[IP] Vonage: recipe for success?
Begin forwarded message:
From: Dewayne Hendricks <dewayne@xxxxxxxxxxxxx>
Date: November 2, 2004 7:10:48 AM EST
To: Dewayne-Net Technology List <dewayne-net@xxxxxxxxxxxxx>
Subject: [Dewayne-Net] Vonage: recipe for success?
Reply-To: dewayne@xxxxxxxxxxxxx
Original URL: http://www.theregister.co.uk/2004/11/02/vonage_voip/
Vonage: recipe for success?
By Faultline (peter at rethinkresearch.biz)
Published Tuesday 2nd November 2004 11:05 GMT
Analysis Say Vonage to anyone in the communications industry and they
say: "Oh the VoIP people." Ask if they'll make it, and you may get
responses like, "well the RBOCs hate them and they have hundreds of
lookalike competitors."
The salvation of Vonage is that when you ask anyone to name one of
these 20 or 30 start ups that have copied the Vonage model, they
usually hesitate, stammer and go to look them up. Perhaps being first
into a revolutionary market, even if you don't have much in the way of
breakthrough technology, may well be enough.
But the headline numbers say everything about the company that
virtually invented paid consumer VoIP services across America. In 2002,
the year it launched, it acquired just 7,500 customers. A year later it
had 85,000. Now it boasts 300,000 accounts, each paying roughly $30 a
month, which makes its run rate for revenue around $108m for a rolling
12 month period. With 600 staff that only gives them a revenue per
employee of 180,000, pretty low for a technology company, but it is
partly explained because it is currently ramping revenues. It is also
ramping staff and said this week it will add 600 more employees between
now and Q1 2005.
For those that aren't familiar with the Vonage proposition, it is
simple. Consumers sign up for unlimited calls across the US and Canada
for just $29.99 (it's just gone down to $24.99) and select some kind of
self installable SIP devices. It can sit in front of existing phones
and attach to the broadband line or it can be a softphone (a phone in
software) that links through a PC or even a Linksys router with special
Vonage software.
SIP stands for Session Initiation Protocol and has been endorsed by the
IETF, the 3GPP, the Softswitch Consortium and by Cable Labs' Packet
Cable group, to name but a few and it originally hailed from work at
Columbia University and came to fruition almost a full five years ago.
SIP is nothing more than a way of packaging voice into internet packets
so that all the data is there to carry out basic telephony functions
through proxy servers and softswitches. It needs to identify the type
of traffic, the caller, the person being called, carry the number of
the caller, re-route to new addresses, negotiate what to do at
termination, offer authentication where required and handle call
transfers.
More advanced services such as conferencing, and fax delivery need to
be supported and all of this function needs to be described in a way
that internet services will understand. It's a protocol that the big US
local phone companies, the RBOCs, wish would just go away. But they
have increasingly taken the view that if you can't beat them, join
them, and begun offering similar, competitive services.
But without Vonage and its ilk, it would just be a case of replacing
one way of delivering phone calls for another, with no material change
in the prices. If that is Vonage's role, just to keep the RBOCs honest,
what happens to it after it's achieved that and scared voice carriers
into offering voice pricing that's more in line with its current cost.
From the horse's mouth
We got a chance this week to ask Louis Holder, EVP of product
development at Vonage. Holder was one of the first three employees back
in 2001 when the company got its first round of funding and spent a
year building out its offering.
"The key to the service is the web dashboard that we give to consumers
and SoHo customers to configure their service," he says. "It gives a
customer all the things that advanced telephone systems can do, which
were usually denied consumers, like viewing your call record including
incoming as well as outgoing calls, managing voice messages, routing
calls to your cellphone." The service also allows a customer to control
billing online for international calling and pay bills online.
Holder reckons that between 70 per cent and 75 per cent of Vonage
customers drop their original phone line and don't bother to keep a
line from the local telco. "We know that because they port their number
to us. Most people buy a little $40 uninterruptible power supply to
ensure the line is safe from power outages for things like emergency
calls. Others use a mobile as a backup or both."
So the days when VoIP was an extra and never hurt the incumbent telcos
are well and truly over. Holder talks us through the early days: "When
we started we just had a single softswitch where all calls had to route
through, and just one or two exit gateway back into the PSTN. We just
had to negotiate gateway rates with local telecom suppliers based on
volume. Now we have 25 US locations and have just bought a dedicated
line to the UK and have a gateway into the UK PSTN through a local
telecom company there." He won't say which telco this is through except
that it's not British Telecom the local incumbent. Local incumbents
tend not to want to talk to Vonage.
At the moment the UK service is only for US clients to use to call back
to the US for its current cheap rate of 3 cents a minute. Later UK
subscribers will be invited to join the shift to Vonage VoIP.
"Until now we have transported our overseas traffic as normal analog
voice. The problem was the quality of the call when it was carried over
the international internet. It just wasn't good enough. With a
dedicated line we can ensure that there is enough bandwidth for our
international traffic, then we can offer a flat rate which includes
international dialling. But right now we just have to negotiate
discount rates for termination in each country, and pay for the
traffic.
"Once we have learned a little from having this line in the UK, we will
branch out into Europe. That will be early next year at the latest,
perhaps later this year." Vonage has to put up a UK operation, built a
support desk, add a softswitch and gateway, and then put together a
marketing campaign, but it looks like it will sign its first customers
in the UK inside three months.
Wi-Fi future
In the meantime on its home soil it is about to try shifting its calls
to hotspots and wireless LANs, says Holder.
"We have Beta tests going with a wi-fi phones and people already use
our service from Hotspots with a laptop or a PDA if it has the right
software on it. We've put out a few dozen wi-fi phones, from about 8
suppliers so far. We want to see how each of them deals with voice
compression and how they fool the wi-fi base stations into giving the
phones sufficient bandwidth. We'll pick a few to partner with in the
first quarter of next year and roll them out. And when WiMAX is ready
we'll offer a service using that too."
[snip]
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