VoIP and triple-play set to surge

The most intriguing aspect of the broadband market heading into 2005 is that the ongoing war between DSL and cable modem access technologies could be the market's least intriguing aspect. What will be more interesting to watch is the rise of voice over IP and triple-play services, including video, to join pure Internet access as mainstream broadband services.

According to market research firm In-Stat/MDR, DSL and cable modem solutions accounted for a combined total of 24 million U.S. subscribers at the end of 2003. The adoption of these two technologies only stands to keep increasing, to the tune of 50 million combined subscribers in the U.S. in 2008. Worldwide broadband subscription is now well beyond the 100 million mark, with Internet access being the dominant service driver.

Though figures for adoption of VoIP and triple-play services might pale in comparison, the real news is that their market climb is finally beginning. By some estimates, 2004 is the year VoIP services finally took hold. From Vonage's powerful marketing thrust into the residential consumer market to AT&T's competitive answer — launching a service that sounded similar in name to Vonage service and initiating an aggressive price war — the industry is giving reason to believe that VoIP will no longer be a novelty in 2005.

The Yankee Group recently reported that there will be about 1 million VoIP users in the U.S. at the end of 2004. That figure may seem both under- and overwhelming. It's a far cry from the adoption of high-speed Internet services over broadband access, and it also represents a barely noticeable fraction of the total number of traditional voice customers — about 150 million — that are served by the four RBOCs.

Still, the figure of 1 million VoIP users is an increase in subscribers of almost 1000% from the year-end 2003 total of 131,000 VoIP users, according to Yankee Group.

As VoIP subscriber numbers increase, the ranks of service providers also might see consolidation, driven by both price wars and the ability of larger carriers to make VoIP an element in their triple-play service packages.

Though it's hard to find any studies on the total number of triple-play subscribers in the U.S., the growth of one carrier, SureWest, provides a snapshot of the market. Roseville, Calif.-based SureWest reported after the second quarter this year that it was serving 32,000 homes in the greater Sacramento area with triple-play service, representing growth of 80% from the previous year. Other independent service providers, such as HomeNet Communications, are following suit, and even the RBOCs, inspired by regulatory rulings in their favor, are accelerating plans to deploy triple-play service-bearing fiber access infrastructures.

Despite the renewed interest in fiber, DSL and cable remain the infrastructures of choice. The broadband wireless technology format WiMAX, which took the industry by storm earlier this year, will remain largely a work in progress in 2005. Covad Communications recently began a market trial of WiMAX-based services in the San Francisco Bay Area, and company officials indicated they will launch commercial service sometime this year. However, no carriers have announced broader trials, and serious growth in the WiMAX equipment market could be a year or more away (see figure).