How Many Retail VoIP Providers Sell $214 million?

Not many. Probably not Skype, which might wind up the year in the $200 million range. Cbeyond does. Which might lead you to conclude a few things about the current state of customer demand for VoIP services. What's the leading approach in the consumer market? POTS replacement. Same phones. Same features.

What's Cebyond's approach? Phone service and Internet access, same phones, plus some additional features such as BlackBerry integration, so an inbound call can be taken at the desk or away from it. As it operates in the small business market (generally no more than 250 users at any single site), Cbeyond can be expected to offer more features than a mass market customer might expect.

But the fundamental approach, which is to use VoIP in the core of the network and retain the analog edge and customer premises equipment, is pretty much the same.

That isn't to say the enterprise market is showing precisely the same adoption pattern. In fact, VoIP "past the edge," all the way to the end user device, increasingly is a familiar pattern. Enterprise IT managers still have concerns, of course, as a recent Network Instruments survey shows. But IP features arguably are more visibly a presence in enterprise markets.

Nor can one infer that "VoIP in the core, POTS at the edge" is the pattern that always will hold. It won't. It just works today, and effectively.

People Aren't Paying Attention

They can't pay as much attention to any single form of media as the total amount of media explodes. Of course, users are going to reduce consumption of less relevant media forms as well. The absolute hard limit is that there are only so many available hours in a day. So as consumers become flooded with more media, they are finding ways to make room for it rather than letting some of it go.

Multitasking, in other words, has become a necessity. Though teens are more likely to do so than adults, it is estimated that 25 to 30 percent of total media time is spent multitasking.

In 2006, 103 million of the 147 million US adult Internet users watched TV while they went online. Nearly 90 million listened to the radio while online, and more than 50 million read magazines while online. Among teen Internet users, 7.3 million of the total 9.4 million watched TV while online, and 6.9 million listened to the radio.

Mobile is Where Innovation Will Happen

...for very simple reasons...VoIP doesn't change the user experience very much on a landline phone. Some people think that is an advantage. On a mobile handset, VoIP is but one element of many many things that can be tweaked and customized in ways the enrich the communications experience. That's in large part because, to an ever-greater degree, mobile handsets are general purpose computing devices, with all that implies for differentiated services and features.

Mobility itself arguably is the single biggest change in voice communications over the last 30 years. But smartphones will provide the platform for the next waves of development, simply because the smart phone is the most-used intelligent edge device, and is deeply embedded into a typical user's life.

In fact, 75 percent of people questioned in a survey by Yahoo! HotJobs said they used their wireless devices equally for work and personal reasons. Nearly 30 percent were so attached to them they only switched them off while sleeping. The online survey of 900 professionals revealed that 81 percent stay connected with a mobile phone, 65 percent use a laptop to keep in touch and 19 percent have adopted smart phones, cell phones with computer-like functions.

Like a network upgrade from mechanical to eletronic switches, or analog to digital, or digital to soft switch, VoIP mostly changes what happens in the core of the network. Analog terminal adapters and network interface units change what happens at the network edge.

Mobile handsets change what happens at the user interface level. And most of the advantages fixed mobile convergence represents will occur as mobile features become usable on the wireless tail of a wireline transport mechanism.

"VoIP isn’t a business category anymore"

...says Alec Saunders in his latest post on http://saunderslog.com/2007/04/05/voip-isnt-a-business-category-anymore/.

"VoIP isn't the reinvention of the telephone which we all foresaw five years ago. At least, not the VoIP peddled by the likes of Vonage. It's ordinary telephone service… delivered on IP. While popular, it has failed to deliver the revolution industry types envisioned. "Innovations" like web-based dashboards are long in the tooth, and the truly revolutionary applications which could have been delivered have never seen the light of day.

It's time to stop talking about VoIP as a business category, or an industry. Companies using VoIP to deliver service to customers are really just one more instance of a competitive service provider, albeit with different tarrifing and competition rules. Viewed from that vantage point, it's no wonder that this "industry" is struggling."

One might add that IP also is simply the way application and service providers--including incumbents of all stripes--are going to deliver features and make money in the future. All of which is simply the latest evidence of a trend underway for a couple years now: VoIP is voice; voice is communications; no more, no less.

