VoIP Promises Are Overhyped: Forrester

Voice over IP (VoIP) is poised to reshape telecommunications, but not just yet, writes Forrester Research analyst Maribel Lopez in a new report. For now, VoIP hype has far surpassed both consumer adoption rates and interest, and it will take some creative thinking from providers to overcome the gap.

In "VoIP Liberates Voice from the Phone," Lopez notes that, despite its promise and a 200% increase in adoption last year, VoIP is overhyped. Even when they are aware that VoIP even exists, Lopez found that fully 70% of consumers surveyed have no interest in switching to a VoIP service. Providers still haven't made a compelling case for their services.

"Offerings focus on price, not compelling applications," Lopez writes. "Today, providers lead with cheap unlimited calling packages that mirror circuit-switch offerings. Consumers aren’t going to switch providers just to get free 'repeat dialing' and 'click to call.' At this point, the only reason for consumers to switch would be to save $15 to $25 off their monthly bill."

Cheap long distance is a strong selling point for those consumers who are already interested in and inclined to adopt VoIP. Pure VoIP providers like Vonage and Packet 8 have already grabbed 40% of the VoIP market with their bare-bones, PSTN-replacement services, and Lopez expects them to thrive in the short term. However, she does not see this as the future of either VoIP or telephony, though cheap toll-bypass will never die. "The cheapest rates in town will gain the attention of bargain hunters and broadband consumers who were considering cord-cutting." she writes.

The real promise of VoIP, according to Lopez, is the way that it liberates voice from the telephone, and from the telephone network. VoIP will go mainstream when providers and equipment vendors begin to think outside of the box and begin to integrate voice functions in consumer electronics, Web applications and mobile communications. Providers will have to embrace these trends to remain competitive."As VoIP deployments accelerate and the market saturates, the market will shift its main focus from cost savings to creating a better voice experience that integrates with the Web and other services like email and IM," Lopes writes. "However, the real power of VoIP over the long term is that any device with an Internet connection can now be voice-enabled."

Lopez expects VoIP to begin to "hit its stride" as broadband penetration exceeds 50% of homes in 2007. She expects 12 million American households -- that is, 16% of US broadband households and 11% of all American households -- to be using VoIP services by 2010.