No corner of phone market can hide from VoIP

As internet calls go mainstream, firms look to capitalise on opportunity, writes Karlin Lillington

Once dismissed as over-hyped and underdeveloped, voice over internet protocol (VoIP) - a way of making phone calls free or at very low cost using the internet - is getting ready to blow open the telecommunications industry.

With hot new offerings and service promises for businesses and consumers in the market this week, from Google's new VoIP service to a partnering deal between Intel and VoIP pioneer Skype, and a spate of studies emerging that are not just rattling but brandishing sabres, it's increasingly clear that mobile telephony as well as the landline business is officially under assault.

VoIP is emerging as the quintessential "disruptive technology" - a technological innovation which promises to redefine services, business models, and the ways people use communication mediums.

How big is VoIP? Like many technologies just beginning to move out of the early adopter phase and into the mainstream, the more appropriate question is, really, how big is VoIP going to be? Here's one indication: in the US alone there are 2.7 million VoIP users - which might seem relatively small, until you see that that is a jump from only 400,000 users in a single year.

Analyst firm IDC predicts the US VoIP market will balloon to 27 million by 2009. Industry hardware and software sales indicate computer makers and network suppliers are betting on an explosion in the VoIP market.

Growth in specialised network gateways, routers and software switches is up 16.5 per cent this year, while sales of VoIP-enabled chips are up 40 per cent.

The global retail market - meaning the consumer usage market - totalled 11 million subscribers as of last spring, says analyst Point Topic, more than double the five million users a year earlier. Well over half - 7.2 million - are in Japan, which has widely available broadband services. Europe has about 2.3 million users.

The US VoIP market value right now is €1.3 billion in revenue - only 1 per cent of the US voice revenue total - but those growth rates, and the fact that mighty Google has jumped into the fray this week with its own offering of free voice calls over the net for US users, means only a fool would think VoIP is still a fledgling medium for geeks.

Already in the US, subscribers can choose from a range of mainstream offerings from companies like Skype and Vonage, with huge cable conglomerates like Time Warner Cable gaining market share with bundled services of television, cable broadband internet access, and VoIP.

Though announcements such as Google's get attention because the consumer is the target audience, VoIP is already big business growing bigger for the corporate market. Companies are embracing VoIP for their internal networks because managing both voice and data on a single network brings huge costs savings as well as management efficiencies.

VoIP is a major focus for the big network suppliers, such as Nortel and Cisco, which have diversified from being network hardware companies to service companies on the back of VoIP.

Major, minor and startup telecoms companies are also jumping on board - in many cases, such as at BT, VoIP has been part of standard market offerings to businesses for some time. When Irish communications regulator ComReg started distributing VoIP numbers to operators earlier this year, all the major Irish players - Eircom, Esat BT, Smart Telecom, MCI, Colt and Tele 2 - applied off the bat, but so did many smaller companies and newcomers: Leap Broadband, BlueFace Limited, Wireless projects and Skytel Networks, for example.

"Our approach is to open the door and let the guys get into the market," David Gunning, the ComReg director of market framework, who is in charge of developing the VoIP market, told The Irish Times earlier this year. "ComReg will be taking a light- touch approach to regulating it."

It might be the little fish that do better than the bigger fish. While the traditional big operators might be queuing for VoIP numbers, industry analysts are saying their traditional services - both mobile and landline - will come under severe pressure from VoIP, and it may well be the smallies and the big cable operators, who can move fastest and offer the most interesting services.

An OECD report published this week predicts landline operators are going to be battered by VoIP services that offer long distance calls at up to 80 per cent less than the operators charge, to that perfect price point - free.

Mobile firms shouldn't be resting easy either, because wireless VoIP is on the table, too, and threatens to have as much of an impact on mobile companies as wired VoIP will have on fixed line operators, says the report.

Is it all a done deal, then? Well, don't write the obituary for plain old telephone service (Pots) yet, say analysts.

Quality of service - meaning line quality - is still an issue with VoIP, and on a bad connection, talking to someone over a netphone can still sometimes be akin to speaking underwater. Such issues have slowly been tackled, though, and quality has steadily increased over the past half-decade to make VoIP services business-ready.

In addition, voice can't be the only selling point for VoIP. "VoIP must prove that it is more than just a cheap replacement for Pots," William Stofega, senior analyst in IDC's VoIP services research programme, said earlier this year.

It's the big picture that makes VoIP so appealing - the fast-moving convergence of voice and internet that on the one hand enables organisations to more easily and cheaply manage voice and data, while on the other turns any home into a digital media hub.

Where VoIP is going, TV, film and music over IP is following - that's why the cable companies are the frontrunners in the US on this convergence race and why telecoms operators, who don't have the network for delivery that the cable companies already have, are ploughing ahead with investments in next generation networks (NGNs).

But with convergence and IP's benefits for network delivery of everything come IP's headaches, too. Top of the list? VoIP spam and hack attacks, say security experts.

Spamming (sending unwanted commercial voice messages to VoIP voicemail boxes) is as easy with VoIP as it is with e-mail, because costs are little to nothing and, once recorded, voice mail can be blasted out to millions of IP addresses, where it lands in users' voice mailboxes.

Security is also a relatively overlooked issue. It is relatively easy to eavesdrop on internet-based calls, warn privacy advocates, in the same way hackers or surveillance experts can intercept e-mail and internet traffic. Calls can also be hijacked and rerouted to a different number - a similar technique to modem hijackings, where internet users find their dial-up service has been rerouted to a high cost number.

Security pioneer Phil Zimmermann, creator of the e-mail encryption program Pretty Good Privacy (PGP), is already on the ball, though, and has developed a prototype tool for securing VoIP networks, launched last month.

"The landline network is like a well-manicured neighbourhood, the internet is like a crime-ridden slum," Zimmermann told Wired News.

"To move all of our phone calls from landline networks to the internet seems foolish without protecting it."

The name of his prototype tool? Voice Over Misconfigured Internet Telephones - Vomit.