Unfortunately, FTTX Doesn't Tell You Much

At some point, there will be a pretty compelling business difference between a fiber to neighborhood, fiber to a node of 16 to 32 homes and fiber directly to the customer. Standard definition TV may persist for awhile in closed environments. Cable operators might even see some business advantage there, as customers can continue to use their analog TVs without any new decoders to receive at least some programming. Of course, the counterweight is that bandwidth taken up by analog prevents efficient use of potential digital bandwidth to provide new services.

But when all terrestrial broadcasting instantly converts to HDTV in a couple years, and cable programmers match the move to avoid being seen as inferior in quality, most linear programming will be in HDTV format (the issue is what cablers will want to do about "standard definition" NTSC signals).

The assumption that just one concurrent HDTV stream will be required by any single home has to be suspect. To some extent, the access network has to be built to the level required by the most demanding user. And while it still makes sense to retain the ability to "spot upgrade" on an incremental capital basis as more demanding customers are signed up, the access network has to support such incremental and spot upgrades. Whether or not all the theoretical bandwidth is presently required, the ability to provide it on demand is something the access network must be built to support.

The option to deploy a "thin fiber" network saves capital investment for the moment, to be sure. Planned properly, fiber then can be incrementally extended deeper into the network. Such rework remains a non-trivial exercise, though.

Also, keep in mind that all discussions about what video might do the backbone of a network is a separate matter from what might be required in the access network. The reason is satellite delivery, regional server farms and other ways of substituting storage for bandwidth, processing for bandwidth, non-real-time delivery (store and forward) and alternate networks. All of these forms of substitution allow for easing the stress on backbone networks. The amount of stress on access networks typically is the real pinch point.

It Will Take Video to Change This

Some 29 percent of U.S. homes--31 million--do not buy any form of Internet access, and 44 percent of the "resisters" says they don't buy service because they are not interested in anything on the Internet, say researchers at Parks Associates. About 22 percent of resisters say they don't buy because they do not own a PC. The U.S. Internet "resister" homes also say they don't plan to buy access for the next year either, say Parks Associates.

Parks researchers also find that most new broadband access subscriptions are coming from dial-up customers who are upgrading, not "newbies." Some 17 percent say they use the Internet at work, and therefore don't need it at home. Of course, if we are to get to universal broadband, it will be driven by entertainment video. You don't find many people objecting to ownership of TVs and TV service for any reason. As the broadband connection becomes the way to get TV, resistance will crumble.

Buying Decisions Hinge on Marginal Value

There's a curious paradox about user perception of value and the actual triggers that push a buyer towards one offering, compared to another. Consider all of the value any user gets from a mobile or fixed line phone, VoIP service, a broadband connection or Web service. When you get right down to it, a phone has to reliably make and receive calls. Perhaps half to 90 percent of the total value is there. The incremental value is provided by all the other attributes of the phone and its features, the calling plan and so forth.

To the extent that "voice" consumed as a standalone subscription service is a commodity, the discrete buying decision still will hinge on other differentiators at the margin. The point is that even a commodity service is not sold as a commodity.

Yes, all phones need to work. But then there's phone color, fit and finish, form factor, keyboard support, push or pull email functions, ease of navigation, screen size, multimedia support and so forth. Some brands are worth more to some buyers. Some users prefer candy bar form factors, others clam shells. Ability to customize is important to some users, not at all to others.

The presence or absence of just one feature can tip a decision for or against a particular service, provider or device.

Part of the buying decision may be based on relative strengths of a family plan, or the way text messages are billed (flat fee, by the message) or packaged (unlimited use, fixed number of messages or a la carte).

So consider commodity broadband access. Comcast is rolling out its upstream Powerboost feature now in Denver, and expects to have it available in all markets in May. The service offers 6M bps cable broadband customers 1 Mbps upstream speeds for the first 5 megabytes of a large upload, and 8 Mbps customers 2 Mbps upstream speeds for the first 10 megabytes of a large upload.

The point is that Powerboost is one way to differentiate what would otherwise be a plain vanilla access service. Raw bandwidth matters. The degree of bandwidth sharing therefore matters. But so does pricing, packaging and features such as Powerboost. Lots of mass market end users I talk to really believe cable modem service is superior to Digital Subscriber Line. Some even question the value of fiber to home access services such as Verizon's FiOS, which seems to be experiencing at least some deployment glitches.

Communications might be a commodity in many ways. Its purchase almost never seems to resemble a true commodity, though.