Beyond Dialtone: VoIP Trends for 2008

By Ed Sutherland

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With 2007 in the rearview mirror, what lies ahead for voice-over-IP in 2008? We take a look back and check out upcoming trends for Internet telephony. Key among them: Moving beyond just a cheap dialtone.

As ISPs expanded beyond 'surfing the Web' to sell online connectivity, VoIP companies in 2008 need to do more than provide inexpensive calls. It's a shift even Vonage realizes must happen.

"Vonage is more than a new technology for landline replacement," Jeffrey Citron, chairman and interim CEO of the Holmdel, NJ Internet phone company said during CES. Citron's statement came as Vonage unveiled a slew of products and services, including the V-Portal router and a contact book.

Cable to lead VoIP in 2008
On the same day, cable giant Comcast announced it was the fourth largest U.S. phone company, adding four million VoIP subscribers since 2005. "Consumers are pretty comfortable getting their phone service from someone other than their phone company," Jupiter Research VoIP analyst Doug Williams told VoIPplanet.com. That's a trend likely to continue this year.

Cable is the dominant VoIP player now because in 2007 it redefined the service from "VoiP," or "IP telephony" to the more-easily-grasped "digital phone." However, the cable providers also have their work cut out for them to continue their control of the market.

To retain voice customers, cable is tailoring its bundled voice services to specific groups of subscribers. For instance, Cox Communications is creating bundles for people who might not talk much, but would like greater download speeds.

Vonage must scramble to survive
As Citron mentioned, Vonage, one of the first – and most visible – VoIP companies, is looking for ways to retain its customers. After a bruising year marked by multiple patent-infringement court cases and millions in settlements with AT&T, Verizon, Sprint, and Nortel, the company was reported to be hemorrhaging subscribers. To stay afloat in 2008, Vonage needs to find $250 million, according to BusinessWeek.

At one point, Vonage's bruising prompted speculation the Internet phone company might be sold to a carrier. However, that possibility is unlikely. "Vonage is not a strong takeover prospect," said Jupiter Research's Williams.

Whereas Vonage operates nationally, with customers spread across the country, carriers or others just aren't interested. Comcast, for instance, is interested only in serving specific markets, Williams argued.

VoIP failures 'Give pause'
SunRocket was another company that made headlines in 2007. In July, the VoIP company crashed and burned, leaving some 200,000 customers looking for another Internet phone provider. While the remnants of SunRocket were eventually purchased, repercussions from the closure will extend into 2008.

"It gave consumers pause," Williams said. SunRocket's demise also damaged the credibility of VoIP, he said.

Skype continues search for relevance
In 2007, you couldn't swing an IP phone without hitting a Skype user. The Web-based VoIP application has become very popular as a way to make international calls. Moreover, Will Stofega, IDC's VoIP director, said the eBay-owned peer-to-peer phone application often appears on enterprise desktops – despite corporate concerns.

For 2008, Skype's goal must be to convert that popularity to measurable usage figures. Currently, learning how many people use Skype In or Skype Out can be dodgy.

If finding a way to be relevant is Skype's task, the solution may come through partnerships with social-networking sites, such as MySpace, Stofega said.