In today’s difficult economic climate and highly competitive telecommunications landscape, it has become ever more challenging for the next-generation VoIP network operator to build a successful business. Whether you are offering SIP Trunking services with wholesale long distance services or the more lucrative retail VoIP services, collecting on monthly service bills can be difficult and protracted. In order to insulate the network operator from slow collections, bad debt, and the additional resources required to following up on accounts receivables, network operators are now turning their attention to the deployment of real-time billing solutions and automated electronic payment solutions.

VoIP has long been known for its cost savings; however unpredictable quality and reliability, as well as a lack of emergency systems compatibility, hindered its widespread adoption.  Over the last few years VoIP has matured and the issues of the past are now in its rear view mirror.

Based on a new report by In-Stat, by 2013 marketers can expect VoIP penetration to reach 79%, which is an almost 50% increase over 2009 numbers. Today about one-third (33%) of companies are using VoIP solutions and that number will only continue to grow.

In-Stat contributes this high adoption and cut-over to VoIP to cost savings.  "VoIP adopters have a good understanding of the cost savings associated with VoIP, and have oriented their limited budgets to optimizing efficiency and savings by replacing legacy TDM voice solutions,” said David Lemelin, In-Stat analyst, in the release.  Broadband IP Telephony revenue will also double by 2013, In-Stat said, fueled by single user applications as well as the mobile workforce.

While cost savings are a great benefit of VoIP, in time adopters will come to realize the other richer benefits of this technology such as high-fidelity (HD) voice, presence, unified communications, and greater subscriber control and mobility, which will only fuel its adoption.

On the heels of Apple’s release of their iPad device, we are now learning that despite AT&T’s announcement back in October, Apple has revised its SDK to allow VoIP calls over the data network. Support for VoIP over the data network is a significant change from Apple’s previous agreement with AT&T, which only allowed VoIP communications over a Wi-Fi connection. This exciting departure from Apple’s previous position now allows VoIP calling applications to expand beyond a Wi-Fi only connection and into the 3G cloud. It appears that pressure from the FCC over net neutrality may have contributed to AT&T’s decision to change its policy and open up the 3G network for VoIP based calling applications.

So what does this mean to the consumer? Applications like Skype, iCall, Fring and other third party applications, which are available for free download on the App Store, now have greater reach and utility beyond the Wi-Fi network. Many of these applications offer free, low cost, and even ad-sponsored calling plans giving the mobile consumer greater choice and selection for local and long distance calling by allowing voice calls to take place on the data network rather than the metered voice network.

With AT&T’s data network already saturated in areas like San Francisco and New York, this change will certainly drive data consumption. Perhaps AT&T could use some of their recently reported US$3 billion in net income for the fourth quarter of 2009 (up nearly 26 percent from the fourth quarter of 2008) to help improve their network as our appetite for mobile data will only continue to grow.

On February 17th, 2009, President Obama signed the American Recovery and Reinvestment Act (ARRA), which funded a number of initiatives including two broadband stimulus programs, BIP and BTOP, administered by RUS and NTIA respectively. These programs are focused on making broadband available and affordable for all Americans with ARRA driving a significant number of independent and competitive operators in rural areas to expedite the migration to IP-enabled networks.

The move to an all IP network brings operating efficiencies, advanced subscriber services (such as HD Voice, Virtual PBX, Find Me/Follow Me and IP Conferencing) as well as anytime/anywhere subscriber access and account management, and we expect there to be strong demand in these areas, in addition to the strong demand for broadband access. These welcomed stimulus programs bring critical funding to rural operators, foster economic growth, and help to place all subscribers across the United States, regardless of geographic location, on equal footing for access to the most advanced voice and data services that are available today.

AT&T has asked the FCC to set a firm deadline for a complete move to an all IP network and an end to the PSTN, in a similar fashion to where television broadcasters were mandated to switch from analog to digital transmissions. AT&T said in its response to the FCC that “with each passing day, more and more communications services migrate to broadband and IP-based services, leaving the public switched telephone network (”PSTN”) and plain-old telephone service (”POTS”) as relics of a by-gone era.” “Congress’ goal of universal access to broadband will not be met in a timely or efficient manner if providers are forced to continue to invest in and to maintain two networks,” AT&T said in the filing. In that response AT&T also stated “It makes no sense to require service providers to operate and maintain two distinct networks when technology and consumer preferences have made one of them increasingly obsolete.”

AT&T’s response to the FCC is affirmation that VoIP has matured into the mainstream, and this turn of events is a further endorsement of the superior technology, cost effectiveness and efficiency that an all IP network has to offer. By and large VoIP to date has merely tried to emulate the PSTN, but as we start to see deployments and applications that more fully leverage this technology, such as HD Voice and presence, VoIP will become even more compelling and the PSTN more redundant and obsolete.

