VoIP: Are we there yet?

Anyone who's followed the emergence of IP services since the late 1990s has endured a steady diet of hype surrounding voice over Internet Protocol, or VoIP. The dream for VoIP enthusiasts has always been the retirement of the dinosaur-age public switched telephone network in favor of a more dynamic, connectionless network using the Internet Protocol.

It's fair to say that at least part of this dream has been fulfilled. New companies such as Vonage, which offer residential phone service over IP, have become household names thanks to hefty marketing budgets that splash the company's logo all over the Web, in magazines and on TV.

Skype's free PC-to-PC calling service has also gotten significant traction, with more than 75 million subscribers. And the $2.6 billion acquisition of the small European company by eBay has definitely raised VoIP's profile. Other Internet companies, such as Google, Yahoo and AOL, are also introducing voice capabilities as part of their most popular products.

Then there are the cable companies, which are likely to become the biggest threat to the old telephone network. Time Warner Cable added 880,000 voice subscribers last year, for a total of 1.1 million voice subscribers in 2005. No one can deny that's huge.

At the Voice On the Net (VON) conference in San Jose, Calif., this week, more than 300 companies selling VoIP products and services gathered for a semiannual pep rally, claiming that VoIP is already hitting the mainstream market.

But is it really true?

Though traditional phone companies are losing access lines at an alarming rate--5.7 million in 2005 alone--the culprit stealing their customers is wireless, not VoIP.

"We don't see VoIP as a major threat to us losing residential customers," said Steve Zimba, director of converged services for BellSouth. "We see more degradation of the business due to wireless substitution. However, we think VoIP will be an important part of the future."

Problems of perception
The reality is that VoIP has still got a long way to go before people see it as a true replacement to their old telephones. Lingering questions about the technology's reliability still haunt it, as average consumers try to wrap their head around what voice over IP really means.

BellSouth's Zimba said residential consumers are confused about the technology. They don't see enough value in the new services that VoIP providers can offer, because many of them don't believe they need the features they currently have from the traditional phone company.

"There is a perception problem with VoIP," he said. "People think, 'You are going to put my voice on the Internet? I don't think so.' We are urging the industry to get away from selling VoIP as a technology and to start calling it something else, like broadband voice, in order to get mass adoption."

In fact, it is hard to detect whether the phone companies have moved toward residential VoIP at all in the past year. AT&T and Verizon each have their own residential IP telephony services, but neither company has been marketing them much.

Representatives of these companies were sent to the VON conference to provide an update on what they're doing, but they barely even mentioned residential VoIP products. AT&T talked more about its business VoIP service, while Verizon touted its Fios fiber-to-the-home network, which is costing the company billions of dollars to build.

"We're still selling the VoiceWing service," said Link Hoewing, vice president of Internet technology policy for Verizon. "But we're very focused on developing our Fios platform. That's the most important thing we're doing right now."

BellSouth hasn't introduced its own service, and likely won't, since it will soon be acquired by AT&T, which has agreed to pay $67 billion in stock for the local phone company. Late last year BellSouth announced an agreement to resell 8x8's VoIP service to consumers, but what happens to that deal after the merger with AT&T is still a matter of speculation.

At least one of the big phone companies has plans to move aggressively into the VoIP market. Sprint, which is spinning off its local phone business in the next few months, plans a phased rollout of new VoIP services.

But supporters of IP technology at the VON conference say VoIP is only one piece of the entire IP services market. And they're already focusing on the next big thing: video over the Net.

"While we've been watching VoIP mature and go mainstream, we're now seeing another opportunity arise," said Jeff Pulver, co-founder of Vonage and president of Pulver.com, the company putting on the VON conference. "I think that video on the Net will be even bigger than VoIP. I predict that within five years video on the Net will be more disruptive than VoIP has been in the past 10 years."