TCS Daily

Not Your Parents' Phone System

By Kevin Werbach - August 25, 2004 12:00 AM

Guess who is the biggest voice over IP service provider in the US?

You probably said Vonage, which has roughly 200,000 paying customers. Wrong. There's another company with more than four times the subscribers delivering voice capability over broadband. It's a company you've probably heard of, though not in this context.

Give up? It's Microsoft, with its XBox live online gaming service. Xbox Live has over one million paying customers for multi-player online games. And all of them have a headset that plugs into the game console, enabling real-time voice communications with other players.

Microsoft may not hold the lead for long. Sony announced in March that it has 2.6 million America online users for its PlayStation 2. Sony handles its online services on a game-by-game basis, and it hasn't announced figures on how many of its users are paying for online functionality that involves VOIP. If it's just 10% of the total, however, it's already larger than the Vonage user base.

And if you think Skype is the most successful free peer-to-peer VOIP software, guess again. There are four instant messaging services - AOL's ICQ and AIM, MSN Messenger, and Yahoo! Messenger - with more active users each month than have ever even downloaded Skype. Virtually all of the leading IM services now offer voice chat features.

The IM providers understand the potential of what they have. Yahoo! in March announced a deal with British Telecom to develop an integrated "communicator" product for the UK market, incorporating PC to phone calling, Internet call waiting, and directory lookup, with charges billed to the customer's home phone bill. Yahoo!'s Japanese affiliate, by the way, is already the largest voice over broadband provider worldwide, with over 3.6 million subscribers.

Even those numbers pale, moreover, when the mobile phone operators come into play. There are more than 150 million US cellular phone subscribers. Before long, most of them will have VOIP without even knowing it. Sprint PCS and Verizon Wireless are among the carriers deploying "push to talk" capability to compete with Nextel's popular "two-way walkie-talkie," using a parallel VOIP messaging channel alongside their circuit-switched voice connections.

Oh, and by the way, that company Microsoft with the popular online gaming platform? You may have heard about its other product: Windows. That has VOIP built into it as well. Today's Windows XP includes a full SIP software stack for IP telephony, and the upcoming Windows Longhorn will include more extensive VOIP functionality. Microsoft's Live Communications Server, with hooks into Office and Windows Messenger, is a full-fledged telephony and real-time communications platform for the enterprise. With 600 million Windows PCs in use today, expected to grow to 1 billion by 2010, that's a pretty large VOIP user base.

All this brings home a simple point: VOIP isn't the same thing as telephony. We have a set of assumptions about what constitutes a phone call, a phone, and a phone company. Until recently, they have been pretty good approximations of the real world. Going forward, there will still be things that look like phones, activities that look like phone calls, and companies that look like phone companies, utilizing packet-based IP protocols rather the circuit-switched telephone network. Viewed in perspective, though, these will be a small corner of the VOIP market.

Most voice communication will take place in environments that look very different than telephone service as it developed over the past century. Because activities like online gaming and voice chat are welling up at the edges of the communications world, they hardly register in business or policy discussions. As usage increases, however, it will become difficult to ignore the marginalization of the traditional phone call.

Phone companies, which generate hundreds of billions of dollars in annual revenues, have businesses designed around the traditional phone-call model. They can understand competition from "new wave" phone companies like Vonage or even Skype; but what happens when their competitor is a service bundled with a video game platform?

Even worse are the regulatory issues. The laws governing communications are built entirely around the implied parameters of the telephone business. Alternative forms of voice communication have simply not been part of the equation, even as the FCC, Congress, and state regulators argue vigorously about the appropriate treatment of VOIP.

And if anything, the examples above understate the extent to which VOIP will remove voice from the domain of the phone call. Think of how many phone calls are really part of an activity - watching television, scheduling a meeting, discussion a presentation. To the extent those activities involve computers or other connected digital devices, the voice component will gradually migrate from being a standalone exercise to a feature of the associated application.

For example, if you can't figure out how to configure your new digital camera, you won't pick up the phone to call customer support. You'll click a button on the camera, which will initiate a VOIP session right through the camera over a built-in wireless connection. You will be routed automatically to an agent who has the relevant product information in front of him or her. Why go to the trouble of making a phone call? The camera hasn't become a phone, but it will offer phone-like functionality when it's useful.

VOIP represents a change in kind rather than just degree. It's not just a cheaper way to make phone calls; it undermines the very notion of a phone call. Focusing on the new services that look most familiar may be comforting, but eventually we must accept that we're entering a new communications world.


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