According to the IBISWorld report “in the short period [from 2002 when VoIP emerged] to 2009, revenue growth accumulated to an astronomical 179035.8%.” In this report George Van Horn, senior analyst with IBISWorld, stated “VoIP has skyrocketed from non-existent to a massive application targeting telecom carrier’s voice revenues.”

The move to an all IP communications network has always been a question of “when” and not “if,” and it is looking like “when” is happening sooner than later. It will be great when we have a single network upon which to direct our focus allowing us to realize the full and true potential of VoIP.

As 2009 draws to a close one cannot help but reflect upon the year that was, and what the year ahead, with all its promise, will bring.

While the economy and its recovery, real or imagined, played a large part of 2009, the mainstream introduction of HD Voice in 2009 had VoIP finally showing what it was capable of, rather than what it could emulate. During the year there were also significant acquisitions in the voice over IP space worth mentioning: 

• In April Acme Packet announced that it was buying Covergence, in a deal estimated at $22.8 million to help round out their product line with Covergence’s software-based session border controllers for large enterprises.
  
  
• In June, we saw HotMail co-founder Sabeer Bhatia’s and Yogesh Patel’s SabSe Technologies acquire Jaxtr, for an undisclosed sum, undoubtedly for its consumer service that provides free and low-rate international calling to over ten million members around the world.  The same month we saw Natural Convergence buy NewStep Networks, a provider of seamless session management solutions.
  
  
• In July, after navigating Verizon’s attempt to block its bid, Avaya successfully acquired the Nortel’s Enterprise Solutions division for $915 million, after clearing government regulators.
  
  
• In September, eBay announced that it was selling its Skype unit to an investor group that included Marc Andreessen’s new venture, Andreessen Horowitz.  Under the deal, eBay received approximately $1.9 billion in cash and a note from the buyer in the principal amount of $125 million, for a total of $2.025 billion.
  
  
• In October, Cisco System acquired Tandberg, the video conferencing equipment manufacturer, for $3.4 billion, to acquire additional video technology for their UC and enterprise products.
  
  
• We saw a major endorsement for VoIP and the SIP protocol in November when Google purchased Gizmo5 for $30 million, after rumors that Skype were put to rest that it was considering acquiring Gizmo5, as replacement technology to combat the JoltID issue with the founders of Skype.
  
  
• In December, Telefónica, the parent company of O2, announced the acquisition of Jajah for $207 million, in an all-cash transaction – not a bad return for a company that raised $35 million from various investors including Deutsche Telekom, Intel Capital and Sequoia Capital over the last four years. With over 25 million subscribers, Jajah provided low-cost termination services via the web, mobile telephone and Microsoft Outlook, in a similar fashion to IVR Technologies’ End User Web Interface, mobile smartphone applications, and its Microsoft Outlook Add-in.
  
  
• And finally, just as 2009 was drawing to a close, on December 30th we saw SpinVox and its voice to text technology being acquired by Nuance Communications for $102.5 million, ending many weeks of speculation on the fate of this troubled startup as it struggled to repay a $48.8 million loan.

It was certainly a banner year for VoIP acquisitions and consolidations and none more dramatic than eBay’s spinoff of Skype, the potential acquisition by Index Ventures and Mike Volpi, and the associated lawsuit by Skype’s founders Niklas Zennström and Janus Friis over the JoltId software.  As we bid adieu to 2009 we have AT&T asking the Federal Communications Commission to create an orderly timetable for a shutdown of the analog phone system in the United States, so we can only imagine the excitement, opportunity and possibilities that the year ahead will bring. 

The hosted call and contact center market is a lucrative market for the next-generation VoIP service provider that offers a tremendous opportunity for revenue and margin growth.  While many service providers offer termination and SIP trunking services to the call and contact center markets, they most often miss out on the added margins associated to actually hosting and providing direct call queuing and agent routing services. 

According to the recent report from Frost & Sullivan (contactcenter.frost.com), entitled North American Hosted Contact Center Markets, this market earned revenues of $396.4 million in 2008 and is estimated to reach $1.5 billion by 2015.

“Despite the economic downturn, market participants have had tremendous success with hosted deployments for new and existing clients,” notes Frost & Sullivan Strategic Analyst Michael DeSalles. “Hosted technology providers offer a compelling set of financial and business benefits to a demanding client base. This includes the elimination of capital expenditures combined with access to a flexible agent deployment platform. Vendors today offer a full line-up of robust contact center features. This helps to significantly reduce costs, along with the opportunity to gain access to state-of-the-art technology. The days of massive financial outlays for contact center premise equipment are going away.”

