Report: Broadband IP telephony small but growing market

July 30, 2004
July 30, 2004 - Researcher warns that investors are likely to balk until carriers hurdle regulatory obstacles.

The U.S. broadband IP telephony market will have strong growth over the next few years, according to market researcher In-Stat/MDR ( The high-tech market research firm reports that, while there were only 114,000 subscribers at the end of 2003, lower service cost and compelling new communications features are driving service adoption.

Broadband IP telephony provides for voice communications over a broadband connection, using Voice over IP (VoIP). The voice traffic can then either be routed over the public Internet or a carier's private IP backbone. Unlike older VoIP services, broadband IP telephony allows for both inbound and outbound voice traffic, and can function as a primary voice line.

"Service providers are attracted to the service not only for its revenue potential, but because it gives them an alternative, local strategy to reselling a Regional Bell Operating Company's (RBOC's) network," says Daryl Schoolar, a senior analyst with In-Stat/MDR. The market, however, isn't without its challenges, he adds. Chief among those challenges is regulatory uncertainty. "Until all of the regulatory issues surrounding broadband IP telephony are resolved, potential investors will be weary of putting their money into a service provider that could lose its entire market advantage due to an unfavorable ruling," he says. Other challenges facing the market involve service security and competing forms of voice services.

Other findings of the In-Stat/MDR study entitled "Hear This: Broadband IP Telephony," include:
*Vonage had the largest share of subscribers, with 66% of the market, at the end of 2003. the combined efforts of cable operators had a decent share and other hosted broadband IP telephony providers controlled the rest of the market.
*Overall, the market for broadband IP telephony in the U.S. consists mainly of consumer subscribers. While this service targets primarily consumers, there are some business service offerings. However, the nature of the service limits it to only the smallest of offices needing few voice lines.
*10.3% of broadband subscribers will use broadband IP telephony by the end of 2008.

The report includes five-year forecasts for service subscribers, service revenues, subscribers by provider type and access technology, and market share.

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