ITEXPO begins in:   New Coverage :  Asterisk  |  Fax Software  |  SIP Phones  |  Small Cells
May 2007
Volume 10 / Number 5
Special Focus

Global VoIP - Market Evolution or Revolution?

By Ofer Gneezy, Special Focus

There’s a photo I like very much that seems to capture the current state of global VoIP. Taken by a securities analyst, it shows a frozen food section in a grocery store in Germany. In the center of the picture is a freezer case, and above it, the analyst has added an arrow and text that reads, “Frozen peas”. Also there - within arms’ reach of the vegetables - is a display of shrink-wrapped VoIP service packages which the analyst has highlighted with an arrow and accompanying text that simply reads, “Voice”.

This rather humorous scene illustrates the profound changes that are underway in international telecommunications. In addition to seeing new types of voice services and features enabled by IP and the Internet, the entire definition of a “phone company” has been turned on its head. VoIP is achieving mainstream acceptance to the point that we’re buying it off-theshelf at the supermarket. That’s quite a development considering that little more than a decade ago the entire industry was defined almost exclusively by the big incumbent telcos such as AT&T, Verizon, BT, China Telecom, France Telecom and other usual suspects. However, VoIP (define - news - alert) has spawned a new class of telephone company utilizing IP as a communications platform, the “poster child” of which is Skype. Today, Skype adds 300,000 users a day; it’s a mark I doubt any traditional carrier has ever matched. As for the future, ABI Research anticipates worldwide VoIP subscription rates will grow from roughly 45 million in 2006 to more than 250 million by 2012.

It’s clear that a massive migration to IP is well underway and the traditional telecom landscape has changed forever. When consumers face the choice of “Voice or Iced Peas,” it seems clear that this is more than a market evolution, it’s a revolution.


New Version, New Visions

Due to the rise of VoIP, traditional telcos now share the stage with names unheard-of or non-existent in the mid 1990s. An example is our company, iBasis, which in just ten years went from start-up to carrying more than 12 billion minutes of international voice minutes annually - enough to be ranked among the 10 largest carriers of international voice. Even more surprising has been the involvement of companies whose main business focus was never voice service, a diverse group capable of leveraging large brands like WalMart, Best Buy, eBay, Google, Yahoo, and Apple to become potentially powerful telecom market players overnight.

The technology and capacity of this expanding field of “emerging carriers” has grown dramatically. On the other hand, traditional carriers have experienced deterioration of their market share. Telegeography research has shown that access lines for incumbent local exchange carriers (ILECs) steadily decreased from 1Q 2003 through 3Q 2006. In less than three years, ILEC access line capacity was down roughly 12 to 20% across the board. Punctuating this, a Wall Street Journal story in January 2007 reported that Deutsche Telecom had lost two million access lines in 2006 alone.

Welcome to Voice 2.0 and Telco 2.0, a new version of telecommunications services delivered by a mix of evolving traditional carriers and emerging new players. Yet, it is from the latter group that new visions are quickly giving birth to the latest services, which are only possible through IP. When a consumer uses Google to search for Chinese food, then can simply click on a map of purveyors to call in an order without ever leaving their desktop, clearly one person’s vision has made another’s dream come true. Likewise, the latest version of Skype (news - alert) automatically turns every phone number on a web page into a “click to call” button for Skype subscribers. I don’t know about you, but my desk phone has never done that for me. It’s these types of simple to use yet revolutionary services that continue to drive further VoIP adoption.


Migration Nation

VoIP began in the deep recesses of the core of the global network and provided cost savings for international long distance providers by enabling them to bypass the established settlement regime. During those early years, pioneers (including iBasis) developed the proprietary technologies and expertise needed to deliver the high quality VoIP service carriers and retail consumers required. Spurred by the widespread adoption of broadband Internet access, VoIP spread from international long distance through domestic long distance markets and out to the edge of the network to provide local service to consumers and enterprises.

Today, largely through aggressive and creatively viral marketing, providers ranging from cable television operators to emerging entrants such as Skype and Vonage to Internet giants like Google and Yahoo are establishing a new order for retail communications services.

The migration of voice communications to IP is clearly in full swing. Whether it’s with cable operators, CLECs, independent providers, or Internet properties, the number of consumer subscribers to VoIP services is growing. But that’s not the whole story; in the enterprise, IP PBXs are outselling conventional PBXs by a significant margin. Spending on IP phone systems, equipment and services is estimated to increase at an annual growth rate of 28%, and the demand for enterprise voice gateway ports is also growing.

The migration to VoIP is not a geographically isolated trend. Around the world, major carriers, including KPN, BT, Deutsche Telekom, France Telecom, Telecom Italia, and Telia Sonera are rolling out commitments to all-IP networks. Carriers of all types, from Tier One incumbents to voice over broadband providers to mobile network operators, are increasingly pursuing the benefits of VoIP.

In Japan, the government has mandated that domestic TDM networks be replaced with integrated IP-based nets; incumbent operators KDDI Corporation and NTT have said they will be “all IP” by 2008 and 2010 respectively. Already, VoIP comprises 15% of all fixed-line phones in Japan. In the U.S. it is estimated that 9% of households have some kind of VoIP service running. IDC predicts that residential U.S. VoIP subscribers will grow from 10.3 million in 2006 to 44 million in 2010. France Telecom recently stated that VoIP accounted for 40% of consumer fixed traffic in that country during 2006.

Throughout global telecommunications - whether you’re looking at equipment purchases, subscriber levels, industry and government initiatives, whatever - it’s clear that the reign of the “IP nation” has begun.


Evolution and Revolution

VoIP is shaking another cornerstone of the global telecommunications industry by questioning the very basis of the traditional telecom business model. Who pays whom and for what in the IP age?

For example, Internet properties like Google and Yahoo can use voice service as a cost of attracting advertising revenue. In Germany, Google and Deutsche Telecom recently battled over a related matter, and for now, Google will pay Deutsche Telecom a fee for basically using its “pipes.” The Wall Street Journal also reported in February 2007 that Cingular is now sharing with Apple a portion of monthly revenues derived from users of the Apple iPhone.

Economic challenges loom, particularly at the retail level, but, they do not really threaten VoIP’s prospects any longer. It is difficult, if not impossible, to put down a revolution when the groundswell is so comprehensive as to create a market supported by business, government, technology innovation, and most importantly, consumers. Traditional telcos realize that IP is the future and they are adapting, too. After all, history shows that failing to evolve often results in extinction…which reminds me of another of my favorite photos, which happens to be of a piece of furniture in my home.

When iBasis was founded in 1996, we purchased a number of time division multiplexing (TDM) switches, $300,000 behemoths that were then essential for interconnecting to established carriers. Technology advancements soon enabled us to “go switchless” and we decommissioned the units as quickly as we could. We were able to sell the first switches we removed, but by the last one, the market for used TDM equipment had disappeared. Even a listing on eBay produced “no takers.”

Times have indeed changed, but even so, the TDM switch does continue to serve a purpose. As the most expensive coffee table in my home, it’s a constant a reminder of the continuing VoIP revolution.

Ofer Gneezy is President and Chief Executive Officer of iBasis (, a leader in international long distance, VoIP, and prepaid calling cards. As co-founder of iBasis (news - alert) in 1996, Gneezy is a true IP telephony visionary and recipient of’s Industry Pioneer Award. Today, iBasis carries over 12 billion minutes of international voice minutes per year, serves more than 500 carrier customers, and operates a VoIP network reaching encompassing 100 countries and over 1,000 direct routes.


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