other platforms.

Mac users now can join public chats. There is a chat typing indicator. Skype Prime offers the ability to call a premium-service provider and pay for their advice and knowledge with Skype credit.

Automatic updates are automatically pushed to end users and DTMF tones for automatic answering services are available during Skype-to-Skype calls.

Vonage Preps Workaround

Vonage thinks it has found a workaround that avoids any of the claimed Verizon patent infringements and plans to begin implementing them shortly, says Jeffrey Citron, Vonage interim CEO says. Vonage's new technology can be installed through software downloads and shouldn't be costly to deploy, Citron says.

Call Your Mom, It's Free

Skype users can call their mothers, or anybody with a telephone number, all day on Mother's Day, May 13. So call your mom.

Google: Mobile, Mobile, Mobile

Nobody outside Google seems to know precisely what Google is up to in the wireless domain, aside from deals to preload Google on mobile handsets. Maybe it has developed a Google phone, as a proof of concept, but has to plans to bring it to market. It certainly is working on software that allows users without PC access to use Google applications.

Google clearly is up to something. When Eric Schmidt, Google Chief Executive, was asked about intriguing technologies, he answered, "mobile, mobile, mobile."

This Might be Good for Vonage

In a decision issued April 30, the U.S. Supreme Court reinvigorated the "obviousness test" used to determine whether a patent should be issued. Ruling in the case of KSR v. Teleflex, the Court found that the US Court of Appeals for the Federal Circuit, which handles patent appeals, had not been using a stringent-enough standard to determine whether a patent was infringing.

At issue in KSR v. Teleflex is a gas pedal manufactured by KSR. The pedal has an electronic sensor that automatically adjusts its height to the height of the driver. Teleflex claimed that KSR's products infringed on a patent it held. KSR said that Teleflex's patent combining a sensor and a gas pedal was one that failed the obviousness test, and as such, should not have been granted.

Since 1952, legislation has mandated that an invention can not be patented if a "person having ordinary skill in the art" would consider it obvious. Many observers think Verizon's patents are overly broad. Basic mechanisms for connecting calls between the public switched telephone network and IP networks might be a similar sort of thing.

KSR argued that the US Patent and Trademark Office should have denied Teleflex's patent, as it only combines components performing functions they were previously known to do.

The Supreme Court ruled that the Federal Circuit had failed to apply the obviousness test. "The results of ordinary innovation are not the subject of exclusive rights under the patent laws," Justice Anthony Kennedy wrote for the Court. "Were it otherwise, patents might stifle rather than promote the progress of useful arts."

The Supreme Court also said that the Federal Circuit's conception of a patent's obviousness was too narrow. "The Circuit first erred in holding that courts and patent examiners should look only to the problem the patentee was trying to solve," according to Justice Kennedy's opinion. "Second, the appeals court erred in assuming that a person of ordinary skill in the art attempting to solve a problem will be led only to those prior art elements designed to solve the same problem."

So Teleflex's patent has been invalidated and more importantly, the Federal Circuit will now have to pay closer attention to a patent's obviousness. That may be good news for Vonage.

Iotum and Jajah Partner

The Iotum Talk Now application, a presence manager running on Research in Motion's BlackBerry, now has been integrated with Jajah, the Web-enabled calling application. ah is integrated into the iotum application. Very nice. Of course, now I am having an even harder time weighing two crucial device decisions. Do I ditch Windows and go Mac? And do I ditch BlackBerry and go iPhone?

As a former Mac fanatic, I finally had to switch to Windows because all my trading partners were on that platform, and at that time the Web really wasn't available to mediate most communications and applications. It is safe to say I've never enjoyed or really liked Windows. The big issue now is how many of the applications I get asked to test, or actually use, will be available on the Apple OS. Don't know yet, but this probably is the decision hinge.

Push email was a huge innovation when I first got it. But I'd have to say push email isn't a compelling reason to keep my BlackBerry any longer. Lots of devices do that. And when I focus on BlackBerry's interface and ease of use, it falls down. Right now, Iotum is the reason I'd be reluctant to switch. And Jajah integration is an even bigger plus.

If you wonder whether applications make a difference in device choices, I'll tell you this: in my case Iotum and Jajah now stand between iPhone and a new service provider.

The PC decision is more complex, since there are multiple apps I wouldn't want to risk messing with, and others that will show up, even if the hassle and irritation factor is very high.

Vonage Wins Permanent Stay

The U.S. Court of Appeals for the Federal Circuit in Washington D.C. has issued Vonage a permanent stay of a previous court's injunction that would have barred it from signing up new customers.

Vonage sought the stay following an April 6th decision by the U.S. District Court in Alexandria, Va. enjoining the company from using certain VoIP technology to add new customers. The permanent stay enables Vonage to continue adding new customers as it pursues an appeal of the patent infringement ruling.

Vonage will however continue to pay into escrow a quarterly royalty of 5.5 percent throughout the appeals process and also will post a $66 million bond as required by the court.

"We believe the original verdict was based on an erroneous claim construction -- meaning the patents in this case were defined in an overly broad and legally unprecedented way," says Sharon O'Leary,Vonage EVP and chief legal officer. "We believe the district court's decisions repeatedly neglected well-established law on claim construction and, as a result, artificially expanded the coverage of Verizon's patents well beyond what was intended by the patent trademark process."

