Like WiFi, VoIP Profits Might Go To Unexpected Places

from the follow-the-dollars dept

Tue, Aug 15th 2006 10:17am — Carlo Longino

When WiFi was in its infancy, plenty of people thought they could make money from selling access at hotspots. In time, plenty of people figured out they had more to gain from offering free WiFi to their customers than from selling access, and the resultant spread of free hotspots hit the paid-access business hard, leaving only a few big players whose real success at selling access remains unclear. So who's ended up really making money from WiFi? Equipment manufacturers and chipset vendors, not service providers, and now Om Malik wonders if the VoIP market will play out the same way. The cost of basic voice service is quickly trending towards zero, while VoIP providers like Vonage and Skype are already having trouble making money. Malik sees a bright future for the makers of products like VoIP handsets, that let users make VoIP calls over WiFi, or without a PC, or even just PC headset manufacturers. It seems inevitable that the cost of voice will continue to fall, and be free in most cases as it gets bundled with other services, whether it's broadband access or mobile phone service, but as cost falls and uptake increases, so too will the need for VoIP hardware, whether that's phone adapters in cable modems or WiFi chips in mobile phones. Given those characteristics, it looks like VoIP could mimic the WiFi market and deliver the real returns to equipment vendors, not service providers -- but those returns could be hit even further since unlike WiFi, VoIP is simply a software application running on top of network connectivity.

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Derek Kerton (profile), 15 Aug 2006 @ 10:08am

Disrupt
...and if true, VoIP would be far more disruptive, since WiFi didn't end up cannibalizing some existing business, where VoIP certainly does.
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Anonymous, 15 Aug 2006 @ 10:50am

I disagree. While WiFi has gone the way of 'free as in beer', I do not think that will happen with VoIP. While bundled services will make their presense known (they already are), mainstream America will require a few years before they get that warm and fuzzy feeling from VoIP that they get with a simple copper pair and dialtone. When this happens, and people are at ease with changing service providers like they are with cable and POTS lines now, then the price might APPROACH zero, but not before. The tech sector will be interesting to say the least for 15 years or so, as new technologies replace old ones, and companies fight for America's mico-attention spans and hunger for saving two cents a minute on a 12 minute phone call to Honduras, Guatemala, and wherever else they can cut the rates to. If Verizon gets their way, copper to the home will cease to exist, and a simple fiber cable will bring in HDTV, 30 Gb/sec. internet access, and more "phone lines" than any sane family would need.
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tehdirtaddict, 15 Aug 2006 @ 10:52am

Ongoing Cannibalization
Pushing the price down hurts everyone in the VoIP business. I got thee $199 2-year special with sunrocket. Unlimited USA/Canada/PR and 3 bucks worth of international calls. Thats less than $5.50 month for unlimited calls, includign all taxes and fees. How cheaper can it go?

Their loss is my gain. But I wont be surprised if they close down the road.
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Anonymous Coward, 15 Aug 2006 @ 10:57am

What are the real costs in VoIP?
With a very simple piece of software, you can create an IP tunnel between two computers, compress audio signals from each and transmit them to each other.

So whats the real expense here? Surely its not the software, thats too simple (and there are tonnes fo freebies for it). Not the internet connection, when one assumes that is a given.

I think the only tangible cost in VoIP replacing PSTN is the act of locating of the other person, and of course, bridging the VoIP world with the PSTN world. PSTN uses telephone numbers as the way to locate the "other party" when making a call. VoIP uses IP addresses.

We already live in a world full of routers and NAT'ng and dynamic ip addresses, so its not like you can tell all your friends to call you on 192.168.1.100. They owuld most likely wind up calling themselves anyways. Even if you did know your real ip address and gave it to your friends, you woudl have to tell them once a week to update their phone book (or as often as your dynamic addy gets changed by your isp, yes, one week is an exageration).

So the IP addy is useless as a phone number. But that can be worked around. For example, your IM login works great. Look at googles Talk for an idea how the "number" is simply not required. But that doesnt scale well.

