Internet providers prepare for VOIP dogfight

A marketing battle is breaking out between the providers of cheap internet phone services, as interest in “voice over internet protocol” (VOIP) technology finally takes off.

Skype, which offers free internet phone calls between computers and cheap connections between computers, landlines and mobile phones, has hired ad agency Albion to run a multi-million pound global viral marketing campaign. It will use the strapline “The whole world can talk for free”. Skype software has been downloaded 130 million times since the company was formed in 2003, and 52 million users around the world have registered for its service.

Meanwhile, Vonage, the US company that provides cheap broadband calls via conventional handsets connected to an adaptor, is planning the UK roll-out of a campaign that launched earlier this summer on the London Underground network, newspapers and local radio stations.

These campaigns are being launched as some of the biggest names in the internet industry step up their interest in VOIP services. AOL, Microsoft and Yahoo! already allow calls between computers. Last week, Microsoft bought internet calls technology group Teleo, whose service allows standard phone calls, while Google recently announced the launch of Google Talk.

Some predict that cheap internet calls could threaten the business of established players such as BT in the UK, though this will depend upon increased take-up of broadband. BT has launched its own VOIP services, Broadband Voice in 2003 and the BT Communicator software launched last year, which has been downloaded 1.5 million times. A spokesman says that BT will eventually convert its entire infrastructure to internet protocol, so all calls will be VOIP.

CapGemini Telecom, Media & Entertainment consultant Jerome Buvat says calls between PCs are unlikely to provide a significant threat to the established telecoms operators. “What is becoming a threat is phone-to-phone VOIP offered by companies such as Vonage.”

But Alice Enders of Enders Analysis says there was already excitement about VOIP five years ago as it heralded an era of cheap telephony. “Since then there has been the launch of carrier pre-selection [allowing callers to use cheap services on BT lines] and all prices have decreased. It removes the incentive for people to consider switching to VOIP,” she says.

However, Vonage UK managing director Kerry Ritz says VOIP through conventional handsets offers additional services free, such as call waiting; virtual numbers, which means a customer can have a London number even though they are based in another city or country; and simultaneous ringing, where different phones can receive the same call. “I don’t think it is a question of price competition. People are looking for value and quality and you get what you pay for,” says Ritz.

VOIP take-up is much more advanced in other countries. It is estimated that there are 1.6 million subscribers in France and 3 million in the US, where Vonage has 800,000 customers. About two-thirds of large businesses in the US use VOIP and it is predicted that there will be 27 million users there by 2009.

It is open to question how far the new breed of VOIP providers will make inroads into the consumer market given the falling prices of phone calls, but with businesses increasingly making calls over their computers and gamers talking to each other as they play, established operators will find the internet usurpers chipping away at their business.