voip profits prove elusive

VoIP profits prove elusive
Simon Hayes
MARCH 28, 2006

INTERNET telephony subscriber numbers will rocket this year as more Australians sign up for voice over internet protocol, but the proportion of subscribers paying for the service will drop from the end of 2006 as users become more canny with their calling.

A study released by telecommunications researcher Market Clarity shows the number of consumer and small business VoIP users will leap from 411,000 last year to 900,000 this year, with paying subscribers increasing from 97,000 to 450,000.

Chief executive Shara Evans said internet telephony providers would be disappointed as the market matured, however, with the number of paying subscribers dropping as networks consolidated and more users came onboard.

Some providers may start looking at peering - as already happens in the US - in an effort to attract more users. "At the moment we have fewer users with the same provider today, so they have to make more off-network calls," she said.

"There's a strong case for peering between VoIP providers, mainly for cost and quality-of-service reasons."

Even users who are paying are not necessarily paying regularly. "It does not mean they're paying on a regular basis," Ms Evans said. Hardware-based connections -- for which users are more likely to pay for services because they have invested in buying equipment -- will increase from 58,500 in December 2005 to 175,000 by December 2006.

More than 100 companies offer VoIP services in Australian dollars, and the vast majority are local companies.

Ms Evans said the operators with the biggest subscriber bases were not necessarily the most profitable.

"There's a big differences between those who have subscribers and the percentage of those who are paying for things," she said.

What that means is service providers will have to look for additional sources of revenue. Advertising is the obvious option, and targeted ads based on personal interests are likely.

That could ultimately lead to content-based advertising such as Google's Gmail.

"It would make sense for someone to do something similar," Ms Evans said. "There may be a strong case to let voice travel for free because you're able to offer targeted advertising."

Not everyone is convinced that voice will eventually be free, but service providers admit the market is extremely competitive.

"The pricing models will change as competition picks up," Engin chief executive Ilka Tales said. "The price will come down, but will it become free? Only time will tell."

Mr Tales said Engin customers' spending patterns had been "reasonably consistent" since its launch. "It's a fairly competitive field, it's not for the faint-hearted," he said.

Some VoIP providers remain cautious about opportunities in the market.

"The gross figures look quite optimistic, even if paying subscribers mean people putting E10 into Skype," MyNetFone product manager Anthony Wai said.

"We're getting tremendous growth, but even if you extrapolate that I don't see overall growth as being very large."

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