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Has the Time for Voice Applications Finally Arrived?

  |  March 7, 2002   |  Comments

Sure it's inexpensive and more flexible when compared to traditional telephone service, but is using the Internet for voice applications ever really going to take off?

Sure it's inexpensive and more flexible when compared to traditional telephone service, but is using the Internet for voice applications ever really going to take off?

Voice over Internet Protocol (VoIP) does have its drawbacks. The IP network is unreliable, which can negatively impact the quality of voice calls. Unlike traditional telephone networks, IP networks are not redundant and often use routers that aren't redundant. This makes calls over IP vulnerable to equipment breakdowns.

Despite the hit taken by the telecommunications industry over the past year, however, much of the research on VoIP still points toward a market that has the potential to explode. A report by Sage Research in fall of 2001 found that 86 percent of U.S. organizations reported they were in various stages of evaluating or deploying IP telephony. But the study also found a number of factors that could deter these organizations from deploying IP telephony, including perceptions that the technology lacks maturity and questions about potential cost savings.

A significant challenge for vendors of IP telephony equipment is getting organizations to give up their private telephone network, known as a PBX [definition]. The Sage Research study found that organizations tend to keep their PBXs well after they have been depreciated. More than half of the organizations surveyed have equipment that is at least five years old, challenging the assumption that demand for IP PBXs, which enable VoIP, would occur when legacy equipment is depreciated. The PBXs organizations were using at the time of the study were also underutilized. Nearly half of the organizations reported that they had significantly fewer telephones connected to their PBXs than the equipment accommodated.

Frost & Sullivan expects revenue in the VoIP equipment market will exceed $14 billion by 2006, up from $1 billion in 2000. The economic weakness of the past year has scaled back or postponed large-scale VoIP deployments, according to Frost & Sullivan industry analyst Jon Arnold, and could cause traditional carriers to delay VoIP deployments, or perhaps bypass them altogether, and continue to rely on legacy networks.

The lack of capital has caused small vendors in the VoIP market to struggle, while market leaders have had to rethink their strategies. In an attempt to survive the weak market market conditions, some companies have concentrated on vertical markets.

VoIP providers may also have to deal with a challenge from voice over DSL (VoDSL), although that market has also struggled with the telecom recession. Research from Allied Business Intelligence (ABI) found that by the fourth quarter of 2001, the rebirth of VoDSL was beginning to take root, with CLECs worldwide experiencing strong subscriber growth for VoDSL service. ABI expects CLECs in North America, Europe and South Korea will lead in VoDSL deployments in 2002.

"The revival of VoDSL is taking place. A weathered and experienced core group of CLECs has endured and these players are learning to scale their deployment of VoDSL services in a much more realistic regional manner; in comparison to the wide-deployment model of their failed predecessors," said John Chang, ABI senior analyst. "In the longer-term, the ILECs remain critical for a broader rollout of VoDSL services."

Revenue generated by both VoDSL service providers and equipment vendors for year-end 2002 will be $159.7 million dollars, representing an increase of more than 90 percent from 2001, according to ABI. By year-end 2002, there will be 96,550 VoDSL subscriber lines compared to 14,000 in 2001.

VoDSL offers up to 24 separate voice channels and high-speed Internet access over a single DSL line, but Cahners In-Stat found that the market for VoDSL gateways totaled only $51 million in 2000. According to the report, "VoDSL Gateways - Market Realities Curb the Hype", from the fall of 2001, the market was still in its infancy with too many VoDSL gateway suppliers for the the small demand.

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