In covering Vonage’s patent battle with Verizon, The Wall Street Journal sheds some interesting light on the changing face of VOIP:
Beginning in 2005, regulators began to erode some of the advantages Vonage and other upstarts initially enjoyed. Internet phone providers were required to upgrade their 911 emergency-dialing facilities, modify their equipment so it could handle law-enforcement wiretaps and pay subsidies into the nation’s universal-service fund, which finances phone service in rural and high-cost areas.
Vonage and others have had to pass on the fees and surcharges to customers. A Vonage bill in Worcester, Mass., that charges $25 for monthly service now tacks on an additional $5 in fees. At 8×8 Inc., another Internet-calling company, Chief Executive Bryan Martin says his customers’ bills have gone up to about $27 from $20.
This is one of the things that drove me away; paying 30% in fees on a bill that should be almost nothing since it runs largely on Internet service I already pay for. And if you’re paying those same fees again on a cell phone, you get hit twice.
There’s also this great chart showing how cable companies have come out of nowhere in the last two years to almost match Vonage’s customer base. Vonage has continued to grow, but nowhere near as fast as if they had only been competing with other VOIP startups. That reality is changing the direction for some:
Santa Clara, Calif.-based 8×8 shifted its strategy last year to focus on business users after seeing cable companies invade the consumer territory. Like Vonage, 8×8 has yet to turn a profit. “It’s taking the technology and the industry a lot longer to get to the tipping point than maybe we had hoped, or in the case of my investors, they expected,” says Mr. Martin.
The technology and industry are there, I think; the smaller startups are just having their lunch eaten by the big traditional telecom and cable companies.