The point about bridging back to the PSTN is where the real money is required tho. Mass adoption of VoIP requires that a call made from outside the PSTN realm is capable of connecting to a user of the PSTN. This is known as Net2Phone in one "bridge providers" application. The reverse is also pretty much a requirement. You have to be able to revice PSTN calls on your VoIP phone for it to be useful.

Now, guess who controls the access to that bridge? The PSTN maintainers get to set the rules. They get to set that price, and they dont want their precious PSTN to go away.

Personally, I just try to never use PSTN, but I haven't started using VoIP more to replace it. I never liked phone calls anyways.
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VPR, 15 Aug 2006 @ 11:07am

There was a time when there was talk about how tv cable, internet and phone would be done right from your cable line ;)

I agree with #1. A lot (work and home) refuse to make the transition to VoIP right now simply because the basic phone service, compared to internet telephony, is always up. Basically what hurts companies like Vonage and Skype is the reliability of the ISP unfortunately.
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Anonymous Coward, 15 Aug 2006 @ 11:17am

Re:
My phone, tv and internet ARE served over my HFC cable line (and my provider is known as "a cable company"). Thats the classic bundle.

I think the truth is closer to the fact that businesses dont see the business VALUE in making the transition to VoIP, and home users don't see the convenience in the savings. Going all cell is much easier for a home user than going VoIP. And often, its a cost they are already incurring.
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Anonymous Coward, 15 Aug 2006 @ 11:30am

Re: Re:
Here's another example of convenience being more important.

My mom (please forgive the familial reference) sees absoltuly no point in using the VoIP built into chat clients to talk to me or her grandkids over. She'd rather use the convenience of a regular phone/cell. Even tho its a long distance call, its just not that expensive.

However, she recently shelled out over a grand for a new macbook so she could use apples iChat software to talk to her grandkids. With VIDEO. Technically, iChat is VoIP. Voice and Video over Internet Protocol.

But its a nice sophisticated package that actually delivers something she finds useful. Where as VoIP to her just seemed likea silly waste to time.
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Howard Lee Harkness (profile), 15 Aug 2006 @ 11:57am

VoIP not profitable...
The reason Vonage is doing poorly is because they have basically established themselves as lower than pond scum through massive spamming. From complaints I have read elsewhere, they are succeeding in living down to that reputation in other ways, too. If Vonage was the ONLY place I could get VoIP, I would do without. (I use VoicePulse, and am quite satisfied with the performance, and no, I don't get anything for referring them.)

The reason Skype is doing poorly is because eBay has no clue what it's good for. When eBay finally divests Skype (I predict it will do so in less than 2 years), both companies will do better. Or at least Skype might; eBay has lost all connection with its roots, and is drifting aimlessly. eBay will take a long time to die because of its sheer size, but the combination of GoogleBase, Froogle, and Google Checkout will eventually sweep eBay and its captive PayPal into the dustbin of history. Unless, of course, they manage to come up with a better business model than they currently have.
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chris (profile), 15 Aug 2006 @ 12:05pm

Re: What are the real costs in VoIP?
there aren't many real costs. PSTN termination is the big cost, and that is because of the business models of the existing telecoms. for most services, VOIP to VOIP calls are free if you use SIP to make the call.

check out the VOIP white pages to see the providers that you can make free SIP calls to:
http://www.sipbroker.com/sipbroker/action/providerWhitePages;jsessionid=95715F1BBD2D31CE52EAFCC 8F2F96406

there are also PSTN numbers that you can call from a landline phone and then dial a SIP ID to contact thier VOIP service.

calls to mobiles in countries other than the US tend to be significantly more expensive than calls to international landlines or US mobiles, again a function of the existing telco business model.

in a number of situations, you can get a DID (a PSTN number that you can receive calls on) for a low price and get unlimited incomming calls, and only pay for calls that you make to the PSTN.

as for locating people on various networks, that is what SIP is for, and it can be augmented with enum.

