|Topic:||Global VoIP – evolution or revolution?|
|Title:||President, CEO and co-founder|
Ofer Gneezy is the President, CEO and co-founder of iBasis, a global VoIP company. Prior to founding iBasis, Mr Gneezy was the President of Acuity Imaging, Inc., a multinational specialised in industrial automation technology, and President and CEO of Automatix, which he merged with Itran, Inc., to form Acuity. Mr Gneezy is a recipient of Pulver.com’s Industry Pioneer Award. Mr Gneezy is a graduate of the Advanced Management Program at Harvard University’s Graduate School of Business Administration and has an MS in engineering from MIT.
Traditional switched telephony is disappearing; it is being replaced by VoIP. What started as a way to inexpensively interconnect major international carriers has spread even to residential calling. Traditional providers throughout the world are rolling out IP networks and VoIP is rapidly becoming a low-cost, or even free, commodity. In Japan, the government has mandated the changeover. This is dramatically changing the planning and business models of all carriers and attracting traditional brand names from other sectors to the market.
There’s a photo I like very much that seems to capture the current state of global voice communications. Taken by a securities analyst, it shows a frozen food section in a grocery store in Germany. In the centre of the picture is a freezer case and above it, the analyst added an arrow and text that reads: ‘Frozen peas’. Also there – within arm’s reach of the vegetables – is a display of a phone service provider’s shrink-wrapped boxes, which the analyst highlighted with an arrow and accompanying text that simply reads: ‘Voice’. This rather humorous scene illustrates the profound changes that are underway in international telecommunications. In addition to seeing new types of voice services and features enabled by IP and the Internet, the entire definition of a ‘phone company’ has been turned on its head. VoIP is achieving mainstream acceptance to the point that we’re buying it off-the-shelf at the supermarket. That’s quite a development considering that little more than a decade ago the entire telecommunications industry was defined almost exclusively by the big incumbent telcos such as AT&T, Verizon, BT, China Telecom, France Telecom and the other usual suspects. However, VoIP has spawned a new class of telephone company utilizing IP as a communications platform, the poster-child of which is Skype. Today, Skype adds 300,000 users a day; a mark I doubt any traditional carrier has ever matched. As for the future, ABI Research anticipates worldwide VoIP subscription rates will grow from roughly 45 million in 2006 to more than 250 million by 2012. It’s clear that a massive migration to IP is well underway and the traditional telecom landscape has changed forever. When consumers face a choice between voice and frozen peas it seems clear that this is more than a market evolution, it’s a revolution. New version, new visions Due to the rise of VoIP, traditional telcos now share the stage with names unheard of or non-existent in the mid 1990s. Our company is an example; in just ten years it went from start-up to carrying more than 20 billion international voice minutes annually – enough to be ranked among the three largest carriers of international voice in the world. Even more surprising has been the involvement of companies the main business focus of which was never voice service; a diverse group capable of leveraging large brands like WalMart, Best Buy, eBay, Google, Yahoo and, potentially, Apple to become powerful telecom market players overnight. The technology and capacity of this expanding field of emerging carriers has grown dramatically. On the other hand, traditional carriers have experienced deterioration of their market share. Telegeography’s research has shown that access lines for incumbent local exchange carriers (ILECs) steadily decreased from 1Q 2003 through 3Q 2006. In less than three years, ILEC access line capacity was down roughly 12 to 20 per cent across the board. Punctuating this, a Wall Street Journal story in January 2007 reported that Deutsche Telecom had lost two million access lines in 2006 alone. Welcome to Voice 2.0 and Telco 2.0, a new version of telecommunications services delivered by a mix of evolving traditional carriers and emerging new players. It is from the latter group that new visions are quickly giving birth to the latest services, which are only possible through IP. When consumers use Google to search for Chinese food, they can simply click on a map of purveyors to place an order without ever leaving their desktop – clearly one person’s vision has made another’s dream come true. Likewise, the latest version of Skype automatically turns every phone number on a Web page into a click-to-call button for Skype subscribers. I don’t know about you, but my desk phone has never done that for me. It’s these types of simple to use yet revolutionary services that continue to drive further VoIP adoption. Migration nation VoIP began in the deep recesses of the core of the global network and provided cost savings for international long-distance providers by enabling them to bypass the established settlement regime. During the early years, pioneers developed the proprietary technologies and expertise needed to deliver the high quality VoIP service carriers and retail consumers required. Spurred by the widespread adoption of broadband Internet access, VoIP spread from international long distance to domestic long distance markets and out to the edge of the network to provide local service to consumers and enterprises. Today, largely through aggressive and creatively viral marketing, providers ranging from cable television operators to emerging entrants such as Skype and Vonage to Internet giants like Google and Yahoo are establishing a new order for retail communications services. The migration of voice communications to IP is clearly in full swing. Whether it’s with cable operators, CLECs (competitive local exchange carriers), independent providers, or Internet properties, the number of consumer subscribers to VoIP services is growing. However, that’s not the whole story; in the enterprise, IP PBXs are outselling conventional PBXs by a significant margin. Spending on IP phone systems, equipment and services is estimated to increase at an annual growth rate of 28 per cent, and the demand for enterprise voice gateway ports is also growing. The migration to VoIP is not a geographically isolated trend. Around the world, major carriers, including KPN, BT, Deutsche Telekom, France Telecom, Telecom Italia and Telia Sonera are rolling out all-IP networks. Carriers of all types, from ‘tier one’ incumbents to voice over broadband providers to mobile network operators, are increasingly pursuing the benefits of VoIP. In Japan, the government has mandated the replacement of domestic TDM networks by integrated IP-based nets; incumbent operators KDDI Corporation and NTT have said they will be ‘all IP’ by 2008 and 2010 respectively. VoIP already comprises 15 per cent of all fixed-line phones in Japan. In the US it is estimated that nine per cent of households have some kind of VoIP service running. IDC predicts that residential US VoIP subscribers will grow from 10.3 million in 2006 to 44 million in 2010. France Telecom recently stated that VoIP accounted for 40 per cent of consumer fixed traffic in that country during 2006. Throughout global telecommunications – whether you’re looking at equipment purchases, subscriber levels, industry and government initiatives, whatever – it’s clear that the reign of the IP nation has begun. Evolution and revolution VoIP is shaking another cornerstone of the global telecommunications industry by questioning the very basis of the traditional telecom business model. Who pays whom and for what in the IP age? For example, Internet properties like Google and Yahoo can use voice service as a way to attract advertising revenue. In Germany, Google and Deutsche Telecom recently battled over a related matter, and for now, Google will pay Deutsche Telecom a fee for basically using its ‘pipes’. The Wall Street Journal also reported in February 2007 that Cingular is now sharing a portion of monthly revenues derived from users of Apple’s iPhone with Apple. Economic challenges loom, particularly at the retail level, but they do not really threaten VoIP provider’s prospects any longer. It is difficult, if not impossible, to put down a revolution when the groundswell is so comprehensive as to create a market supported by business, government, technology innovation and most importantly, consumers. Traditional telcos realise that IP is the future and they are adapting to it. History shows that failing to evolve often results in extinction. When my company was founded in 1996, we purchased a number of time division multiplexing (TDM) switches, US$300,000 behemoths that were then essential for interconnecting to established carriers. Technology advancements soon enabled us to go switchless and we decommissioned the units as quickly as we could. We were able to sell the first switches we removed, but by the last one, the market for used TDM equipment had disappeared. Even a listing on eBay produced no takers. Times have indeed changed but, even so, the TDM switch does continue to serve a purpose. As the most expensive coffee table in my home, it’s a constant a reminder of the continuing VoIP revolution.