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Arnold Kling has a Ph.D. in economics from MIT; founded, one of the very first commercial websites, in 1994; separated from Homefair in January 2000 after it was sold to Homestore; is author of Under the Radar: Starting Your Internet Business without Venture Capital, and is an essayist. Send comments to us at

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February 25, 2004

Why is VOIP a Business?

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Posted by Arnold

Here's a dumb question. Why is voice over IP a business? I mean, email over IP is not a business. Web over IP is not a business. Video over IP is not a business. Why is voice over IP a business?

Clearly, some people think it's a business.

The company expects to have 1 million businesses and homes signed up by the end of 2005, said Cathy Martine, AT&T senior vice president of voice Internet services and consumer product management.

But if I have an Internet connection already, then why do I need to pay extra to send voice bits over it?

I mean, if you've developed a hack that routes voice bits to a telephone, then bully for you. But why don't you just sell me some equipment that takes advantage of that hack, rather than make me pay you $35 a month to use it?

Maybe AT&T's angle is a "quality of service" guarantee, using their proprietary network. Otherwise, I can't see getting the monthly fee to stick.

Comments (5) + TrackBacks (0) | Category: business models | telecom, FCC


1. Foolish Jordan on February 26, 2004 07:49 AM writes...

Perhaps the $35/month is for connecting your VoIP calls to the main phone network?

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2. Matt on February 26, 2004 09:39 AM writes...

Foolish Jordan is correct. The current VOIP service offered by Vonage, 8x8, and VoicePulse is that of routing voice packets from the Internet to the circuit-switched phone network. There is no box that someone can sell you that implements the hack of routing your bits to the telephone network. Well actually, there are such boxes available from Cisco and Nortel but they cost thousands of dollars, require you to have T1 lines connected to the PSTN (Public Switched Telephone Network), and need a bunch of software programming to route the VOIP-to-PSTN calls. Vonage, et. al. buy these boxes and write a bunch of software to implement the service they sell to residential customers. They also provide voice-mail services so that involves some storage space on their servers as well.

There are a bunch of free VOIP servers publicly available that are used for testing and research purposes where you can use your SIP (Session Initiation Protocol, the de facto standard for doing VOIP call control) phone to talk to other SIP phones. My guess is that once there are enough people demanding SIP service, it might make sense for ISPs to bundle SIP just like they do email (POP/SMTP) and Usenet (NNTP). However, even though pretty much every ISP provides access to their SMTP and NNTP servers, there are still a handful of companies out there that are making money offering access to their own SMTP and NNTP servers that promise enhanced or more reliable services when compared to the default mail and news you get with your ISP.

There is also a compelling case right now for VOIP in the enterprise. Instead of maintaining both a voice and a data network, a company can replace their regular old PBX with a VOIP PBX and plug everything into the same bit of wiring infrastructure. The VOIP PBX can also route calls to the PSTN and is just a slightly different version of what Vonage has got connected to the PSTN.

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3. John Thacker on February 28, 2004 12:37 PM writes...

Right. Things like Free World Dialup that only do IP to IP connections and don't hit the traditional circuit-switched telephone network are free.

The inevitable movement is towards connectivity as the one utility.

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4. John Thacker on February 28, 2004 12:45 PM writes...

Vonage also currently offers free calling to other Vonage users. It's not hard to imagine a system where VoIP providers offer free calling to all other VoIP providers, charing only for the calls that hit the traditional telephone network. The network effects could be powerful in causing a switch towards VoIP.

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5. Patrizia on June 22, 2004 12:08 PM writes...

If in the seventies you had offered a story writer a computer instead of his type writer he would have explained you that a type writer was with no doubts 100% better than a computer.
First, you didn't need electricity, so you could carry it wherever you wanted, the cost was enormously lower and you didn't have the hassle to learn how to use a program, you didn't need a printer, you had your story immediately showing in front of your nose.

But now a day the type writers exist only in the flee markets and there are few people interested in them.

Everybody uses a computer, even if he needs a printer.
In the near future may be even the paper will disappear living the place to that virtual reality that has already captured the mail.

VoIp is a Business and it is a good, big business.
And not because you save money doing a phone call, but because the way of communicating has already changed and will change more and more.
And in the new way the computer is the king.

It is true, the telephone can look easier to use, but you can just telephone and nothing else.
With a computer you can talk and see, you can write, you can show while you talk, you can read, you can look at a file, you can send the file, you can open a picture and the person on the other end, thousand of miles away can see the picture, can read what you want him to read.

You can do this and the million things you can dream of doing. Because VoIp is done with a computer and not with a stupid telephone.

Some time ago I belonged to the many who saw the future of VoIp in a IP phone, now I see the future of it in a wireless headset, with my hands free to use a computer in front of me.

And that is not all. The big business, the big revolution will be in the fact that it will not be a business, or at least not in the way we are used to.
No big telecoms needed (and that will be the best part of it...)many small ISTP or in whichever way we want to call them, in the beginning, local terminator guys, then just gatekeeper guys and tomorrow a huge network of VoIp users and nothing else...

It is really time to throw all the telecoms' monopolies of this world in the dustbin of History.


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