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Analyst sees $60 billion IP phone market

The worldwide market for IP-based telephone service will skyrocket to $60 billion by 2005 as telephone companies make "radical" network changes, according to a research firm.

The worldwide market for IP-based telephone service will skyrocket to $60 billion by 2005 as telephone companies make "radical" network changes, according to predictions by a London research firm.

The prediction, made by Ovum Research, far outstrips most other analysts' expectations for how quickly telephone companies will replace their traditional infrastructures with Internet-style voice traffic.

Senior Ovum analyst Susan Sweet said that pressure from corporations, some of which have already started to adopt Internet Protocol (IP) functions and applications inside their own internal telephone networks, will force the big telcos to pick up the pace in shifting their infrastructure towards IP traffic.

"As IP becomes the basis for wide-area corporate communications, so the pressure from corporate customers will grow on telcos to adopt IP in their backbone," Sweet wrote.

IP telephony is the use of Internet packet-switching protocols to transmit voice traffic, instead of the traditional network of circuit-switches. The technology has been available for several years, but the quality of calls transmitted this way still ranges widely.

Sweet predicted that corporate use of applications such as "unified messaging" services--which integrate voice mail, email, pages, and faxes--and IP-based call centers would help boost the use of IP telephony on private networks and ultimately pressure telephony companies to modify their networks to follow suit.

Already, some of the biggest telephone companies have taken steps in this direction. As a part of its merger with Tele-Communications Incorporated, AT&T has said it would start moving its cable based local telephone services towards packet-switched Internet protocols by the end of next year. The company also is pushing IP telephony through its WorldNet Internet service and in relationships with ISPs worldwide.

By 2005, the U.S market for IP telephony will have climbed to $29 billion, Sweet forecast. Western European will be close behind, with a market worth $13.5 billion, she said.

Other analysts are still less bullish on the speed of this transition, however.

"You're talking about radical shift in the way voice is carried," said Bruce Kasrel, a telecommunications analyst with Forrester Research. "That doesn't happen overnight, especially in the telecom industry."

Kasrel said he thought it would be two to three years before most of the big telcos begin integrating voice IP infrastructures into their traditional networks, and that it would take another two to three years beyond that for substantial progress to be made.

"Even that's probably optimistic," he added. But he said that if the telcos around the world did decide to move quickly, Ovum's bullish figure could be in the ballpark. "If carriers decide that packetized [voice transmission] is the way to go, then it could be even bigger than that."

Analysts noted that consumers would not necessarily notice much difference if telephone companies do change their infrastructure to handle Internet-style voice transmissions.

"Does that really matter to consumers?" Kasrel asked. While the cost of phone service might drop slightly due to packet-switched technology's efficiency, consumers would simply still pick up a traditional phone and dial as always, he said. "If the transport mechanism changes, they won't know."