Saturday, November 20, 2004

VOIP is here

I've been using Voice over IP for some time now. I talk to my physics collaborators in foreign countries using a free service called Skype, which runs on my laptop. The sound quality is incredibly good - often better than an international call on the telco system. The free service is only for PC to PC calls, but you also can terminate the IP connection on the old telco system to reach an ordinary phone for a small fee (about $.02 per minute for Skype, if I recall).

The economics of VOIP are a little opaque to me - some of the cost savings is due to the lack of regulatory fees on IP telephony. (When I look at my QWEST phone bill I am astonished at how much of it is taxes and regulatory fees.) But there is certainly a big advantage to using a packet-switched network instead of a circuit-switched one, once the quality issues are solved. Telephony will soon be priced like bandwidth.

I predict a huge wave of innovation around VOIP. The fundamental unit of the Internet revolution - a linux or BSD server, built from cheap hardware - can now use open source software (e.g., the Asterisk package) to perform PBX functions and voice-data manipulation. That means much of the expensive telco equipment that Alcatel or Siemens or Nortel sell is going to be commoditized in the coming years. Cisco and others are already moving aggressively into VOIP, although penetration rates in both the consumer and Enterprise markets are still very low. As always, the real innovation will come from small startups. It seems to me that the easiest way to roll out low cost Internet-related services and applications to cellphones is via VOIP, rather than depending on 3G. The user I/O is limited to voice or touch-tone, but the connectivity is already there and no special handsets are required.

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