SmartRate Communications Summary of the VOIP Market

SmartRate Communications’ Summary of the Market

VOIP has been the next great technology in the telecommunications market for the past five years. Multiple analysts predict high VOIP growth over the next several years with several predicting that 44% of all local lines will be VOIP by 2008. While the predictions are very encouraging, SmartRate Communications has seen mixed results with VOIP. The company feels that VOIP does have a tremendous amount of potential however there are still technical, carrier and marketing challenges which will need to be resolved before such hyper-growth occurs.

Potential of the VOIP Market

VOIP has a lot of potential in both the residential and business markets. Currently about 90% of residential customers have access to broadband with 50% of homes currently subscribing. All of these current broadband subscribers are potential VOIP customers.

Residential and business customers are also becoming much more aware of VOIP. Vonage recently raised $100 million and $200 million rounds of funding in the past year and are using them primarily on marketing. Currently they are the largest online and offline marketers spreading the message that VOIP is here and easy to sign up for service. Additionally, the media has been produced many thousands of stories on the virtues of VOIP. A recent search on Google News revealed 7,160 stories written in the last couple of weeks contain the term “VOIP”. SmartRate Communications receives many requests daily from both residential and business customers about VOIP.

Current Challenges of the Market

While VOIP has a lot of potential, there are still several challenges that, until solved, will prevent VOIP from attaining some of the breathless growth numbers touted by analysts.

The largest hurdle of VOIP, as observed by SmartRate Communications, is the fact that a typical installation is dependant on several vendors making unrelated and non-integrated products and services. A typical VOIP installation requires: a) high speed internet (provided by an RBOC, DLEC or cable company, b) router (hardware manufacturer), c) computer (a different hardware manufacturer), d) a ATA device (another hardware manufacturer), e) VOIP phone service (provided by the VOIP provider), f) telephone handset (provided by a phone manufacturer or a VOIP provider), g) Optional: gateway (hardware manufacturer).

Each piece of equipment or service is a potential source of failure for VOIP. This leads to many problems in the installation process. When a hitch occurs (either with installation or ongoing service) all of the service and equipment providers point to one another as the source of failure.

A second issue with VOIP has to do with latency and call quality issues. The latency issue has been one of the long-time shortcomings of VOIP. Latency has been reduced dramatically over the past couple of years as technology has improved. However, VOIP still relies up transportation over the public internet network that cannot guarantee speed and order of packet transfer. As such, there will be times when the call quality will be reduced or not work at all. A related issue to call quality is the dependence of VOIP on the internet connection. If the internet is down VOIP is down.

A final issue around VOIP that has received a lot of press lately is 911 service. The topic came to the forefront when a shooting victim in Texas was unable to call 911 on their VOIP phone. Recently the FCC has mandated that all VOIP carriers offer 911 service within the next couple of months. Several of the carriers including AT&T and Skype have balked at getting 911 up and running in that short of a time. It is the view of SmartRate Communications that this issue will not be resolved within the three-month deadline but take at least a year.

SmartRate Communications’ View on VOIP

Whether you are a single line residential customer or a large business enterprise, SmartRate Communications can help you figure out if VOIP is right for you. Soon, the company plans on launch a VOIP comparison tool for residential customers that will allow users to compare VOIP plans on an apples-to-apples basis and figure out which plan is right for them (visit us at www.SmartRateCommunications.com). For larger enterprise customers, we invite you to give our telecom consultants a call at 1-800-494-5949. They can help you navigate through the VOIP product and pricing mine fields and help you find the best solution for your business.