VoIP Market Shifting

As cable companies capture a greater percentage of consumer voice-over-IP lines, the squeeze is on independent providers of VoIP. But not everybody is predicting gloom and doom. In fact, global VoIP player Skype is taking square aim at the business market, promising to extend its reach and the savings it offers to enterprise customers.

U.S. consumers are increasingly attracted to cable “digital telephony” offers, which are primarily VoIP-based, said analyst Mitchell Shapiro of Pike & Fisher, especially as cable VoIP services are more widely available and attractively priced as part of a service bundle. In its most recent update of VoIP market pricing, Pike & Fisher noted that aggressive bundle pricing by cable companies has brought their VoIP services much closer in price to the independent services, he said.

“Cable has been deploying its own voice service, pushing aggressively the bundled pricing,” Shapiro said. “That brings the cost of each service town to the $30 to $35 range. If you include the savings on other services-when the customer looks at what they are paying for everything together — the cable offer is pretty attractive, price-wise. That puts a squeeze on the independents.”

In addition, cable VoIP services come with things such as power backup and are designed as primary-line replacement services — extra advantages over independent VoIP.

“There is also much less churn when VoIP is sold as part of a bundle with high-speed data and video service,” Shapiro said.

Comcast, the last of the big cable players to roll out VoIP across its cable footprint, recorded its highest sales ever of Comcast Digital Voice in the fourth quarter of 2006, recording 500,000 customers as part of its 1.9 million total for the year. Stephen Burke, Comcast chief operating officer, attributed that increase, along with similar record-breaking sales of digital TV and high-speed Internet, to the power of the triple-play sale. “We think that is good news for the future as its impact grows,” he told investment analysts.

Skype, with Vonage among the best-known and largest independents, is now making a bigger push for business customers. Last month it announced new tools for IT managers to make it easier for them to install Skype software on multiple computers and manage Skype services companywide, including assigning Skype credits and turning on or off Skype access as determined by company policies. Skype officials say 30% of their customer base is now business users.

The big impediment to Skype, Vonage and other VoIP players that use best-effort Internet service has been quality concerns. But Skype customer Monoflo International, a Virginia-based manufacturer of reusable and returnable plastic containers, has used the service for more than a year for conferencing and other internal communications without experiencing a quality problem, according to Juan Hernandez, information systems manager. “The quality has been great,” he said.

However, Ellacoya, a maker of deep packet inspection gear for telecom networks, said its latest statistics show the quality of best-effort VoIP services has declined over the last three months, even as VoIP market acceptance has taken off. Of the six service providers whose traffic Ellacoya compared, only one had what is generally considered “acceptable” quality based on MOS scores, the industry's measure.

“There might be an interesting opportunity here for a company that could get the quality up — provide HD VoIP,” said Fred Sammartino, vice president of marketing and product management for Ellacoya.