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Price makes VoIP attractive to consumers at the retail level, but barriers such as the end devices, software, network fragmentation and potential security risks are still holding it back.

With all the hype and attention given to fancy multimedia content, it can be easy to forget that the fundamental purpose of telecommunications networks is to enable communications over a distance. Consumers still place a high value on person-to-person communications.

Price, however, is a function of both demand and supply, and with the shift to networks that are designed and built to carry a range of high bandwidth services, voice becomes just another application and one that can be carried with little incremental cost. If the market is sufficiently competitive, then these cost savings are competed away to the consumers.

So, while voice minutes are maintaining a strong growth rate, per minute prices are dropping with global voice revenues expected to peak somewhere around 2015. At the same time, the method by which the voice minutes are carried is also changing. The traditional PSTN minutes are increasingly shifting to mobile and broadband VoIP and into the future VoIP over mobile and other wireless broadband technologies.

The pressure on traditional telecommunications operators is coming from many directions: operators rolling out alternative networks (fixed, mobile or other wireless technology) direct to the customer, DSL operators using the incumbent's copper loops, third-party VoIP specialists utilising broadband services provided by others, and of course the GAMEYs (Google, AOL, MSN, eBay/Skype and Yahoo!) with their VoIP services and the myriad of software-based VoIP clients.

VoIP barriers

The biggest driver for VoIP at the retail level is currently the price differential, but there are several barriers still holding it back, such as the end devices and software, network fragmentation and potential security risks.

VoIP is still perceived by most non-users to be difficult to configure and use. Greater availability of VoIP phones in the mainstream retail channels and the marketing of them as 'digital phones' rather than 'VoIP phones' is helping to improve this.

The popular internet portals such as eBay/Skype and Google are taking steps to integrate VoIP services and clients into the services already used by their existing customers, further easing the transition for new VoIP users.

There was also the recent announcement by Google and eBay/Skype to cooperate on click-to-call advertising, though VoIP interoperability between the two services is not expected until the end of 2007.

This leads to the greatest barrier to VoIP services generally: that they currently exist in fragmented and isolated pockets with seemingly no concept of an any-to-any connectivity principle.

There is no unified VoIP network, or any universally accepted protocols. Connections between different VoIP networks typically use traditional PSTN voice services to bridge the gap, passing through a gateway to handle routing and protocol conversion operations. This naturally adds extra complexity and degradation of quality.

When the major VoIP providers begin to allow interconnection between their networks on an end-to-end VoIP basis at the same cost to consumers as internal on-net calls, there will be significant growth in retail VoIP services.

The VoIP interconnection or peering will require the ability to control the QoS across the interface as well as to pass through other service-related information.

VoIP security is still a large unknown. Like other services, as mainstream adoption grows, it will become an increasingly inviting target for the malcontent. In addition to risks such as disruption of service or capture/modification of calls or signalling (and some services seem to be relying on security through obscurity), imagine if the VoIP equivalent of spam was to hit in a major way.

Enterprise VoIP can be protected through the use of the corporate VPN, but if the service is to connect to the outside world, then the gateway (naturally incorporating a firewall) still provides a potential point of vulnerability. If a major VoIP-related security incident occurs it will receive a lot of media attention and will retard the growth of VoIP.

Challenge of new revenues

There are no new killer applications or services on the horizon that will be able to provide significant revenues across a majority of consumers in the way that voice has in the past. Instead, service providers will need to develop a broad portfolio of products and services, many of which may only appeal to a small segment of the market, to replenish and hopefully expand their revenues.

While voice will remain an essential part of the service bundle and valued by customers, the effective price for the voice component is likely to drop to close to zero.

For traditional service providers, rather than competing with the new VoIP competitors on their terms, the goal should be to provide a VoIP service that is of high quality and ubiquitous reach and which is tightly integrated into a whole suite of additional services that is difficult to match.

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