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Technology

Survival Tips for Plain Old Phone

7/28/2006 8:00 PM Eastern

Voice-over-Internet Protocol communications have become nothing short of a nightmare for fixed telephone operators.

Faced with the onerous choice of either losing conventional telephone network revenue to cable companies, independent startups or others that send data packets over the Internet to provide voice calling services — or losing revenues to in-house VoIP services — telcos can do little to stem the accelerated decline of their once-exclusive hold on voice revenues. This is, after all, a zero-sum game.

So far, VoIP has been the domain of telcos, cable operators, and third-party providers such as Vonage. However, Internet goliaths (Microsoft, Yahoo!, Google, eBay and AOL) may shortly muscle in on the action. They certainly have the means.

Pyramid Research anticipates these companies will move in over the next few years, providing services both to computer and telephone users. There are clearly revenues to be made. They have large untapped bases of instant messenger and peer-to-peer computing customers. And, for them, all the revenue they gain is gravy.

This could be highly disruptive for telephone companies. So the question remains, what can telcos do about it?

Inevitably, VoIP will make its way into all forms of wired, wireless, computing and phone communications. In the meantime, there are a variety of steps that may slow its spread:

  • Highlight VoIP vulnerabilities: Compared with traditional calling, VoIP can be considered a less robust medium for voice. Call quality can be impeded by other data traffic, calls may have difficulty connecting, and in power outages calls will not be possible at all.

  • Cultivate subscriber lethargy: Tactics can increase the degree of friction required to switch operators, such as impeding number portability, fixed-term contracts, installing unique hardware, and providing discounts to long-term subscribers. At best, such activities temporarily slow churn. At worst, they may alienate existing subscribers and deter prospects.

  • Interfere with — or even block — VoIP packets to affect quality-of-service for third parties: Narus, a San Francisco-based company, has been at the forefront of developing network analysis technology specifically designed to monitor and isolate VoIP data packets. The software either directly blocks third-party VoIP calls or introduces interference.
    Such practices are at the mercy of regulatory intervention — should network neutrality be enforced in the U.S., operators would not be able to prioritize operator-owned data over third-party data. However, in countries where incumbent operators remain closely aligned with the government, protection of conventional revenues can be maintained.
    Telephone company services in such markets could even be priced at a premium, since quality should be better than third-party equivalents. And guaranteed as such.

  • Lobby for the ability to interfere with the transmission of others’ packets: The regulatory environment in most developed countries aims to provide a level playing field. Since IP technology has altered the rules of the game, fixed operators may find regulatory support in proposals that would allow preferential treatment for data owned by the network operator, since they are paying for the underlying network.

In the long run, telephone network operators will have to come to terms with aggressively protecting existing revenues. Because VoIP is here to stay.

September