A model to VoIP market

by Michel Machado - michel at digirati dot com dot br
Brookline, August 7th, 2005

The world today has been presented with a huge opportunity. Decades ago, governments around the globe teamed with private investors in order to fund the development of the telecommunication infrastructure that we have today. The Internet is vastly underutilized as compared with traditional telephone communication. This is not due to inaccessibility, it is the result of consumer preference for voice over written communication. The Voice over Internet Protocol (VoIP) may shift the balance of demand for these two networks and this shift provides a whole new set of economic opportunities.

The two most successful applications running on the Internet are e-mail and web. These applications share two important features; a standard and well-documented protocol and the ability to be partitioned. The result of these key features is an open market that provides opportunity for investors both large and small.

I would like to see all VoIP software implemented as Free Software. However, this is not required for my model to work, it requires a standard and well-documented protocol. Consequently, It supports both the Property and Free Software philosophies simultaneously. There are Property and Free Software options for servers and clients in the web and e-mail markets and both have their protocols documented as Request For Comments ("the Internet's laws").

The Internet was designed to have no center and multiple owners. If a branch of the Internet is offline, the remaining part can continue operating. The Internet does not have a unique owner, its stakeholders own and maintain their part. The Internet's capability of being partitioned spreads the responsibility of the Internet's reliability among its stakeholders.

Thanks to these key features, the Internet Service Provider (ISP) market is strongly competitive and funded with private capital. There are a lot of ISPs around the globe. Nowadays, the average consumer can afford his or her own web site and e-mail address or gets it for free. Furthermore, many companies are already successfully utilizing these applications and making money.

Other Internet applications are not benefiting from these two key features. The archetype example is the Instant Message (IM) application set. These applications do not have a standard protocol and each IM network is controlled by just one company. As a final result, those networks are not interoperable and user companies have difficulties making them fit their needs.

There are some IM clients that support more than one IM network in order to increase their user base, but this solution is shortsighted because it does not address the bigger problem of real interoperability. The lack of real interoperability pushes everyone to adopt the same IM network to be able to communicate to anyone. It is unreal for a company hope all its customers and suppliers choose the same IM network.

In order for an IM network to work, there are managed server/link costs paid by the IM network owner. IM networks can not operate without the support of an infrastructure. Though the IM networks are not interoperable, they are supported by nearly identical infrastructure. This means the servers are not a competitive differential for IM clients. They could be managed by ISPs in the same way the web and e-mail servers are. Actually, the IM functions could become just a secondary function of the VoIP servers. Users would choose their IM or VoIP client based on personal preference. A network which attracts millions of users is certainly a success, however a network with billions undoubtedly creates more potential profit for the best players. The benefit of shared costs, the concentration of users, and the real opportunity to increase demand for a unique network, justify the opening of the IM networks to make them part of the VoIP network.

International companies demand sophisticated telephone networks to communicate with their branch offices, this type of connectivity is not affordable for smaller companies. A competitive VoIP market would make long-distance communication affordable for companies of every size, and for private individuals, just as the e-mail market does with its service. In the expanding global marketplace VoIP would make geographical distance irrelevant, because phone numbers, like e-mail addresses, would no longer delineate any geographical location. In fact, the most intelligent model for this system would blend telephone and email addresses giving each individual one address for both systems of communication. As a result, companies, both large and small, would have access to an international labor pool. With this sort of network in place, individuals and offices located in different parts of the globe could communicate just as efficiently as if they shared a common office. This would also allow companies of any size to make themselves geographically recoverable.

Just as the IM networks lack the two key features inherent in e-mail and web markets, either do the current available VoIP networks. Each VoIP network has a protocol known just for its owner, and there is only an owner. This lack in the current VoIP networks turns inviable a super competitive market, as well as it concentrates the network reliability in few hands.

The current VoIP network's motto is to make calls cheaper than via conventional telephones, and free calls among your own network. The motto is true, however it tries to persuade the end users that real interoperability is not important. Furthermore, the possibility to reach everyone by public telecommunication network brings the illusion that the current VoIP networks have real interoperability. The interoperability between a VoIP network and the public telecommunication network is just a transitional need until the world becomes just VoIP, not a final solution.

Why not follow the existing telephone market model? In short, because we live in an Internet age. Are you still paying for Internet usage based on time-connected, like the minutes on your cellphone? Likely not. Today the cost of your Internet service is tied to the speed of your connection. The time model is an antiquated hold-over from the traditional telephone market, it is not Internet-like. The telephone network is limited because it can not evolve without adapting or completely replacing its hardware. Our future worldwide VoIP network depends on the software decisions facing us today.

The current telecommunication players are going to watch their voice traffic become data traffic. Chances are the amount of data traffic will eventually be even greater than today's voice and data traffic combined because when the VoIP market is substantiated, there will be strong consumer pressure to synthesize video and audio communications. The carrier market is going to be swarmed by demand, which will draw new players into the market and these new players will mainly compete for the last mile, supplying cable, radio, and power-line links. As presently constituted only a handful of companies are prepared to offer the backbone infrastructure.

One likely next step might be the adaptation of cellular networks to provide IP connection for desktops, laptops and palmtops. As a result, IP cellular phones and palmtops would include features like the "who's online" list and voice mail would be delivered via e-mail.

VoIP is an application with great potential. However, if we do not take the necessary steps to make the software universally compatible then VoIP will remain limited in use like today's IM applications, and its great potential will be wasted. Historically, governments have established monopolies and oligopolies to promote markets where they need huge sums of private capital. We must avoid the problems that plague the IM networks and the limitations and expense of a communication industry dominated by monopolies or oligopolies. I have presented a model that would establish a super competitive market with no end to the private capital waiting to support it. Most importantly, for this model to work, the major players must share a common vision for the future of this technology.