In response to a comment about VOIP being a US$450-billion "black hole" for global carriers due to increase competition, it is important to remember there cannot be a completely "free ride" for the technology.
As VOIP becomes more widespread, competition will naturally cause prices to fall. That's great for residential and business consumers, who will see lower telecom costs. And it's great for players such as Vonage, which can offer inexpensive, feature-rich services by piggybacking on high-speed Internet networks with minimal infrastructure costs. It'ss not so great for carriers that have to deal with a new landscape that will force them to compete on price. This is why you see many carriers such as Bell, Telus and AT&T slashing operating costs by eliminating employees and getting out of non-core businesses.
The problem, however, is how deep do carriers have to cut to stay viable? If it gets to the point where investment in maintaining and upgrading core networks starts to be impacted, that would be huge trouble.
That said, I do not expect many consumers to weep tears for carriers that made tremendous profits for decades as they enjoyed little competitive pressure. Many people will forcefully argue they have had their day in the sun, and now it's time for the new, flexible and fast-moving players to dominate the playing field even if they operate few of their own facilities.
This facilities vs. non-facilities battle is something regulators around the world are grappling with. In Canada, the CRTC has been trying to enjoy the best of both worlds by encouraging facilities-based carriers AND competition. It is a tough balancing act that will get harder to carry off as competitors such as Vonage win more market share.
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Mark Evansthe blog - examines the world of telecom and technology from a distinctly Canadian perspective.the person - lives in Toronto, CA with his wife and three children, and works as director of community with PlanetEye Inc. 
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Comments
Re: Economics of VOIP
by
Anonymous
on Tue 28 Dec 2004 12:48 AM EST | Permanent Link
When the big telcos and cablecos flip the switch and seriously offer VoIP (sometime in 2005), Vonage will get squeezed and eventually disappear. The holy grail for these monopolies is the "ultimate bundle" of landline, LD, mobile, and cable/satellite. We, the Canadian consumer, have apparently expressed a desire to get it all from one provider on one bill. They in turn are working feverishly to deliver it. I now pay more for communications than I ever have. There's still a lot of money to be made by Ma Bell.
Re: Re: Economics of VOIP
by
Anonymous
on Sun 02 Jan 2005 02:37 PM EST | Permanent Link
But how much of a discount is Bell willing to offer - do they compete with Vonage and cannibalize their own profits or do they price somewhere between Vonage and their old phone service.
I recently switched from Bell to Vonage. My monthly phone bill is now about $25 vs. $90 with Bell. People who make more long distance calls or who had more service will save even more. I doubt that Bell will offer a deal that is close in pricing to Vonage ($20/month for local service, including all services like Caller ID, Call Waiting, Phonemail, etc.) plus 500 minutes of LD. If they do match Vonage then their revenue on customers that switch to Vonage will fall by over 50%. And the people to switch to Vonage will likely be the ones who are providing the highest revenue to Bell. Re: Re: Re: Economics of VOIP
by
Anonymous
on Mon 03 Jan 2005 05:33 PM EST | Permanent Link
I wrote the first comment on how Vonage is cooked before its time. Re: "the people to switch to Vonage will likely be the ones who are providing the highest revenue to Bell". You're referring to what's called high value customers, and research actually shows the opposite - the lowest revenue customers churn the most. High revenue customers believe and stick by the Bell brand. You and I are low value customers (I'm a Vonage customer too...).
Re: Economics of VOIP
by
Anonymous
on Fri 31 Dec 2004 11:40 AM EST | Permanent Link
It is unreasonable to argue that companies without facilities should be allowed to "dominate the playing field" by utilizing the assets of others to generate their profits, while the owners of the assets are still required by law to maintain and even extend the assets. (Yes, even though the facilities-based companies were once protected monopolies with guaranteed profits.) This same flawed reasoning was eventually discredited in context of UNEP, and it won't stand in the VoIP arena either.
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