Traditional Voice Holds Amid IP's Growth

Voice services continue to be the mainstay for most communications service companies in the United States and Canada, even in the face of emerging growth opportunities in things like video and broadband, according to new research by Frost & Sullivan.

While it is true that the IP revolution, combined with competitive and regulatory environment changes, have initiated massive change in the voice services market, this does not mean that traditional voice communication will suddenly disappear, the market watchdog reports.

“Voice communication has played a key role in effective human interaction for several millennia and this is expected to remain so despite widespread changes in technology and competitive environment,” remarks Frost & Sullivan industry analyst Piyush Arora. “Furthermore, consumers in certain demographics will continue to favor landline phones as a result of their lifestyle and demographic characteristics.”

Among its findings, Frost & Sullivan noted that the U.S. market generated revenues of more than $50 billion from traditional voice services in 2006, while the Canadian market saw revenues of more than $5.4 billion. Those revenues are expected to shift to emerging voice services, such as Voice over Internet Protocols (VoIP) and converged wireline/wireless voice applications, by 2013.

“Traditional voice services are netting substantial revenues and generating healthy margins for residential voice service providers,” Arora says. “Even though demand and revenue opportunities are shifting from circuit-switched to IP and to some extent, to wireless, market participants cannot afford to ignore conventional voice services.”

Respondents to an Oracle survey of telecommunications executives from 38 counties across North America, Europe, and the Asia/Pacific region, though, have painted a much less rosy picture. Results of the survey, released last month, indicated that more than 80 percent of industry
executives believe that voice calls will stop being their primary revenue source within six years. The majority of them cited VoIP as the leading source for their declining revenues.

Jupiter Research agrees, projecting the U.S. VoIP market to top 25 million households by 2012, driven by greater broadband subscribership and the expansion by cable operators into new markets. “After more than 10 years in the telephony business, cable operators have finally struck a chord with consumers, as demonstrated by the acquisition of about 3.6 million new VoIP telephony customers in 2006,” it said in a report released last month.

The challenge for telephone service providers, all three research firms said, will be to upgrade their core networks, streamline business processes and organizational structures, and provide greater functionality and more compelling user experiences.

The increasing trend toward service bundling and converged services will offer voice service providers, including telecommunication companies and cable multiple service operators (MSOs), opportunities to continue packaging wireline voice services along with broadband access and emerging broadband voice and data applications, Arora notes.

However, the challenge of managing duplicate networks to support both switched and IP telephony customers is bound to be difficult for incumbent telcos, while merging providers, such as cable MSOs and independent VoIP providers, will face the twin challenges of ensuring timely roll-outs of voice services and managing expectations of customers that shift from stable switched telephony to IP telephony, she says.

Compared to the approximately 8 million residential VoIP subscribers in the U.S., there are more than 100 million residential switched access lines. In Canada, there are roughly 1 million residential VoIP lines compared to almost 12 million residential switched access lines. Incumbent telcos support and service the bulk of these switched voice customers.

In contrast, cable MSOs and others started offering voice recently and are mainly providing IP telephony services to their subscribers. “While the migration from circuit-switched to VoIP access lines is inevitable, this is a gradual process,” Arora says. “For the foreseeable future, service providers, particularly telcos, need to manage both types of voice customers.”

Telcos need to maximize existing switched access lines and work to retain subscribers that wish to move to IP-based voice services. Telcos that focus on holding onto traditional voice service platforms could lose out to competitors that are able to offer more feature-rich and cost-effective IP-based voice services. Future growth will favor new competitors and companies that offer voice as well as other communications.