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Telegeography Report: U.S. VoIP Users to Reach 23.7 Million by 2010

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July 19, 2006

Telegeography Report: U.S. VoIP Users to Reach 23.7 Million by 2010

By TMCnet Special Guest
Arthur Cole

Voice over IP is poised to cause significant erosion of fixed voice services over the next decade even though LECs will continue to dominate the voice market for some time to come, according to a new study.

The report by Washington, D.C.-based TeleGeography Research, predicts that VoIP subscriptions in the U.S. will increase from 5.5 million at the start of 2006 to 23.7 million in 2010, with a corresponding jump in revenues from $2.6 billion to $8.1 billion for the same period.

While these gains are substantial for the VoIP industry, the corresponding losses to traditional LECS is even more consequential. The study is quick to point out that not every new VoIP subscriber is abandoning switched service, but it nonetheless predicts a 22 percent drop in current LEC subscribership by 2010, representing $18.2 billion in lost revenue.

“What surprised us most was the basic momentum in VoIP subscriber growth,” said Stephen Beckert, director or research at TeleGeography. “The first quarter of 2006 saw about 100,000 new subscribers per week, and that is already up to 150,000 per week now.”

Beckert said VoIP growth is strongest in New England and the New York metro area where cable operators, primarily Cablevision, Time Warner and Comcast (News - Alert), have been particularly aggressive in rolling out new services.

“Cablevision really moved fast on this, followed by Time Warner,” he said.

Independent VoIP providers like Vonage (News - Alert) and SunRocket are also seeing strong growth, and Beckert expects that trend to continue, despite recent skepticism of Vonage following the company’s disappointing IPO.

“We ran a consumer survey that revealed that providers like Vonage and SunRocket appeal to a different clientele than Cablevision and Comcast,” he said. “Cable providers appeal to traditional telephone customers who aren’t interested in things like routers and gateways. They just want cheaper service.”

Independent providers, by contrast, appeal to a younger, more tech-savvy customer who already has broadband data service and isn’t afraid to configure routers and other network components.

While this may seem like Vonage is boxing itself into a niche market, Beckert is quick to point out that the younger market is the more dynamic.

“The group of consumers who are comfortable with this type of technology will keep growing,” he said. “Teens and 20-somethings all grew up with the computer, so I expect the Vonages of the world will see much more rapid growth in their demographics.”

In general, however, simplicity takes a backseat to pricing, according to TeleGeography’s consumer survey. When asked to consider a cable-style plug-and-play system at $45 per month or a self-installed handset system at $25 per month, nearly 40 percent chose the handset, compared to 24 percent for the cable system.

However, nearly 20 percent of respondents indicated that they had already downloaded free or low-cost computer-based VoIP software from providers such as Skype (News - Alert).

Going forward, the report indicates that VoIP should continue to see healthy growth, although regulatory changes currently under consideration at the FCC (News - Alert) and in Congress could cut into the competitive advantage over switched service.

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Arthur Cole is a freelance writer based in New England.





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