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IP Telephony an Opportunity, But for Whom?

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August 30, 2011

IP Telephony an Opportunity, But for Whom?

By Gary Kim, Contributing Editor

Much has happened in the voice business over the last decade, since the advent of IP communications and VoIP. But much has not happened. Some might have thought a whole new industry might arise. Instead, VoIP and IP communications arguably are more aptly seen as the latest evolution of voice services.

Some might have seen the rise of new contestants with huge revenue streams shifted away from incumbent providers. The shift of revenue has happened. But some might question the magnitude of the shift. Smaller competitors have created new revenue streams, it is true. In the U.S. market cable companies have been clear winners.

But the magnitude of those shifted revenue shares arguably is outweighed by broader changes, including a shift of voice from wired to wireless modes, less voice usage in developed markets, offset by voice growth in developing markets.

Vonage has reported record high net income of $22 million in its second quarter of 2011. Vonage Reports Record Net Income. Much-larger Skype (News - Alert) has produced little net profit since 2003. Last year the company posted revenue of $860 million and $264 million in operating profits, but still had a loss of $7 million. Read more here..

During its second quarter of 2011, Verizon (News - Alert) Communications reported that wireline voice revenues dropped to 14 percent of total revenue, down from 21 percent in the second quarter of 2009. See more here.. In its second quarter 2011 report, AT&T noted that wireline voice represented 20 percent of total revenue, compared to 23 percent for the second quarter of 2010. See more here. 

Despite those trends, "voice has the potential to rise from the ashes of commoditization to ignite a growth market in new products and services for both consumers and enterprises," says Janet M. Hall, Sr. Consultant, TMNG Global (News - Alert). See the white paper here. That's a refrain we have been hearing for about a decade, during which time it has become increasingly clear that voice is not going to be the driver of revenue for most service providers, in the decade to come.

That does not mean firms such as Vonage, application providers of many types, Skype, cable companies, competitive local exchange carriers and others will not be able to craft revenue models of some sort. But what remains unclear is whether the opportunities accrue mostly to application providers or service providers, or what the magnitude of success will be.

Proponents have said for some time that new applications embedding voice into all sorts of other applications are one way voice can continue to create value and revenue for application and service providers. It is a rational belief. Microsoft (News - Alert) clearly believes it can do more with Skype than operate it as a stand-alone provider of international voice and conferencing.

The larger question for some providers is strategic, though. There are opportunity costs whenever a choice is made to support one investment over another. And the issue, in many cases, will be whether it is a better investment to explore new forms of value-added voice, compared to investing in other opportunities. The decision appears to be most acute for the largest global service providers, who might well conclude that it makes more sense to invest in other areas with higher growth potential.

It is not that new applications using voice and communications capabilities will fail to be created. It just might not be the best choice for a tier-one service provider, though. As often is the case, other providers might have more-compelling reasons to do the development and create the new services.

Providers of enterprise software, for example, might have clearer reasons to integrate advanced voice and communications into their apps. In many cases, the business model driver will not be "incremental revenue" so much as enhanced functionality. Some application or service providers will be able to create businesses of reasonable scale and success. But some global service providers will go the other way, allowing innovation to occur elsewhere in the ecosystem and turning their attention to entirely-new revenue opportunities. 

Want to learn more about Session Initiation Protocol? Be sure to attend the SIP Tutorial Conference collocated with TMC’s (News - Alert) ITEXPO West 2011, taking place Sept. 13-15, 2011, in Austin, Texas. The SIP Tutorial, co-sponsored by TMC Partner Crossfire Media, is a full day training program that will focus on SIP technology from SIP messaging, though Server types, Security, Firewall and NAT operation, SIP Trunking, Troubleshooting and SIP in Unified Communications. To register, click here.

Gary Kim is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.

Edited by Rich Steeves

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