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Report: It's Vonage's telephony game to lose

Sun, 08/29/2004 - 8:00pm
Karen Brown

Vonage Inc. may have broken significant consumer ground in voice-over-Internet Protocol services in 2003, but it now faces potent competitive threats from major voice service players including cable operators, according to a new report by the Yankee Group.

The Boston-based analyst firm concluded that VoIP services will collectively rack up 1 million subscribers by the end of the year, and that number is expected to grow to 17.5 million by the end of 2008.

But while Vonage now has the lead in VoIP subscribers, MSOs will overtake it in short order. The report predicts that cablers will snap up 56 percent of the VoIP market by the end of 2005, and by 2008, MSOs' share of the total local telephony market will reach 10 percent.

Long term, Vonage and the cable operators also face challenges from the incumbent telcos. AT&T Corp. 's CallVantage service, as well as VoIP offerings from telcos Verizon Inc. and Qwest Communications International have already hit the market, and other telcos are considering entry.

"These companies have the potential to capitalize on the market's momentum," says Kate Griffin, Yankee Group's senior analyst for consumer technologies and services. "Although alternative players and the MSOs maintain a head start in the consumer VoIP market, U.S. telcos can leverage their knowledge of telephony delivery, marketing, support and brand recognition. Operators that brave the uncertainty and enter the VoIP market will gain the ability to define the service and set consumer expectations."

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