one such enum service, which is free, is e164:
http://www.e164.org

once the big telcos switch to VOIP (and they will even if they don't want to) voice calls will be just like emails and IMs... totally free.

look at digium, the guys that make asterisk, an open source PBX server. they give the software away Free (as in libre AND gratis) and sell cards for servers.
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Anonymous Coward, 15 Aug 2006 @ 1:09pm

VoIP will never be as reliable as regular phone lines. Period. Why? Because it uses the Internet, which is an unreliable, unstable means of data transport. Voice networks were designed specifically for voice services. They have very good reliability because of their specialized nature. The downside is that it costs a lot more to operate. The internet is pretty much wide open for whatever sort of transmission you wanna put out there, and the paths around the Internet fail quite frequently. Granted there's a lot of redundancy, but it's much more likely your call would be dropped, not rerouted.

Bigger businesses can afford to have dedicated communications lines which help to minimize the possibility of downtime, so VoIP would make sense. But I don't see it making major penetration into residential areas until it becomes a LOT more reliable than it is now, which isn't gonna happen anytime soon.

And to be honest, this whole 911 issue still scares me. I don't wanna have to call it and be routed to some operator halfway across the country. And don't tell me they've completely solved the problem yet, because I know they haven't. I have a landline with no long-distance service, which is used for only my DSL service 99% of the time, and I have a cell phone that takes care of the rest. I don't see any reason to change that setup anytime soon.
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Andy, 15 Aug 2006 @ 3:07pm

VOIP is not reliable enough
We had VOIP (Broadvoice) and paid for it, but it was not quite there yet. The calls and connections are not the same quality as regular phone service. I made international calls and they were frequently not duplex. In US interstate calls the connection was usually only created after an extensive wait, sometimes with echos or drops. Certainly more frequently then with traditional lines.
So the way I see it, is that VOIP currently only has a chance if its free a free supplement because it is not sufficient quality to replace existing land lines. I.e. I do use Skype Out for free while my wife is using the land line.
Also, non-geeks seem to be unable/unwilling to use computers to talk. I have observed they rather type-chat then try out the voice service. Very mysterious to me...
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Fox, 16 Aug 2006 @ 12:46pm

Why not hybrids?
(NOTE: Please excuse me if someone has already posted this idea. it's one I've had for a long time and I don't feel like logging into my blog.)

I'd like to see a traditional cell phone (i.e. GPRS) that's a dual-mode VOIP phone. In other words, when you're within range of an open wifi spot, it would use a VOIP system to make calls, and when you're not, it could revert to the old GPRS system. This could be a big win for the carriers and consumers. Since the open wifi costs them nothing in equipment - and a fraction of the normal cost even for the internet bandwidth for their VOIP server - then they could offer plans with (for example) 3000 VOIP minutes and 1000 Cellular minutes for the same cost as an existing 1500 Cell minute plan. Even better, with so many people ditching their home phones altogether in favor of a cell phone, and so many people with their own in-home wifi, this would mean that most, if not all the calls they make while at home would be cheap, and allow users to save their GPRS minutes for when they're in the car.

I've seen VOIP cell phones, and I've seen cell phones with Wifi connectivity. I've even run Skype for PocketPC over GPRS (they don't reccomend it, but if you get more than 50% signal it works perfectly, and at 2 cents a minute it's a lot cheaper than the 3.9 cents a minute t-mobile charges me). I'd just like to see a Motorolla or Nokia flip phone that's truely dual-band between GPRS and Wifi.
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v, 17 Aug 2006 @ 5:10am

Using Skype for Free Within Tor To USA and CanadaU
Using Skype for Free Within Tor To USA and Canada

Until the end of this year skype allows free calls to the USA and Canada IF your IP address originates from these countries. BUT no need to move, just use tor, privoxy and freecap and you can get free calls.
Wednesday, August 16, 2006

Skype have free calls to the USA and Canada for citizens of those countries. But how does it find out who is a citizen of these countries? Your IP address. Can this be changed? Yes. Easily? Yes

http://torandskype.blogspot.com/
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