Internet Telephone Begins Surging


    GRAND RAPIDS — Quickly gaining recognition, Internet-based telephone technology is forecast to grow rapidly in the next few years as businesses and retail consumers, seeing the cost savings and convenience, increasingly adopt the technology.

    In West Michigan, business and consumers already have options available for VoIP (Voice over Internet Protocol) services.

    Telecom giants AT&T and SBC now both offer residential and business VoIP products in the local market.

    A California company, Covad Communications Group Inc., rolled out a business-class VoIP service this month in Grand Rapids and Holland, two of 14 new markets across the nation that the company recently entered.

    Covad plans to enter 125 major metropolitan markets in the U.S. by the end of 2004.

    Outlooks from IT industry researchers say this is typical of the strong VoIP growth they foresee in the years ahead, with business applications leading the technology’s deployment.

    “It’s very hot. It’s something that’s real and we’re seeing customers committing to it,” said Brian Buffington, executive director of managed services for SBC Communications Inc.

    The firm offers VoIP to residential and business customers and anticipates rapid adoption of the technology in the marketplace.

    Buffington notes that SBC now sells more equipment for VoIP than for traditional telephone services. As people become more aware of VoIP services, growth will accelerate, he said, particularly as customers replace their existing home phones and upgrade their office systems.

    “I see it as a natural evolution. As the replacement cycle comes along, just like in a television, you’re going to get the one with all the greatest and latest features,” Buffington said.

    “We believe we’re going to see an exponential expansion as more customers continue to use the technology and the benefits of the technology become greater.”

    VoIP uses the Internet to transmit voice and data. Users with high-speed Internet connections can generate cost savings by merging their data and voice servers into a single unit that handles a myriad of Internet-based functions, avoiding toll charges that come with traditional phone service.

    VoIP can handle local and long-distance calls, voice mail, e-mail, paging, call forwarding, teleconferencing and videoconferencing, and a “plug-and-play” feature that allows users to connect their IP-based phones into the system from anywhere within the corporate network and use their own telephone number.

    Research firms that follow the telecommunications industry see rapid growth ahead for VoIP.

    New York-based JupiterResearch predicted in October that residential VoIP use in the U.S. will grow to 12.1 million households, or about 17 percent, by 2009. The research firm estimated residential usage will rise to 400,000 households — 1 percent of all households — at the end of this year.

    IDC, based in Massachusetts, says it sees similar strong growth rates for VoIP in business.

    It reported that the market for hosted VoIP services in the U.S. will grow from an estimated $60 million by the end of this year to a projected $7.6 billion in 2008

    VoIP is now shifting from “an emerging technology to a viable business solution,” IDC stated in a September report.

    “With all of the market conditions in alignment, VoIP is finally poised to overtake and replace the aging but reliable circuit switched infrastructure,” said William Stofega, a senior research analyst for VoIP Services at the research firm.

    “IDC believes that the business market is ripe for adoption of VoIP and the features and functionalities that it promises.”

    VoIP is seen as a lower-cost option to traditional phone service that has far more capabilities.

    While rapid growth is forecast for VoIP, the technology will still represent only a small portion of the overall telecom market and does face some hurdles to broad deployment.

    A June survey by the Pew Internet & American Life Project found that a little more than one-fourth of Internet users, or 34 million people, had heard of VoIP and that 13 percent of those, or 4 million people, have considered getting the service at home. Consisting of  “technophiles” and people who are “generally well off,” that group represents “the near-term potential for the home VoIP market,” the Pew report stated.

    “I believe that these survey numbers highlight that the vast majority of Americans are not quite ready to throw away their land lines and cell phones for Internet telephony.

    “That said, with one in eight Internet users considering signing up for VoIP, even modest industry take-up rates over the next five years are sizeable figures,” said Allen Hepner, advisory board member of the New Millennium Research Council that conducted the study with Pew Internet.

    On the commercial-application side, businesses — especially small companies — are apt to wait to switch to VoIP because they’re satisfied with their existing traditional phone service, SBC’s Buffington said.

    Much like cell phones that first came on the market about 20 years ago, Buffington believes it could take several years for VoIP to become commonplace.

    “There’s still a large embedded base of customers using traditional phones,” he said. “They’re unlikely to replace them out until their systems reach the end of their useful lives.”

    Like most technology innovations, large companies are the early adapters. SBC, for instance, touts a recent contract signed with Ford Motor Co. for 50,000 VoIP stations in Dearborn

    IDC research shows that VoIP is accelerating as an option for businesses.

    While not downplaying the potential of the consumer, IDC believes that the business market is ripe for adoption of VoIP and the features and functionalities that it promises,” Stofega said.


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