Christmas came early for Google employees this past weekend when Google handed out the “Google Phone”, an HTC-built device called the Nexus One.  Google calls the distribution a “mobile lab” and it puts to rest rumors that have been swirling for two years about a Google phone, but it also brings into question Google’s previous assurances that they would not compete with Android hardware manufacturers. 

It is never a wise choice to bet against Google but being able to sell a mobile phone without carrier subsidy in today’s hyper-competitive mobile market is definitely going to be a challenge.  If the phone does come to market, and all expectations are that it will, the big question is how will its release impact the Android platform if Google competes with other Android handset manufacturers, while controlling the code base.  The Android platform holds tremendous promise and it is starting to gain serious traction with other handset manufacturers like Samsung, Sony, HTC, and Motorola so hopefully Google’s entry into the handset market does not jeopardize these relationships.  The code base for the OS versions of the Google handset will need to be readily available to the community at large in order to maintain Google’s appearance of transparency and recent reports of Android 2.1 already being ported to G2 handsets is an encouraging sign.  Google remember “Don’t be Evil”.

According to a report from IDATE, “the world telecom services market was estimated at US$1,365 billion in 2008 - a 4.2% increase over the year before - and is expected to be worth over US$1,416 billion in 2009. With a total turnover estimated at US$742.2 billion in 2008, mobile services account for 54% of the telecom services market and single handedly deliver all of the sector’s growth.”

In the highly competitive long distance termination market, with its diminishing margins and revenue, service providers need to look towards the mobile market.  The mobile market holds tremendous value as its pricing is eroding at a much slower pace than in the fixed line and voice over broadband (VoBB) markets.  Thankfully for next-generation networks, through the proliferation of extremely powerful and open smartphones, this can be achieved by loading special applications on these devices.  However, getting the application loaded is different than getting the application loaded and widely used so in order to be successful service provides must make sure their applications are as intuitive as possible and tightly integrated into the device as well as the habituated process of the user. 

Today’s smartphones such as the Blackberry, Windows Mobile and the iPhone offer centralized, virtual over-the-air mobile stores where these applications can be purchased, often at no charge, and conveniently downloaded directly from the phone for immediate use after sign-up.  The benefit to subscribers is quickly apparent as the process is significantly easier than using calling cards, they can continue to use the phone as they normally do dialing from their phone’s contact list, and they realize considerable savings over what they are currently being charged by their mobile carrier.  The benefit to the service provider is that they are now able to capture long distance termination revenue from mobile subscribers, well outside of their current network’s footprint, and at higher margin than with their landline and broadband subscribers.

Industry research further shows that smartphones will capture about 20% of the mobile phone market by 2013 despite the struggling economy, according to a report recently released from In-Stat.   The report, titled “Smartphones: Heading to the Mainstream,” states that smartphones will see growth this year even though the cell phone market is looking at a rare downturn for 2009. The report found that nearly 33% of those surveyed planned to buy a smartphone when they upgrade their current phone. 

“Strong demand is being driven by device manufacturers leveraging open OS device to reinvent the mobile phone experience,” said Frank Dickson, VP of In-Stat’s mobile Internet group, in a statement. “New and prospective smartphone buyers are drawn to new mobile applications, even though the median number of applications downloaded for all platforms, including the Apple iPhone, is relatively modest — below five applications per user for each platform.”

For the next-generation service provider offering a complete suite of telecom services that can capture the home, business and mobile markets translate into amazing opportunity with reduced customer churn, higher margin revenues and a growing and diversified subscriber base.

Next-generation service providers take note; according to Infonetics Research (http://twitter.com/infonetics) recently released biannual VoIP and UC Services and Subscribers report, VoIP enhanced telephony services drove nearly $20.7 billion in revenues during the first six months of 2009. 

Infonetics’ report is further support and validation of our position that next-generation service providers must offer in-demand services that help differentiate themselves from the competition and build back the margins that have been eroded by excessive competition in their traditional termination side of the business in order to not only survive, but thrive, in today’s marketplace.  No longer is it adequate to offer “me too” services with low price points, today value must be driven by satisfying consumer and/or business customers’ communications needs with a consolidated, empowering and cohesive service offering. 

Services that offer a compelling reason to migrate to VoIP and that drive long term customer relationships and loyalty are those that make communicating more convenient, more effective, and more intimate.  Services such as selective call forwarding and/or call blocking by time of day or day of week scheduling, Find Me/Follow Me services that can ring multiple phones simultaneously or sequentially, voicemail to email and voicemail to text message transcription, high definition audio for point-to-point calling and conferencing, as well as corporate auto-attendants are all great examples of services that are deployable today and that help service providers build their subscriber base, increase and diversify their revenues, and drive margin and profits despite today’s uncertain economic times and highly competitive landscape.