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Internet Telephony Industry: Take Your Cue
Things are tough all over. The U.S. economy has taken a beating over
the last year, particularly in the technology sector, and the Internet
telephony industry has been no exception. With VoIP stalwarts like
Net2Phone announcing major layoffs (the company said
it was cutting 43 percent of its workforce last week to reach
profitability) things are looking rather bleak. Equipment makers like
Nortel Networks, Alcatel, and Lucent
have all instituted layoffs this year, and convergence player Nx Networks filed for bankruptcy earlier this month. I won't go
on, although I could continue for days.
Rumors are flying that Dialpad Communications, a
longtime provider of free PC-to-phone calls, is going to file for
bankruptcy any day now. This is sad news, since I've used their service
many times to call family out of state, and they are another household
name in the Internet telephony industry. Plus, they had switched from a
free, advertising-based business model to a monthly charge not long ago, in
the hopes of boosting revenues. The change in their pricing structure and
gradual shift in emphasis toward enterprise solutions and away from free
consumer services highlights a trend I've been seeing in the industry, and
one that I believe will propel its growth down the road.
Despite today's economic hardships, I'm an optimist, and I've always
believed there is a bright and fruitful future for Internet telephony. I
think that the current economic climate is forcing the industry and its
players to focus. The market is finally getting rid of its training wheels
-- the consumer/hobbyist services that have fueled its mainstream
popularity and acceptance up to this point. Those of us covering the
industry have known for years that the true value of this technology lies
in the ability of service providers to offer converged solutions to
enterprise (and consumer) customers. But let's face it -- infrastructure
build out and enterprise services are where the money's at.
If you don't believe me, just look at the announcement from Sprint
and Nortel last week. Sprint has announced its Local Telecommunications
Division will begin a transition of its entire network to packetized
voice. The first step in that transition is a $1.1 billion agreement to
use Nortel softswitches and gateways to packetize voice traffic, enabling
services like desktop video conferencing. And then there's Microsoft, which bundled VoIP capability into Windows XP via its
Windows Messenger communications client. Cisco, as well, has been very
active in the IP telephony space recently with several product and service
announcements.
It's not that I think Internet telephony will go away on the home
desktop anytime soon. Free PC-to-PC calling has its place, and it's
possible using virtually any instant messaging client today. But we all
know that the network instability of making calls over the public Internet
is a huge barrier to widespread adoption, as is the usability factor
of talking into a headset attached to your PC. Widespread service provider
rollouts will address the quality and latency issues, and enable calling
over a regular telephone. End users, after all, don't care how their calls
are routed, they just want dial tone and the same quality and
functionality they receive now over the PSTN. And if service providers can
throw in additional features and services, well, there's the value add and
the opportunity.
No one can predict with any accuracy how quickly we will come out of
this economic slump. And more companies will issue layoffs or even file
for bankruptcy before all is said and done. One thing players in the
Internet telephony industry can do is take their cue: The days of free
consumer-oriented services have gone the way of the dot-bomb. The Internet
telephony market has grown up, and companies need to realize where the
true opportunities lie if they hope to succeed.
Laura Guevin welcomes your comments at lguevin@tmcnet.com.
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