Challenges for cheap VoIP services

Written by lifang May 05, 2008 11:23

According to John C. Dvorak of PC Magazine, cheap VoIP services will soon meet their end. In his article, "The Coming Death of Cheap VoIP," he describes how the major phone companies will take over VoIP, rename it "digital voice," and render cheap VoIP service providers obsolete. They will do this by addressing the new E911 service requirements and by making broadband services incompatible with discount VoIP services, such as Skype that offers free computer-to-computer phone calls. I agree with Dvorak in that the large telephone companies have the E911 advantage, but disagree that Skype and other bargain VoIP services will be going away any time soon.

What about Skype?

Dvorak states that the major telephone companies will force Skype and the other independent VoIP services out because DSL or broadband licensing agreements will not allow users to hook up other VoIP services not associated with the DSL provider. On the other hand, I believe that Skype will find a way to circumvent the telephone companies' hardware. Skype is already the fastest growing telecommunications company in the world with 40 million users, and it achieved this feat by being cheap, fast and smart. Users only need a broadband connection, Skype's software, and a microphone or special handset. This VoIP company will find a chink in the big telephone company's armor, and find a way to stay competitive before those companies can react. Perhaps other independent VoIP services may not stay long in the telephony business like Skype, but they will keep the marketplace competitive and let the customers choose their VoIP services, rather than having these services chosen for them.

The E911 issue

This May 2005, the FCC ruled that VoIP service providers must support 911 services within a 120-day window. To comply, a VoIP service must have their 911 calls sited by emergency services to where the caller physically is, rather than where the virtual VoIP number might be located. Large telephone companies will do a better job of partnering on an E911 solution with the cable companies than will the discount VoIP services. A BellSouth or Time Warner has the infrastructure, labor force and massive budget to quickly maneuver around the 911 structural costs, which could pose a daunting obstacle to a bargain VoIP provider. While the large companies would absorb the new E911 costs, the smaller VoIP companies would have to pass on these fees to their budget customers not used to extra charges for many of their so-called free services.

What's next?

As VoIP becomes a more mainstream service, there is the possibility of the major telephone companies taking over most VoIP services. However, analysts like Dvorak may be missing the strength and vitality of smaller VoIP firms like Skype, that are able to provide to their customers discount and quality VoIP services. The coming year will supply the answers to these challenges, brought on by the new E911 regulations and by the entry of telephone companies into the competitive VoIP playing field.