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Today's Voip Is Becoming Increasingly Successful Because The Technology Has Dramatically Improved Over Earlier Generations. With The Prevalence Of Broadband Connections, The Voip Model Has Become Very Cost Effective

February 20, 2004

By Jack M. Germain

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Voice over Internet Protocol pioneers Skype, Vonage and other voice-communications purveyors have been quietly generating huge user bases online. Market analysts are reporting that Voip services stand poised to displace conventional telecommunications pricing models. Given the success of improved Voip technology, industry pundits wonder whether traditional telecommunications technology will adapt or be pushed aside.

But trend watchers told TechNewsWorld that traditional voice traffic is already being sent using Voip technologies by the large telephone companies. In this sense, then, a major sea change has already begun, with some Voip callers not even knowing they are using the technology because of its transparency.

"Skype, Vonage, 8x8, Net2phone and others will continue to make inroads on the consumer side," Scott Testa, vice president of marketing at Mindbridge Software, told TechNewsWorld. "You are also seeing companies like Verizon introduce unlimited calling for a fixed price, which is directed at the Voip model."

The trend clearly is taking shape, analysts say. As a result, the telecommunications industry is preparing for a new round of competition involving cable companies, AT&T (NYSE: T) and the Baby Bells. All will be offering VoIP-based services.

Voip Maturing

The growth of Voip isn't coming as a grassroots response from consumers looking for less-expensive phone rates. The growth is being driven by better-quality service from new Voip technology compared to what consumers experienced with the previous generation of VoIP, noted Kevin Mitchell, directing analyst for service provider networks at Infonetics Research.

"It's not being marketed as VoIP," Mitchell told TechNewsWorld. "It's being presented as a new service with the most attractive pricing. It's easier to use and offers more features and values."

Mitchell said consumers will see a slow but steady rollout of Voip services. "Service providers are still trying to figure out how to market it and how to make money with it. Major investments are being made."

Today's Voip is becoming increasingly successful because the technology has dramatically improved over earlier generations. With the prevalence of broadband connections, the Voip model has become very cost effective, lawyer Judith O'Neill, partner and chair of the New York telecom department at Greenberg Traurig LLP, told TechNewsWorld.

Another key reason for the growth of VoIP, O'Neill said, is the more receptive regulatory climate in the United States. She said international use of Voip has been very active for the last few years. "There is no regulation internationally," she pointed out. "VoIP is very robust in other countries and will continue to grow."

Court Battles

The regulatory issues surrounding Voip have been a major concern since the 1996 Telecommunications Act was approved by the U.S. Congress. The act set into motion a conflict between haves and have-nots in the telecommunications industry. Traditional telecommunications services are heavily regulated, but the companies that provide them own the established infrastructures. Internet information services are not heavily regulated, noted Mitchell.

Recent court decisions have begun to lay a legal foundation for new rules that will guide the integration of Voip and more traditional telecommunications. Last year, three-year-old upstart Vonage took on the local phone company in Minnesota and won. The federal court ruled that Vonage's residential service offering was not subject to traditional phone regulations in that state.

That precedent was strengthened earlier in February with a ruling by the Federal Communications Commission that traditional phone regulations don't apply to voice calls traveling entirely over the Internet. The FCC, in a split decision, accepted the argument by Voip provider that it should not be subjected to the pile of fees and taxes that accompany the older telephone hardware infrastructures.

The FCC is now taking the telecom-VoIP controversy to a decisive level. It began considering on February 12th what Greenberg Traurig's O'Neill described as a big economic issue -- the question of how much Voip providers should pay traditional phone companies for use of their local exchange networks.

O'Neill told TechNewsWorld that the FCC "put off that issue since 1998 to let Voip technology develop." The FCC is beginning a period of public comment on the access-charge issue and then will decide what to do about other Voip services.

Packets Of Information

To understand how Voip works compared with traditional telecommunications traffic, think of a train traveling between two major cities. The cars represent packets of information. The traditional telephone system is based on circuit-switching technology. With this method, all of the cars on the train must remain connected for the entire trip.

All of the cars travel at the same speed, in the same direction, on the same track. If the train is blocked by other trains on the track, all of the cars slow to a halt unless a nearby track allows the train to switch tracks. Then all of the cars can speed up together as they take the new route around the delay, eventually arriving at the planned destination.

With new Voip technology, however, the cars on the train -- the voice packets -- can separate and travel on connecting tracks that can speed up the journey, depending on which route would be most effective. With the cars traveling at their own speed on their own most efficient route, they arrive at the planned destination from different tracks at the same time. Upon arrival, the "track master" -- the Voip software or hardware -- reassembles the cars and speeds them into the terminal, creating the sound of voice.

In the early days of VoIP, the cars -- or data packets -- got lost or mixed up. The result was often poor audio quality, which is one of the reasons the technology only slowly emerged. But the newer Voip technology prevents the data packets from getting lost or reassembled in the wrong order.

"It dynamically uses every space on the Internet," said O'Neill about the benefits of new Voip technology. With the quality of Voip systems rivaling traditional communications network -- but with better business and consumer pricing structures -- the future of this field should be interesting indeed.

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