Tough Sledding for Residential VoIP

By Sean Michael Kerner

August 12, 2005

A new report from ABI Research predicts that VoIP will be adopted by fewer than 30 percent of North American households by 2010.

The most successful strategy for growing retail VoIP is adding value to existing broadband subscriptions, according to a new report from ABI Research.

Though residential VoIP is growing at a rapid clip, by 2010 the majority of the world's residential telephony access will use the PSTN. Michael Arden, principal analyst of broadband technologies at ABI Research expects that for North America penetration will be less than 30 percent, and may even be closer to 20 percent.

"VoIP will have an impact on the market, but most homes will still use traditional phone service or will move to mobile service only," Arden told EntepriseVoIPplanet.com.

Arden sees public perceptions and issues of broadband access as the biggest barriers to mass adoption of residential VoIP. In his view, most consumers worry that the quality of VoIP is not good enough to warrant changing phone service. Also, only those who have broadband can take advantage of VoIP, so the market is automatically limited.

Arden argues that even with increased broadband access the perception issue, will remain—especially for hosted services.

"Hosted services will be at the mercy of the broadband provider and will not have their data packets given priority for quality issues," Arden explained. "So, the perception will be worse for those guys versus the cable and telco operators who can give voice traffic priority in the network to ensure that the signal integrity remains at a level necessary to support quality voice service."

Despite the fact that popular VoIP service Vonage is not a broadband provider itself, Arden noted that he doesn't expect them to fade away.

"The feedback that I received from most people is that they expect Vonage to continue to be a player in the market," Arden said. "They will lose their strong early lead in the market, but they will continue to have an impact."

Arden suggests that Vonage will have to focus on advanced applications and being price competitive, but they automatically enter the market with a pricing advantage due to the fact that they don't have to pay for and maintain a lot of access-network equipment.

Cable and telco operators on the hand will only be able to lower prices to a limited extent without compromising their network costs.

"With an uptake in triple play subscribers, however, cable and telcos may be able to compete a little more on price, but they still won't get down to the same level as Vonage and the hosted providers for voice service," Arden said.

The ABI Research report looked at cable, DSL, hosted, and WiMAX operator networks. In North America, the cable companies will have the best position, according to Arden, Outside of North America, it will be broadband providers with DSL service.

"Softbank in Japan has proven that the combination of broadband penetration and the leveraging of value-added services, like VoIP, make a great business model," Arden commented.

In North America, Arden expects that cable's dominance of the broadband market will enable cable operators to leverage their assets and subscriber bases to roll out VoIP.

"The same goes for competitive broadband operators in other regions—most focused on DSL," Arden said. "The ILECs, RBOCs, and PTTs of the world will be more reluctant to jump into the market, because they have a large legacy PSTN network that they don't want to decommission."

"Hosted operators will have price on their side, but the quality of service that the broadband operators can offer will attract customers."



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