Not too many years ago, the acronym VoIP (Voice over Internet Protocol) was virtually unheard of. Today, it is becoming an everyday term. In fact, the major phone companies ignore this technology at their peril.
A while back, I remember trying to set up my computer to receive and send phone calls via VoIP. I quickly learned the meaning of full-duplex and half-duplex — full duplex referring to the transmission of data in two directions, half-duplex in one direction.
Simply stated, with full-duplex the caller can be heard on the other end of the line as well as hear the person with whom he or she is speaking. Unfortunately, at the time I tried to set myself up with VoIP, I was not able to get beyond half-duplex because the technology was still in its infancy and two-way calling was very unpredictable.
It did make me ponder, however, the wonderful possibilities that “computer calling” presented. I reasoned that since we were then able to send and transmit billions of bits of information over the Internet, why couldn’t we just as easily convert voice to digital signatures (digital packets) and transmit them as we transmit other data?
Finally, that time has arrived. The future of VoIP is, to a significant extent, now! Not only can we convert voice to digital bits, but we can also neatly put voice mails into one’s digital mailbox (e-mail box) and save or forward them as needed — quite a revolution!
The major phone companies have not, for the most part, been sitting on their laurels hoping that VoIP will go away. One marketing consulting company, Global Advertising Strategies, predicts that brand wars will soon be breaking out as the technology moves “…from the early adopter to an early majority market stage…”
What we are witnessing is a virtual revolution in communications technology. In the not-to-distant future, you will, in my opinion, be able to call anyone on the planet at basically local-calling rates. The reception on both ends will be excellent and you will be able to choose from any number of “carriers.”
From his office in Washington, D.C., Michael Powell, the head of the Federal Communications Commission, looks at the changed telecommunication landscape by explaining that, in the past, traditional telephony was bound to geography, distance and time. He went on to say that “VoIP shatters all three.”
In other words, one using VoIP technology can use it from anywhere on the globe and call any distance, at any time. The present prerequisite is that the caller has to be plugged in to a broadband connection. This prerequisite is rapidly melting away because of new technology that will permit you to make a VoIP call from any phone, including your cell phone.
If we think of all of the people working in the United States who would like to economically call their friends and family in another country at any time, we can get an idea of the future impact of this technology. It certainly makes for a smaller world and a watershed event in telephony.
Who Are the Current Leaders in VoIP?
Right now, there is an upstart out of New Jersey, Vonage, which is the clear leader in garnering new sign-ups to its technology. This company was founded about three years ago and is said to be currently adding about 80,000 customers every quarter. It presently has about 350,000 subscribers.
One of its close competitors is none other than AT&T. Also, I recently read that AT&T is no longer marketing ordinary telephone services to its retail customers. It is focusing on VoIP. Wow!
This certainly makes my point about the revolution in telephony.
Other American phone companies have finally realized that VoIP is here to stay. In fact, Verizon and Qwest seem to have changed course of late and are beginning to pay close attention to what’s happening in VoIP. In my opinion, they are a little late to the party and have no choice but to participate. After all, VoIP will not go away!
Competitive Structure of Communications Today
Most of us are quite aware that some cable companies in the U.S. are now providing us with cable TV, broadband Internet services and regular telephone service. Many of them started with a wide menu of television options, and then used their large cable infrastructures to add broadband Internet connection and telephone services to their list of products.
The obvious next place for these large cable companies to go is VoIP services. And going there they are. Companies like Cablevision, Cox and Time Warner have now started to aggressively push VoIP. They are, in effect, “bundling” their services to enable them to offer four main products: TV, broadband Internet services, regular telephone services and VoIP.
Some people think that because of the power of the large cable companies, smaller players such as Vonage will be pushed aside and become irrelevant. However, others feel that because a Vonage is not “bound” geographically, it can easily compete with telephonic giants.
I believe that the one thing that will be to the advantage of niche players is that they are more nimble than their larger competitors and can more quickly react to and take advantage of changes in their market. Also, they will probably be stressing the portability of VoIP, whereas the large cable companies will likely be initially bound by their infrastructures, which greatly limits their portability.
How will the niche companies be able to stress portability? They’ll do this through WiFi technology. For example, just think about the airports in the U.S. that permit you to use your laptops without having to plug into a network.
Or, what about the college campuses that are completely wireless, where students can be leisurely using their computers while sitting under a tree? This is all made possible through the portability that WiFi brings.
In my opinion, it’s only a matter of time before VoIP will be completely portable so that the consumer can get all of the economic benefits of VoIP and, at the same time, garner complete geographic freedom as to where in the world the technology is used.
I’m sure that it’s obvious to you by now that I’m quite bullish on VoIP. I think that niche players will come into the market and might very well dominate smaller geographical segments of the market.
Considering the widespread appeal of VoIP, there no doubt will be a number of new IPOs by VoIP companies, since these companies have all the significant elements of an attractive IPO.
Take a look at my article, “Is Your Company IPO Material?” It has some guidelines as to which companies have the necessary qualities to complete a successful IPO.
Truly, Voice over Internet Protocol is here to stay. The implications are, I believe, wonderful for all of us. We’ll have greater freedom in using telephonic services and we’ll be able to do so at greatly reduced costs.
Keep your eye on VoIP. We’ll all be living with it for a very long time. And, good luck!
Theodore F. di Stefano is a founder and managing partner at Capital Source Partners, which deals in bringing small-cap companies public, and can be contacted at [email protected].