Voice Over Broadband Remains in Infancy

Despite optimistic predictions and the ability to offer up to 24 separate voice channels and high-speed Internet access over a single DSL line, Voice over DSL (VoDSL) deployment remains miniscule, according to Cahners In-Stat Group.

VoDSL has been viewed as ideal for offering competitive local service to small businesses and multi-line residential markets. The market for VoDSL gateways totaled $51 million in 2000, due largely to high provisioning costs and the lack of effective local competition.

“As of mid-2001 the VoDSL market remains in its infancy, raising doubts that its potential will ever be fully realized,” said Norm Bogen, director with In-Stat. “There are too many VoDSL Gateway equipment suppliers for the size of the market. Equipment suppliers are already moving to diversify their product portfolios and evolve their product lines.”

According to In-Stat, what is becoming clear is the success of these equipment suppliers will not be based on their VoDSL Gateway products, but on their ability to incorporate their VoDSL knowledge into multi-service products that accommodate a wide range of broadband access technologies. In the interim, each VoDSL Gateway supplier is hoping for the incumbent markets to miraculously appear.

In the North American market, a few Competitive Local Exchange Carriers (CLECs) have recently announced plans to introduce VoDSL services in major Tier 1 and Tier 2 markets. Inter-exchange carriers and out-of-territory Incumbent Local Exchange Carriers (ILECs) have plans to begin local VoDSL services in 2002. International markets are following the North American lead in deregulating telecom markets. The establishment of local competition has been slow, but aggressive cable network operators (in select countries) will pose an effective competitive challenge to incumbent operators.

A report by telecom market research firm RHK Inc. is a little more optimistic. It predicts the market for voice over broadband equipment (not only DSL) will reach $646 million by 2004, representing a 63 percent compound annual growth rate over the forecast period. RHK expects the small-to-medium business market to remain the primary growth segment for voice over broadband services during the forecast period, with growth in the residential market developing in 2003.

“The small-to-medium business segment provides one of the largest market opportunities for service providers to offer competitive bundled service packages,” said Teresa Mastrangelo, senior analyst in RHK’s Broadband Access: North America service. “With nearly 80 percent of all businesses falling into this category, voice over broadband enables service providers to utilize their existing broadband infrastructure to offer these smaller businesses multiple voice lines and high-speed Internet access. As a result, we expect this segment to drive the overall forecast period.”

RHK also found that deployment of voice over broadband services to the residential market will become more prevalent later in the forecast period, as both ILECs and cable MSOs (multi-service operators) compete to offer bundled services to consumers.

“We are encouraged by the growing number of service providers who are offering bundled voice and data services over their broadband infrastructures,” Mastrangelo said. “We anticipate that both ILECs and MSOs will begin offering bundled service packages once they have finished implementing their broadband networks and started looking to add additional revenue streams over this infrastructure. We are expecting that they will battle, head to head, for residential customers.”

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