Communications as Consumer Electronics

As more and more mass market communications gear becomes an extension of the consumer electronics business, more of the rules of that business start to apply. Among the key rules are: keep the price low, make it simple to use, address a real need, design attractively, build retailer relationships and adhere to standards because one requires volume. Every January, hundreds of new products are shown at the Consumer Electronics Show, and most of them fail.

So consider MobiGater, a USB device that transfers Skype calls to a mobile phone without using SkypeOut credits. The €270 ($370) box works like any other plug-and-play USB device. Once connected to your desktop computer, all Skype calls are redirected to a mobile. Heavy mobile users in markets with high costs might find the gizmo worth buying and using. But there will be issues. It always is tough to sell a peripheral that costs as much as the processor the peripheral is supposed to be used with.

The user requires an additional SIM card for the MobiGator, so while the Skype call might be free, there's the cost of the mobile SIM cards to deal with. The historic tipping point number for a popular consumer electronics device used to be $300, so MobiGater remains just a bit on the high side. On the other hand, recent sales of high definition flat panel TV displays have broken clear of the $300 mark.

The longer term problem is simply that the cost of calling, and the effort one has to put into reducing those charges using Skype and MobiGater, simply don't solve a big enough problem to drive mass adoption in many markets and customer segments. VoSky has a similar product aimeda the home and small office user. VoSky's Internet Phone Wizard allows users to make Skype calls from anywhere with a cordless or regular phone instead of the computer speakers.

The Internet Phone Wizard also supports outbound Skype calling from the regular handset. PSTN is the default. A couple of key taps switches the phone to Skype mode. The device also can be used to create a virtual second line.

Still, the consumer electronics market is brutal. Most products fail, or succeed only quite modestly, in some niches. To really change end user behavior requires a huge carrot in terms of advantage. There's no question the MobiGater and VoSky devices are useful to some people with high calling costs and heavy mobile use. It just isn't so clear there's a mass market for either.

What Else Would Vonage Say?

Vonage says it has no "workaround" in hand to sidestep Verizon's patented Internet phone technology. That would simply stand to reason. It obviously would take time to circumvent a broad patent covering interconnection of public and IP networks.

This is precisely what one would argue if angling for a permanent stay of an order that would shut one's company down, while an appeal winds its way through the courts.

More to the point, though, Vonage says isn't sure that such a plan is even "feasible," given the expansiveness of Verizon's patents, which set out methods for passing calls between the Web and conventional phone networks. Friday the 13th, indeed.

A federal court recently ruled that Vonage had infringed on Verizon's patented technology. As punishment, Vonage was barred from using the disputed technology to support new customers. Vonage has gotten a temporary stay, but has petitioned for a permanent stay until the appeals process is finished.

Vonage told investors and customers not to worry because a "workaround" was in development. That does not necessarily contradict the fact that "Vonage currently has no workarounds that moot the need for a stay."

"While Vonage has studied methods for designing around the patents, removal of the allegedly infringing technology, if even feasible, could take many months to fully study and implement," Vonage has said in a document filed with a federal court, USA Today reporter Leslie Cauley says.

We wouldn't think the filing necessarily reveals much, other than the strongest-possible argument to a judge that a permanent stay is urgently needed.

"Why Vonage?" Jon Arnold Wants to Know...

Bloggers Jon Arnold and Daniel Berninger want to know why Verizon went after Vonage on the patent front. Why not some other company? The answer is that the dominant telcos want some competition, but not effective competition. The reason is simple enough. It is quite beneficial to show regulators that there is effective competition in their markets. But what happens is that there's a threshold. Below a certain level of success, we leave you alone. Cross the line, and we have to deal with you.

That's why some competitive local exchange carriers actually were encouraged to take share away from certain large tier one incumbent telcos. Helped, actually. All to demonstrate that there is effective competition in the market. Not every CLEC got that sort of material help. And not every CLEC found itself so favored once the legislative and regulatory battles requiring proof of effective competition drew to an end.

Vonage gets attacked because it frankly doesn't help to attack SunRocket or Packet8. Vonage is the one company that crossed the threshold, as all the leading cable companies have done. And that is my take on "why Vonage?".

Vonage Starts Cutting

Vonage says its quarterly results for the period ended March 31, 2007 will show $195 million revenue, 332,000 gross customer adds and 166,000 net adds. That would bring Vonage in flat with net adds for the fourth quarter of 2006, when it added 166,000 net customers.

Marketing cost for each gross customer addition, though, backed down to $275, towards the more historic range of $239 in the second quarter of 2006, $306 in the fourth quarter 2006, $254 in the third quarter and $239 in the second quarter last year.

Quarterly revenue of $195 million was stronger than the $180 million Vonage reported for the fourth quarter 2006. Monthly ARPU was $28.17.

But Vonage also expects to boost operating results by cutting $110 million in marketing expense, possibly a quarter of what it originally though it would spend this year. Vonage now expects to spend $310 million for 2007 marketing, instead of $400 million to $425 million.

A 10 percent force reduction also will slash SG&A costs of about $20 million in 2007. Planned cuts in other SG&A expenses are expected to generate an additional $10 million in savings.

Collectively, the moves will get Vonage very close to positive operating income, though not profitability.