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12 Sep 2007Internet voice

1 Overview

Point Topic defines internet voice as calls initiated over the internet and usually made from PC to PC. The call runs over the broadband network. The conversation is carried on over a form of peer-to-peer (P2P) connection set up between the PCs. This type of connection can be set up between any pair of technically literate internet users using cheap or free software. Generally, users plug a handset into the PC, which runs the software needed to convert voice to and from a packetised IP format. In many ways, internet voice is the voice equivalent of instant messaging (IM), and voice is now included in IM clients.

In the majority of cases today, the call remains a pure internet voice call by remaining on the broadband network. These calls are almost always free (in the same sense that IM is free). In some cases however, the call transitions to an IP or PSTN network terminating outside the broadband network. Some services are also able to provide inbound calls that originate from the PSTN network. These calls normally incur a charge.

A range of companies offer a wide variety of other internet voice services, mainly to residential consumers, although increasingly self-employed people and small businesses may use an internet voice service for most of their business calls. Some offer only outbound calls from a PC to the PSTN. Others allow inbound and outbound calls. Some specialise in particular routes and sell internet voice minutes in addition to calling card services. The market is growing fast, with a bewildering range of service providers and offerings. In some cases, companies offer internet voice as part of an integrated offering, including instant messaging and video calling. Skype (now owned by Ebay) is the most well-known and largest internet voice provider.

For an overview of the whole voice service scene, of which internet voice is a part, please see the paper on The voice services maze in the Broadband Money Makers service.

Key issues

Revenue growth Revenues from paid-for internet voice services continue to grow, but the market is tough, with call prices in every area dropping. This is why many were surprised when Ebay paid $2.6 billion for Skype and the company is a long way off recovering this investment.

IM Voice over IP (VoIP) IM VoIP has been considered to have great potential due to the number of IM users. However, ISPs have so far failed to substantially monetise this area. A major recent development has been interoperability between Yahoo! and MSN, which equates to a network of 350 million users. But, crucially, this does not apply to voice calls.

Regulatory uncertainty Regulation moves more slowly than IP technology. Unresolved issues such as numbering could slow investment in internet voice. A compromise position of not allowing emergency calls from soft client internet voice services seems to work in most territories.

Quality of service (QoS) Skype received considerable bad press in August 2007, when its service was down for over two days. This highlights the potential danger for providers seeking to market internet voice as a reliable replacement for traditional PSTN or even IP-based voice services.

New profile content

Since the last edition of this profile (August 2006), new material includes updates on Skype’’s development in section 2.1. Section 2.4 includes more on AOL and AIM, while section 3.1 has an assessment of market value to the end of 2006. Section 5.4 has more on future developments and the supplier list in section 6 has been updated.