Fred Heutte wrote:

The cover story of the Economist this week (with a typical dollop of hype called "How the internet killed the phone business") is about Skype and VOIP as a "disruptive technology" (in Clayton Christensen's sense) that is upending the wireline world but is even more of a threat to the mobile/cellular carriers.

Skype has only a modest presence in the US now but the worldwide numbers are pretty staggering:

Sandvine, a telecoms-equipment firm, estimates that there are 1,100 VOIP providers in America alone. But the trend is worldwide. IDC, a market-research firm, predicts that the number of residential VOIP subscribers in America will grow from 3m at the end of 2005 to 27m by the end of 2009; Japan already has over 8m subscribers today. Worldwide, according to iSuppli, a market-research firm, the number of residential VOIP subscribers will reach 197m by 2010. Even these numbers, however, do not include people using VOIP without subscribing to a service (ie, by downloading free software from Google, Skype or others). Skype alone has 54m users.

http://www.economist.com/displaystory.cfm?story_id=4400704

Well, actually projected to have 54 million by December, up from about 15 million at the beginning of the year. These are the growth rates claimed for the net 10 years ago but which we knew were overblown.

Of course not all of those "users" go much further than downloading something and maybe trying it out. But obviously the Bell business model is dwindling fast and the life of the network operator only gets more, um, interesting.

The entire VoIP hype is based on gross misunderstanding by various "analysts", clueless marketing people and some political agendas. Fist of all a clear distinction between "VoIP the technology" and "VoIP the service business case". Unfortunately these are more often than not intermixed. "VoIP the technology" is nothing spectacular. It just replaces a wire with analog voltages with voice samples in packets. Instead of a wire and a TDM switch you've got a wire and a packet switch (or router if you prefer). "VoIP the business case" is something entirely different. Of course it does leverage the "VoIP the technology" together with an existing network, the Internet, to transport voice. Now it gets interesting. When done as intended by god VoIP is a pure P2P concept. Both parties are connected to the Internet through their ISP and exchange voice packets directly without anyone in the loop. This is how Skype-basic works. Obviously there is not much money to be made other than selling the Internet access. The only requirement above an Internet connection is the VoIP directory service to find out where to connect for the remote party. This directory will eventually be something like ENUM leveraging the existing DNS infrastructure. Not much money to be made here. Then where does the money come from for "VoIP the business case"? Very simple actually. From connecting someone using VoIP over the Internet to the PSTN. In "VoIP the business" case you only get charged for calls going to the PSTN. If one day a critical mass of users has VoIP as their phone connection, the volume of calls to the PSTN will sharply decline and "VoIP the business" case will vaporize. So "VoIP the business case" is only a transition phase substituting an overcharged PSTN business case. Other than special taxes and universal service funds there is nothing preventing the PSTN to provide other PSTN destination calls for the same tariff as "VoIP the business case". The PSTN telco's already have the switches and one day they find out that they get more return on their investments if they lower the price of calls, rather than having more and more people substitute their switches for the Internet. However despite all this "VoIP the business case" or "VoIP not really a sustainable business case" there is one certainty. Everyone who wishes to make a phone call, either on the PSTN or Internet, has to have a connection. With the current trend towards "VoIP the technology" it spells bad news for those providing PSTN lines and good news for those providing Internet lines (firstlast mile, not transit ISP's). It's up the reader to figure out who provides a suitable firstlast mile. So there is not much point in preparing the coffin for the Bells. Eventually they will adapt and survive, kicking and screaming. -- Andre Oppermann You are free to distribute this text provided you attribute me as the author and source.