VoIP market still growing, wholesalers say

Voice over IP is long past its hype stage, but it's not past booming growth, say the wholesale players that support the industry. They are seeing a steady stream of new voice entrants focused on the small and medium-sized business market.

Pac-West, a wholesale provider serving the VoIP industry nationally, is seeking business growth that ranges from “steady to explosive,” said Sarita Fernandes, vice president of marketing and product management.

“We are still seeing a lot of people getting into the VoIP space,” she said. “Some are SMB-focused, and that market is still fragmented. There isn't a single dominant player. Most of them have hosted solutions where they replace a small business' Centrex or key systems.”

Verizon Business is seeing “a lot of new entrants, particularly those focused on SMBs,” said Mike Yancey, director of wholesale voice product marketing. “IP, unlike the [public network] that brought a bunch of CLECs on line, has lowered the barriers to entry. It's much easier and less expensive to get into this business. You can get a softswitch, even a really cheap softswitch, and then buy the telephony components” from wholesale providers.

Level 3 Communications is also seeing continued VoIP growth, said Myrle McNeal, senior vice president of voice service provider markets for Level 3, despite the fact that the cable players have pretty much locked up the consumer market.

“If you think about consumer versus enterprise, I think the service evolution will follow what we saw in [long-distance],” McNeal said. “There will be a mass market and tons of niche markets. There are companies that still make money on phone cards that offer discounted rates to specific countries. What I think happens in the consumer space is that there will be a couple of national players that are not cable companies and hundreds of niches that serve communities of interest, ethnic groups and other niches.”

RNK Communications, which until last year served only New England as a VoIP wholesaler, is expanding its reach because of increased customer demand. The company added Florida and New Jersey to its footprint last year and expects to triple its revenues between the beginning of 2006 and the end of 2007 as it adds California, Illinois, Maryland, Pennsylvania, Texas, Virginia and Washington, said Kevin Rohnstrom, senior vice president of new product development for RNK.

The next challenge for VoIP companies focused on the SMB market, as many are, will be to ward off competition from the cable industry, which has promised to tackle this market segment next. Some, like Cox Communications, already serve major small business segments.

“We're not seeing cable much,” said Eric Weiss, chief marketing officer for Covad Communications, which sells directly to small businesses, through sales channels and as a wholesaler. “Our main competition is still people defaulting to what's easy — what they know.”

McNeal wonders whether cable companies will have as easy a time in the enterprise space as they had in the consumer market, where they already had customer relationships.

“The enterprise space will not be as easy for cable as the consumer space,” he said. “There is a difference in buying behavior. The VoIP guys have been out there for a long time. I think it will be harder for cable companies to replicate their success in the consumer space.”

Cable companies have said they will focus on SMBs, leveraging their existing infrastructure that passes those locations. “It makes sense that they would focus there since their cable infrastructure passes strip malls and places like that, but as they gain experience, I would expect them to become more aggressive,” Yancey said. “I think we are just beginning to see cable going into the business space. It hasn't had an impact yet.”