Will A Price War Run VoIP Out of Business?

ElCheapo writes "News.com looks at the recent price war that has erupted amongst VoIP providers. How much lower can costs for unlimited long distance go before next-generation phone services run themselves out of business? How does this compare with free services that don't offer connectivity to the PSTN? Packet8 offers service for $19.99/month, a level analysts say is unsustainable. Vonage recently dropped their rates to $35/month to match VoicePulse. VoicePulse is known to use a softswitch based on the Asterisk open source PBX. Will open source allow startups to compete with the traditional LECs?"

Comments

ummmmmmm

[Ty]

Yeah, blah blah blah. What's the big deal if they run themselves out of business? Just like in the post dot bomb era, a successful company, with a patient (aka actual, profitable) business plan will emerge to replace them.

wtf

[Arjuna Theban]

Since when does competitive price slashing drive whole sectors out of business? The ones that have a better business model and do things more efficiently will survive, others won't.

Mind you, however, this is true where these businesses aren't competing against a monopoly which can undercut prices at their loss. In either way though, there is at least one company left providing the service of the sector.

-bm

Re:One word: Bigzoo.

[gilmour14]

What also makes it irrelevant is how tons of people are dropping their land lines and using only cell phones, and not just young people either.

Competition saves, regulation kills

[dada21]

It won't be competition that drives a market away, it is excessive regulation, government mandated monopolies, or a lack of desire for that service or product by the purchasing public.

I doubt that people will lose the desire to use VoIP, so that third occurence is unlikely. But government overregulating, or enforcing a company's "right" to be the sole provider of the service, both could happen (and probably will). I see ads on TV all the time for "$40 a month unlimited phone service!" but I know the last time I had such a deal, I paid $50 for the service, and $35 or more for all the government taxes and fees on top of it.

It is ridiculous.

I dumped my wired phone service because of these fees, and I am about to dump my cell phone service for the same reason. I have enough IP connectivity wherever I am that that I will happily switch to a VoIP company that allows me to transport my Wi-Fi based phone to any network and immediately get connectivity. But when they start getting taxed heavily, I'll move on to the next format.

Honestly, 80% of my communications have moved to instant messaging of some kind. Its loggable, it takes thought to write messages, and I can communicate with 5 seperate conversations at once. I used to use almost 3000 minutes a month on my cell phone, now I am down to 1000 minutes, but I send probably 10,000 text messages to various people.

I'm betting many of you will eventually drop the over-taxed, over-regulated services for ones that get the work done faster, cheaper, and with fewer government intrusions.

Re:Competition saves, regulation kills

[skarmor]

Your assertion that the market will be driven away by "Government mandated monopolies" and "excessive regulation" shows that you have no understanding of the modern regulatory environment. I think you will find that competition is one of the highest priorities of the federal (and state) telecom regulators in both the US and Canada.

Rather than trying to enforce a company's "right to be the sole provider", regulatory bodies are implementing complicated pricing regimes, unbundling local copper loops and facilitating the interconnection of competitors specifically to maintain competition which could not survive on its own in the current environment.

I dumped my wired phone service because of these fees, and I am about to dump my cell phone service for the same reason. I have enough IP connectivity wherever I am that that I will happily switch to a VoIP company that allows me to transport my Wi-Fi based phone to any network and immediately get connectivity. But when they start getting taxed heavily, I'll move on to the next format.

You do realize that VoIP companies like Vonage still interconnect with the ("over regulated") PSTN in order to terminate calls right?

I find that most people don't have a clear understanding of how VoIP is being implemented. While it is possible to interconnect IP phones without accessing the PSTN this is not currently practical for most people. In fact, bypassing the PSTN completely would not be feasible until broadband is installed in most people's homes. Given the current levels of broadband deployment and the growth rate for that industry, it can be argued that it will be a good 10 years before there would be enough broadband connections out there to bypass the copper based PSTN. Of course we have to keep in mind that the PSTN is constantly being upgraded such that the option of bypassing the copper will probably not arise. In fact within the next 20 years we can expect to see the implementation of last mile fiber (Fiber in every home.)

The current benefit of VoIP is that it can replace circuit based switches (DMS-10, DMS-100) in favor of packet based switching over the fiber backbone. This solution is of course temporary. As more fiber is deployed, we will see the widespread use of telephony based on various protocols provided on different wavelengths within the fiber itself.

