Once upon a time, nuclear power was going to make electricity "too cheap to meter." Today, the Internet is supposed to do the same thing for telephone calls.
This time it may be true.
Voice over Internet Protocol, or VoIP, is one of the fastest-growing, and most misunderstood, technologies in the world at the moment. Confusion, outdated beliefs, and urban mythology reign over such simple issues as how it works, the quality of the calls, and, of course, how much it costs--VoIP calls are not free now, and they never will be. As things are shaping up, though, they're so cheap that carriers are letting customers make all the calls they want for a single monthly fee, typically US $25 to $35.
Simply put, VoIP means doing voice communications over the same networks that we rely on for data communications--the local networks that connect to our computers and the Internet that links them all together. If you've ever bought a prepaid phone card, especially one for international calling, you've probably already dialed into a VoIP system without knowing it. By crossing national borders as cheap Internet packets, instead of moving through an expensive switched circuit, an international VoIP call, while still billed per minute, costs pennies, not dimes or quarters.
In fact, those low costs, and the efficiencies for carriers of maintaining a single, unified telecommunications network, guarantee that all telephony will eventually be done over IP. Essentially everyone in the telecommunications industry agrees on that.
So, not surprisingly, there's a cattle stampede of providers: in North America alone, some 400 VoIP services are now competing for residential customers, says William Cheek, an analyst at Parks Associates, in Dallas.
Even traditional local telephone companies are part of the herd. In the United States, Verizon Communications Inc., based in New York City, has been signing up subscribers since last July; rival Qwest Communications International Inc., in Denver, since August. SBC Communications Inc., in San Antonio, another regional giant, announced last fall that it would launch a VoIP service in early 2005. "The market is saturated with service providers already," Cheek says. And many corporations, lured by the promise of cutting their telephony expenses by half or more, are turning to VoIP--at least for their internal communications.
The two largest call-anyone VoIP providers in the United States are each signing up about a thousand new customers a day--a rate that compares favorably with other quickly adopted technologies, such as the CD player, satellite television, and high-speed Internet. One of these leaders is Vonage Holdings Corp., in Edison, N.J., a stand-alone VoIP company whose service runs over a household's existing broadband line. The other is Cablevision Systems Corp., a Bethpage, N.Y., large regional cable TV provider, which began its VoIP service in November 2003.
Between them, as of January, Vonage and Cablevision had a little more than half of the 1 million U.S. households using VoIP. Of course, that's just a tiny fraction of the total number of homes with telephone service in the United States--about 106 million (out of 109 million households in all).
Still, the momentum is clearly in favor of VoIP. According to the Telecommunications Industry Association, in Arlington, Va., at some point in 2006, more than half of all the new private branch exchanges being installed will be IP based. And the number of residential VoIP subscribers will rise 12-fold, to about 12 million, by 2009, industry analysts project. By that time, total U.S. revenue for business and residential VoIP products and services will be nearly $21 billion, up from $2.5 billion today, says Aaron Nutt, an analyst at Atlantic-ACM, a unit of Boston-based ACM Group Inc., which specializes in telecommunications consulting and market research.