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

NO.

[Anonymous Coward]

ntil they make something that pay's me to use it they will never EVER hurt my VOIP system.

Mine is 100% free, I have at least 6 nodes throughout the united states that all I do is pick up line 2 in my house and dial to connect ot the other nodes for free.

and yes it's as good or better than the telephone service using really low cost Creative VoiP blasters and fobbit.

voip will be around as long as there are people willing to use it and have access to the hardware. and no I dont care to dial out to a landline.

I'll settle for 0$

[jilles]

The problem with VOIP service providers is that from a technical point of view they are redundant. Skype is currently demonstrating this point in a very convincing way (good quality connection, convenient lookup service, 0$). So anyone depending on charging their customers for this is going to have some revenue problems in the near future.

The only reason you would need an actual service provider is to connect to 'legacy' telephone networks or to offer services like voicemail. Once the traditional telecom providers figure out that there is a market for this kind of thing, they'll be in an excellent position to offer that kind of services.

I dont get it

[luckytroll]

I always imagined that at some point someone would come up with a standard cheap widget that everyone could plug into their POTS jack which would enable a distributed P2P style of VoIP system - Sure, sometimes you might have to wait a few minutes to dial out on your voice line while its in use by the commons, but its a small price to pay if you get to dial anywhere in VoIP or POTS land. These centralized services remind me of Napster - centralized services, legislatable out of existence.

No, what is going to get interesting

[AbbyNormal]

is the emergence of high-speed internet providers jumping into the ring. My cable network recently got upgraded to a pretty decent speed and while chatting with a technician I found out that the company will soon be offering VOIP package that will be less than our current Phone company. Hmmmm.
Ten times as many features, less price, all in one package. Good bye Verizon! Your lack of DSL in my area, disturbs me.

There's a lot of room for a price war

[Halvard]

I'm the president of an business only ISP and we've been looking at adding voice services for 4 1/2 years. We sell select office buildings where each tenant gets separately firewalled service. I was offered wholesale long distance last year by Worldcom for an insanely low rate of about 1/10th of a US cent per minute. Yes this was to be tied to a voice circuit terminated in a colo we were already it. So for about US$250 per month and US$0.00014 per minute in excess of 500,000 minutes, it's easy to be able to afford long distance bunding even without VOIP for long distance. Even if that's about 1/5 the number of minutes in a 30 day month, it's kind of like bandwidth; a T-1 goes a long long way for a lot of people especially if you minimize bandwidth usage.

Couple that with a soft phone switch like Asterisk with it's pseudo-TDM devices and you've got an incredibly inexpensive solution. Your real costs are advertising and support, not long distance.

Re:There's a lot of room for a price war

[squiggleslash]

1/10c doesn't strike me as sustainable for Worldcom, and I suspect if they were offering it, it was either (a) as a customer getter with a hope that interconnect rates would fall in future enough to make a profit with an established customer base, (b) as an anti-competitive move against other companies, (c) as a variant of (a) where the prices are increased as early as possible hoping that customers do not switch or (d) that Worldcom expected to find sneaky ways to terminate calls.

Here's the problem: When you make a long distance call in the US, the two local telcos on either end of the call charge something called an "interconnect". Rates vary, but the model until recently was to use long distance to subsidize fixed line costs, and so the interconnection charges are high, usually well over a penny a minute and for some areas in excess of 10c.

Now, even if you had Worldcom putting a line directly into your business so they didn't have to pay the local telco an interconnect for their side of the call, Worldcom would still have had to consider that it couldn't control who you call, and the majority of the people you call would be using traditional local phone companies, with the relatively high interconnects.

Worldcom has, as you've probably read in the newspapers, recently gone bankrupt. If they were seriously charging 0.1c per minute (and not, say, putting a little asterisk next to it and "* Excludes interconnect and other fees charged by connecting phone carriers" in small writing at the bottom of the offer, which wouldn't surprise me, this is the same bunch that runs 10-10-220), then it isn't surprising they're up a dark brown unpleasantly-odorous stream without a means of manual propulsion. The big question would be on losses like that, why did they bother charging anything at all?

Not unless they ban encryption

[anti-NAT]

The moment end-to-end encryption and authentication is enabled, either via tunnels or by just encrypting the IP payload, no authority trying to assert control over VoIP will be able to identify one application verses another e.g., VoIP verses HTTP verses SMTP.

They will have to either ban encryption, or ban all applications, which is the equivalent of banning the Internet.

Deploying encryption in this manner will actually restore the Internet to its original design - an application agnostic network, whose sole job is to just make a best effort to deliver bits between the hosts at the edges. Only the hosts should know and will know what applications the Internet is being used for.

The technology already exists, albeit in early forms :

• DNSSEC
• Opportunistic tunnel setup within IPsec

This will also obselete firewalls, proxy servers, NAT, and any other devices that perform applications processing within the Internet. The only applications processing devices left will be those at the edges. Security, aka firewalling for example, will be deployed on each edge device.

Steve Bellovin (one of the Wily Hacker authors) wrote about distributed firewalls in 1999, here : Distributed Firewalls

Defending the status quo, a little.

[dbrower]

The phone companies monopoly, while historically profitable, is a dual edged sword. They get the monopoly advantages, but have limited return on investment, caused by regulated rates. The investment model is based on really long depreciation times for the physical plant. They are obliged to serve areas that are probably not economically viable to support -- like all the places that don't have cable TV, but do have phone service. They are obliged to provide 411 services, and to be usable in the face of power outages.

VOIP isn't carrying those burdens, and is often parasitic on the phone company physical plant for wires. So there is a lot of good reason for the phone companies to be unhappy with interlopers that might mess up their regulated economic model - which they can't change by law.

It is one thing to say the RIAA/MPAA should die, because their economic model isn't guaranteed; but the phone company model IS guaranteed by the law that gives the monopoly.

I don't think I have any problems with VOIP provision that does not interconnect to the regular network. At the point there are gateways, it seems like those become perfectly appropriate points of regulation.

-dB