June 16, 2011

Internet Voice Revenue Set To Double By 2015

The market for Internet phone services, also known as fixed line voice over Internet protocol (VoIP) services, will more than double to $40 billion within five years, according to a new report issued Wednesday by research firm Point Topic.

The market for VoIP services grew 12.6 percent in 2010, with global revenue at $17.3 billion, according to the report.

"Voice over IP now has over 120 million subscribers worldwide"¦and its growth looks set to accelerate as predictions indicate a $40 billion annual VoIP market by 2015," Point Topic said.

"The growth of VoIP has been bumpy but shows signs of acceleration," said John Bosnell, Senior Analyst at Point Topic.

"VoIP has all the hallmarks of a classic substitution commodity. This is where customers look at the service that is delivered by a new product and decide that it meets, or exceeds, the service they are currently receiving and when it is appropriately priced they will switch from one to the other."

Indeed, consumers are switching from the standard telephone system to an end-to-end IP service that provides voice services at a very attractive cost.

"France has been something of a test bed for VoIP. Driven by an active supplier base that has made VoIP available to a large percentage of the population over the last decade, the providers have been rewarded with significant take-up," said Bosnell.

The result has been a rapid shift away from traditional landline phone services. In France, over 50% of telephony traffic originating on fixed networks was started on a VoIP phone in 2010.

The entire broadband market and all its consumers are potential customers, and there is solid evidence that consumers see VoIP as a superior alternative for traditional phone calls.

"We expect there to be over three quarters of a billion fixed line broadband subscribers by the end of 2015, in theory all of them are targets for VoIP," said Bosnell.

However, Point Topic cautioned that any projections about the size and value of the VoIP market should be treated with caution, since there are many variables at this stage in the development of the market and forecasting models can easily be off by a sizeable margin.

For example, an increasing number of subscribers are doing without a fixed line telephone service at all, relying instead on mobile.

"Given a number of assumptions, relatively consistent ARPU (average revenue per user), regulatory easement, a cautious set of projections and so on, we expect the global fixed line VoIP market to be generating at least $40 billion a year in five years' time," the firm said.

Point Topic's analysis on VoIP has so far focused on fixed line services, however Internet telephony, where services like Skype are active, is a more enigmatic market.

"It is highly fragmented and generally served by companies who don't or won't report regular statistics and revenues," Point Topic said.

"Skype, the market leader, has had considerable publicity recently and does report some numbers. From these we estimate that there are more Internet telephony than VoIP users, with Skype alone accounting for almost 150 million regular callers," said Bosnell.

However, the revenue generated is much lower.   At the end of 2010 it had around 9 million paying users generating $8 a month on average. 

It is the potential size of the opportunity that makes the prospects so lucrative, the research firm said.

"If Skype continues to grow as it has been and manages to keep its ARPU at the current level then it will be generating in the region of $2 billion a year by the start of 2016. If you work hard and manage to marry your Internet telephony service with a major mobile device manufacturer and solve any number of technical and regulatory issues, the market could really explode," concluded Bosnell.