Honestly, 80% of my communications have moved to instant messaging of some kind. Its loggable, it takes thought to write messages, and I can communicate with 5 seperate conversations at once. I used to use almost 3000 minutes a month on my cell phone, now I am down to 1000 minutes, but I send probably 10,000 text messages to various people.

When you are sending text messages you are doing so over the regulated telephone network. You can't escape regulation, its going to be there.

As people's needs change the telecommunications indusrty will make efforts to meet those needs. As technology changes, so will regulation. Prices will drop and some services (like long distance) will become obsolete. You will find that telcos will be acting more and more as content providers rather than network providers as the cost of communications approaches zero. However, there will always be regulation (and taxation), you can count on it.

Re:I'll settle for 0$

[duffbeer703]

The only reason you would need an actual service provider is to connect to 'legacy' telephone networks or to offer services like voicemail.

That's a pretty big deal, considering there are like 500 million "legacy" phone lines in the US alone...

Traditional telecom will never allow VoIP to take off... telephone companies are huge employers in just about every state. They'll lobby congress and state legislatures and have VoIP taxed out of business.

Why? Verizon, SBC, etc are addicted to that $20-50/mo they make on residental service.

Voice

[locarecords.com]

Voice over IP is the next big thing and the bidding war is part of a general plan to drive the smaller less well capitalised firms out of business. This will leave the larger companies better positioned to roll-out all sorts of differentiated (and profitable) services.

Having relatives in Norway and an avid user of iChat with iSight I can tell you that this has reduced our telphone bill by a huge amount. Once others catch on VoIP and video services are going to go mental...

VoIP is only a means to an end

[G4from128k]

I would not worry about VoIP operators surviving or not surviving (unless you are invested in them). People don't want VoIP, per se, they want to make cheap phone calls to their friends, family, business associates, etc. VoIP is only a means to that end.

If you look at telco equipment makers, like Lucent, one big new feature is ICD (Internet Call Diversion) that cross diverts standard voice calls on to the internet. CLECs, ILECs, PSTNs can buy this stuff to merge POTS and VoIP and offer free local voice service and low-priced long-distance that just happens to use VoIP.

I'm sure VoIP will become widely adopted and be almost invisible because it will be the most cost-effective way to carry voice communications. Whether any of the current VoIP service providers survive is irrelevant.

Re:VoIP is only a means to an end

[fruey]

You're totally right... in fact, most long distance calls anywhere in the world are already happening over IP, and have been doing for a long long time. The real losers are the big old digital ISDN type equipment vendors... I had a major telco with a lot of Ericsson equipment tell me you couldn't get 2mbps through regular copper wire over more than about 500m because they'd only tried the wrong kind of equipment to do it. We had MDSL modems running 1mbps (symmetric, no less) over a standard twisted pair analog circuit like 5km across Rabat, Morocco. Hardly where you have the greatest end to end quality in the infrastructure.

The Last Mile

[Anonymous Coward]

What is important in this discussion is "The Last Mile" That is the run from the pole to the subscribers home. Ma-Bell (Verizon or your local monopoly) gets 40% of the bill for that. IE: Verizon owns the line, and the last mile. Your AT&T phone bill is $100 a month. Verizon gets $40 of that. Should you need a trouble call, AT&T foots the bill for the Verizon tech to roll is truck to your house, regardless of what the resolution to your problem was. That is why VOIP can make money with low prices. There is no "Last Mile" No 40% cut that has to go to some other company. 40% is a huge amount to add to your profit margin, or deduct from costs depending on how you look at it.

Re:I'll settle for 0$

[cmoney]

Maybe I'm missing something, but Skype seems to me to be just instant messaging 3.0 or something. It works just like it, you get a buddy list, and make your calls through a computer. I don't see how it's significantly different than something like iChat or talking over other current IM programs other than improved voice quality and the infrastructure is peer-to-peer.

Also, I wouldn't want to have to rely on my computer being turned on all the time in order to get phone calls. The RBOCs always bragged about 5 9s of reliability, the new VoIP companies probably give 1 9 of reliability (I have Vonage and that's been my experience so far) and I'd guess Skype would be lower still (the limiting factor not being the actual Skype program but all the things it relies on to work, my computer, my peer's computer, my mom's computer, and their cable modem, etc).

So just like IM, I'm sure Skype will take off but for day to day usage but my need to connect to people who don't use computers like that will means I stick with Vonage.