Why VoIP is gaining ground

The main factors driving VoIP take-up and deployment include:

• Security at a lower cost: For institutional and business users, a private network can offer cost efficiencies as well as greater security and reliability, with no discernible loss in quality of service.

• Cheaper and simpler pricing: The explosive growth of companies such as Skype and Vonage demonstrates the power of consumer demand in driving the growth of VoIP. Consumers can also find bundling and flat-rate pricing packages attractive in an increasingly complex multimedia environment.

• Lower investment, capital and operating costs: These can be achieved through innovation, economies of scale, reductions in the bandwidth required to send a voice message, and the possibility of offering converged services over a single, unified network.
• Entry into new markets: IP networks can be used to offer telephony, Internet access, and a host of other services. This may expand incumbents’ dominance, but it also means that VoIP can be offered by firms that previously specialized in content, for example. VoIP can also lower barriers to entering new geographical markets. VoIP revenues could compensate for flagging traditional voice revenues and enable operators to enter the growing broadband market.
• Enhanced innovation: It is relatively simple to add media to IP-based communications. New services can also be offered over a converged IP network, and some of these can be added via interfaces with existing PSTN equipment.

• New business models: VoIP offers the possibility of moving to new business models, such as flat-rate pricing, or bypassing the traditional accounting rate settlement system.

In some markets, however, VoIP does not seem to be achieving its full potential. Some of the obstacles to growth are:

• Problems with QoS and reliability: Voice, video and high-speed data services have different requirements, so bundled products place different burdens on networks in terms of quality of service (QoS). The ability of the network to function despite power shortages is a particular problem in developing countries. In terms of security, only limited calling party information may be available over VoIP.
• Resistance by incumbents: Established operators may see VoIP as a threat to their PSTN revenues, mainly in countries where the market is monopoly-based or less mature.
• Regulatory uncertainty. Operators argue that, in order to justify heavy investment in broadband networks for VoIP, they must have a clear and predictable regulatory framework that helps to guarantee returns on investment.
• Specific regulatory requirements: Some countries are developing regulations on VoIP (e.g. emergency call obligations) that may make it harder for new entrants to offer VoIP services.

Market prospects

Figure 1 — Estimates of VoIP subscribers, total and as a proportion of mainlines worldwide, 2005–2011
Source: iDATE.

Estimates of the total VoIP market size vary significantly, in part due to the problems of definition, and because of the different technologies in use. Quantifying the number of VoIP subscribers, or minutes of traffic, is difficult, as it is part of a general migration to IP-based services. What is clear, however, is that the VoIP market is growing rapidly worldwide in terms of subscribers, revenues and traffic.

VoIP subscribers

	Figure 2 — Distribution of VoIP subscribers worldwide, March 2005
	Source: Point Topic.

Excluding calls made from computer to computer, the number of subscribers to VoIP services has been estimated for the end of 2005 at 25 million worldwide, according to French research company iDATE. This number surpassed 47 million subscribers at the end of 2006, and is expected to grow to approximately 250 million by the end of 2011 (see Figure 1).

Japan is the largest market for VoIP, with more than 60 per cent of the worldwide total of subscribers in March 2005, according to UK-based broadband analysts Point Topic (see Figure 2). Strong growth has been registered in France, where the regulator, Autorité de Régulation des Communications électroniques et des Postes (ARCEP), reported that the number of VoIP subscribers amounted to 1.5 million in March 2005. In the United Kingdom, the regulator, Ofcom, estimated that by March 2006, there were more than 1.8 million VoIP households. Of these, Ofcom estimated that around 1.35 million (or 75 per cent) were using such services as Skype and Vonage. This capturing of market share by VoIP services based on computer-to-computer communication is also seen in the United States, where it represents the bulk of US subscriber growth.

VoIP traffic and revenues

Voice traffic sent over the Internet looks no different from most other types of data, so it is difficult to discover its volume. Nevertheless, estimates have been made of the total proportion of voice traffic carried over IP networks worldwide. They show a strong upward trend.

Point Topic estimates that revenues from IP telephony services grew from USD 833 million in 2004 to USD 1 834 million in 2005, a rise of 89 per cent. US analysts Telegeography predict that revenues from VoIP will reach USD 5 billion by 2010. Other estimates are much higher. According to Juniper Research, of the United Kingdom, revenues from VoIP services in the business sector alone will reach USD 18 billion by 2010, with hosted VoIP business revenues reaching USD 7.6 billion.