Voice calls are steadily gravitating towards Voice Over internet Protocol (VoIP) technology, which essentially means that voice calls rates will continue to drop till they are almost free. And as everybody knows, this is forcing telecom service providers to look at content for growth. (Typical example: paid mobile download service for songs &  video-on-demand services hosted by telecom cos.)

To further complicate matters, cable operators are expected to offer free voice over their broadband networks as value adds to their existing delivery of television content. (Their fitting reply to telecom operators' invasion into cable TV business ?)

VoIP is bound to redefine the telecom / broadcast / entertainment business, as we know it today.

VoIP Update
VoIP is short for Voice over Internet Protocol and for the past  few years, is extensively used to make international or long distance calls. (Because the main benefit is that it is considerably cheaper especially for international calls as compared to regular phones.)

VoIP which is also referred to as Internet telephony, is a system for transmitting calls over data networks by sending digital audio packets over the Internet. VoIP can be accessed by making calls from one computer to another or through an Analog Telephone Adaptor (ATA) & IP Phones.

Early implementations of VoIP started with PC to PC communications. But with the introduction of (ATA) adaptors, VoIP and PSTN interconnect, the VoIP industry is beginning to knock on the door of the core voice revenues.

Google's launch of free VoIP services Google Talk, AOL’s VoIP, Apple’s iChat, BT’s Broadband Voice and eBay's acquisition of start-up venture Skype Telecom : all these serve a single warning to the mega billion dollar global telecom industry - In the future, all phone calls may become free!

More Than Just Cost Savings
Everybody knows that the single major benefit of VoIP is cost savings. But VoIP technology goes much beyond this because it actually brings voice & data together - paving the way for services like unified messaging (voice,data,email,voicemail), advanced conference calls etc.

Conversion of analog to digital in real time ensures enhanced voice clarity. But it is the integration of voice & data that will enable corporates to conduct conference calls and simultaneously share data, images, documents & applications with their business counterparts.

Because VoIP based services utilize existing telecom infrastructure, they can add hundreds of thousands of new subscribers everyday - at practically no additional cost. (Each new subscriber brings his own equipment & downloads the VoIP software using his own Internet connection.)

By the same token, because VoIP service providers are  directly in touch with the end-user, they remain right on top of the value chain.

VoIP is fast becoming a mainstream telecom service which is integrating text & video based services. Available on desktop, laptop, mobile devices & appliances, VoIP is revolutionizing the communications business.

The Skype Model 
The founders of Skype (Zennstrom & Friis) are inventors par excellence. Although they can be faulted for their commercial track record, both founders have conceived & implemented pathbreaking concepts* in the past. Skype's business plan is based on free distribution of their "Skype" software that lets people make unmetered voice calls from PC to PC - anywhere in the world. The revenue (as is today's style) will come from "value adds" like "pay-per-call" advertising, where advertisers could place Skype buttons on web pages a la text links on Google search result pages. Clicking on a link would be equivalent to hearing a sales pitch for which the advertiser would be charged.

* Zennstrom & Friis were the original promoters of peer-to-peer software KaZaA - which became the de facto standard for copying & sharing music (audio) files over the Internet, till it was shut down because of legal problems. Incidentally, Skype is reported to use the same basic idea of KaZaA  suitably adapted for digital voice communication, by copying & sharing of audio (voice) files.

Global PBX
In many ways, the telecom business model has always been a macrocosm of the local PBX. Once the initial investment (equipment, wiring, labour) is through, the cost of making calls from one "extension" to another is almost negligible. And as the number of extensions increase, this figure actually starts approaching zero. After all, the only cost is of maintenance, which is very small. (Of course there is a cost for adding connections, for which telecom cos. charge a one-time fee.)

The traditional telecom revenue model has been to invest in basic telecom infrastructure (cabling, equipment, towers) and apply a per minute, per kilometer rate. Over the years, this has led to the ARPU (average revenue per user) concept, where every attempt was made to increase revenue from each subscriber !

VoIP services tend to turn this revenue model upside down. Since the main cost (Internet) is borne by the subscriber, factors such as distance between callers & duration of calls become irrelevant. Like making a call from one "extension" to another in a local PBX, every call is local. Or like sending / receiving email. With broadband Internet, VoIP calls can be continuously online, jumping from an instant-message to a voice / conference call / video call in a second.

VoIP signals the end of traditional telecom pricing models. Well before voice calls become free (if they ever do), the charges will fall rapidly. And naturally, voice will cease to become a major revenue generator for telecom operators.

From Visionary to History?
Strategies like Vodafone's "pure-mobile telecom" which was hailed as "visionary" just a few years ago may look a little "shortsighted" today. Because VoIP over 3G (& GPRS) mobile will reduce Vodafone to a simple broadband carrier, who may have to fight Public WiMax networks**, apart from other mobile operators.

Considering the huge investments that mobile operators like Vodafone have made especially in launching new technologies like 3G, this will certainly require new strategy.

Such is Internet technology !

** More on this in Part II