VoIP Hits the Big Time

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VoIP Hits the Big Time

Voice over Internet Protocol, or VoIP, is a technology that enables phone calls to be sent as data packets over the Internet. The Trends Editors have been following this technology since the mid-‘90s.

Until now, however, the VoIP reality has not matched the industry’s self-promoting hype. But that’s finally about to change, because the infrastructure necessary for VoIP to achieve critical mass is now in place. According to a study by technology research firm Forrester, 40 percent of American households were using broadband Internet connections by the end of 2006.1

That’s a substantial increase from 29 percent a year earlier, and from just 19 percent in 2003. Forrester expects that rapid growth to continue, with 62 percent of American households, representing 71 million U.S. homes, adopting broadband by 2010. As Electronic Business2 reports, the overwhelming majority of users of VoIP to date have been business customers. In-Stat analyst Norm Bogen found that 95 percent of the VoIP phones sold during the first half of 2006 were to business users.

But now, consumers are starting to embrace the new technology. According to The New York Times,3 Skype has signed up more than 170 million customers for its service, which allows users to place calls over the Internet using their computers. The calls are free as long as both parties are using their computers. Because the service doesn’t use telephones, the user must wear a headset.

Customers who want to use Skype to call traditional phone numbers in the U.S. and Canada can use a service called Skype Out, which costs just $30 a year.

Other companies that are building a customer base with a slightly different business model are Vonage, Verizon, and NetZero. All of those companies offer services that let users make calls, for a fee, over the Internet by using a traditional telephone plugged into an adapter box that is then plugged into an Internet connection.

In a 12-month period ending in mid-2006, Vonage more than doubled its number of subscribers and now has more than 2 million users. Vonage charges a flat rate of $25 a month for unlimited calls both within the U.S. and to Canada, Britain, Ireland, France, Italy, and Spain.

Meanwhile, cable companies such as Comcast are bundling VoIP with cable and broadband and offering “triple play” services to subscribers.

What is driving the adoption of VoIP technology? The biggest benefit is the savings in the costs of phone calls. In February 2007, The New York Times4 compared the price of a 10-minute call from New York to London on several traditional phone service providers:

  • From a hotel room telephone, the rate was $58...

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