The rise of Skype and other VoIP services means nothing less than the death of the traditional telephone business, established over a century ago. Skype is merely the most visible manifestation of a dramatic shift in the telecoms industry, as voice calling becomes just another data service delivered via high-speed internet connections. Skype, which has over 100m users, has received the most attention, but other firms routing calls partially or entirely over the internet have also signed up millions of customers. This is a huge opportunity for the ISP to pick up some of the revenues that are left over from the dying traditional Telco voice business.  VoIP to sound good and be crystal clear requires some amount of network connection quality and minimized latencies. If you have been reading my previous articles, this is an opportunity for the ISP to charge a little extra for this service.  That's a lot more then the Telco's will be able to do, read on…

The ability to make free or almost-free calls over a fast internet connection fatally undermines the existing pricing model for telephony. That means not just the end of distance and time-based pricing - it also means the slow death of the trillion-dollar voice telephony market, as the marginal price of making phone calls heads inevitably downwards.

VoIP makes possible more than just lower prices, however. It also means that, provided you have a broadband connection, you can choose from a number of providers of VoIP telephony and related add-on services, such as voicemail, conference calling or video. Many providers allow a VoIP account to be associated with a traditional telephone number - or with multiple numbers. So you can associate a San Francisco number, a New York number and a London number with your computer or VoIP phone-and then be reached via a local call by anyone in any of those cities.

Furthermore, your phone (or computer) will ring wherever you are in the world, as soon as it is plugged into the internet. So you can take your Madrid number with you to Mumbai, or your San Francisco number to Shanghai. Skype and other VoIP services, in other words, are leading to lower prices, more choice and greater flexibility. It is great news for consumers - but terrible for Telco operators.

As is always the case with a disruptive technology, the incumbents it threatens are dividing into those who are trying to block the new technology in the hope that it will simply go away, and those who are moving to embrace it even though it undermines their existing businesses. Since VoIP will cause revenue from voice calls to wither away, the most vulnerable operators are those that are most dependent on such revenue.

In particular, that means mobile operators, which have been struggling for years to get their subscribers to spend more on data services, but are still hugely dependent on voice. Worse, the very "third generation" (3G) networks that are supposed to provide future growth for these companies could now undermine them, because such networks make mobile VoIP possible too. Least vulnerable, by contrast, are those fixed-line operators that are now building new networks based on internet technology, which will enable such firms to benefit from the greater efficiency and lower cost of VoIP as well as new revenue generators such as IPTV. While their voice revenues will slowly evaporate, they will then be well placed to offer fee-based add-on services over their new networks.

It is now no longer a question of whether VOIP will wipe out traditional telephony, but a question of how quickly it will do so. People in the industry are already talking about the day, perhaps only five years away, when telephony will be a free service offered as part of a bundle of services as an incentive to buy other things such as broadband access or pay-TV services. VoIP, in short, is completely reshaping the telecoms landscape. And that is why so many people have been making such a fuss over Skype - a small company, yes, but one that symbolizes a massive shift for a trillion-dollar industry.

Paul Zukowski
www.zukowski.biz