RealTime IT News

Report: VoIP to Top 12M Homes by 2009

The number of U.S. households using Voice over IP will rocket from 400,000 to 12 million over the next five years, a new report from JupiterResearch predicts. But certain service providers are better positioned to grab new customers than others.

Analysts say established telecom carriers like AT&T and Verizon hold two key advantages over startups like Vonage: they have strong relationships with customers; and younger consumers prefer wireless telephony to landlines, making the case to switch to VoIP more difficult.

Joe Laszlo, a senior analyst at JupiterResearch, said VoIP adoption will likely play out like the digital subscriber line subscriptions did five years ago. VoIP startups will be important in jump-starting the market, and will motivate established carriers to develop their own VoIP services, he said.

But it's unlikely that VoIP startups will become a significant threat to the incumbent phone companies. That doesn't mean they can't still be "successful, profitable businesses even serving a relatively small- to mid-sized audience," Laszlo told internetnews.com, which is owned by the same parent company as JupiterResearch.

One concern Laszlo has is customer acquisition costs. Vonage, which to date has had no trouble raising venture capital, has embarked on a massive online ad campaign. Customer support costs and the ability to avoid price wars will also factor into Vonage's success, Laszlo said.

Laszlo said many broadband consumers value quality and reliability over price and features, and the ability to sell VoIP in a bundle with DSL and other services favors telecoms.

Despite JupiterResearch's finding that price cuts won't result in a large boost in sign-ups, there's a VoIP price war brewing. Vonage and AT&T last week slashed monthly subscription rates by $5 to $24.99 and $29.99, respectively.

An AT&T spokesman told internetnews.com that he believes consumers will see AT&T as "a better value proposition" when taking into account call quality, reliability and features.

And just yesterday, ISP EarthLink announced free VoIP calls for its 1.2 million broadband customers. The caveat is that it applies only between SIP-enabled phones.

The JupiterResearch report also identifies challenges in getting 18- to 24-year-olds on board. Twelve percent of the age group already say their wireless phone is their only phone.

"I think price is going to be key to attracting these users," Laszlo said. "While we haven't done a great deal of price sensitivity trending for the age segment, I'd tend to say that pricing a service below $20 is going to be very helpful."