A new study conducted by research firm Frost & Sullivan sees that domestic and international long distance service providers need to equip themselves with the appropriate tactical strategies as VoIP-based calling services and wireless media change the competitive scenario and technological dynamics of the market.

According to the firms findings, with new VoIP offerings entering the mainstream market, it is expected to emerge as a strong contender for traditional circuit-switched telephony services. Paid subscribers of VoIP have grown from just over 130,000 in 2003 to over 1 million by the end of 2004.

The new analysis from Frost & Sullivan titled North American Domestic & International Long Distance Markets, reveals that revenue in this market totaled $66.64 billion in 2004 and it is projected to come down to 60.89 billion in 2011.

"As broadband usage grows and VoIP's quality of service reaches those offered by traditional circuit-switched telephony vendors, international long distance traffic in both the residential and business segments is expected to gradually migrate toward VoIP," states Frost & Sullivans industry analyst Piyush Arora.

The firm explained that it expects that in 2011, 30 percent of the international long distance demand will shift from switched wireline to VoIP. Experts believe that the economical cost structure and low retail prices have been a major contributor to VoIP's growing popularity in the international long distance markets. In fact, the study revealed that international long distance calling is up to 50 percent cheaper through VoIP plans. Analysts found that with zero access fees, almost all VoIP offerings have a flat rate plan, which combines local and domestic long distance calling rates that are far below the typical bundled plans of circuit-switched telephony services.

"This enables traditional telecom providers, cable providers, and ISPs to now offer one another's core services, which were until recently economically unfeasible due to high costs of replicating the networks," adds Arora.

Frost & Sullivans study noted the Federal Communications Commission's (FCC's) decision in November 2004 to bar the United States from imposing telecommunication regulations on the Internet phone providers also expects to bring down costs for both local and long distance services.

Experts believe that while VoIP is expected to take up a significant portion of the international traffic, wireless mediums that account for a majority of domestic long distance minutes are positioned to overtake wireline demand.

"Wireless carriers offer national wireless calling plans that include domestic long distance minutes with no extra roaming charges," added Arora. "This has spurred growth in long distance minutes as usage shifts from wireline to wireless."

The study revealed that other emerging trends such as the falling prices, flat rate, and high minute bucket plans are making domestic and international long distance calling far more affordable for customers. However, the changing revenue models and bundling of long distance with local access and other services such as wireless, Internet access, and video make it increasingly difficult for providers to maintain long distance as a separate service line.

Research also noted that with the entry of cable multiple service operators (MSOs) and VoIP providers that offer voice services, long distance service providers need to accept bundled solutions as a tool to up-sell and gain a competitive edge in the market.

Frost & Sullivan
www.frost.com

Johanne Torres is contributing editor for TMCnet.com and Internet Telephony magazine. Previously, she was assistant editor for EContent magazine in Connecticut. She can be reached by e-mail at [email protected]