Despite increasing revenues, packetized voice lags behind circuit-switched telephony

Nov. 1, 2000

Despite revenues of almost $34 billion by 2004, North American packet telephony-which includes Internet Protocol (IP) telephony-will account for just 10% of the total North American voice revenue, according to a new report from telecommunications market-research firm Insight Research Corp. (Parsippany, NY).

Insight analysts believe that digital packet-switched technology will displace circuit-switched technology over the next few years, due to the decreasing cost of transporting and managing packetized traffic. However, this does not mean that carriers will abandon the billions of dollars already spent on circuit-switched infrastructure, which provides the quality of service and ease of use to which their customers are accustomed. As explained in the report, "Sub stituting high-quality circuit-switch ed voice with a lower-cost packet-switched solution that is even marginally inferior is not easily done."

The report defines voice-over-packet (VoP) calls to include all packetized voice, including voice over IP, voice over frame relay, voice over ATM, voice over DSL, and any combination thereof. The key drivers behind the growth of VoP include:

Reduced costs for the end user.
Initial infrastructure savings for new service providers.
Continued savings resulting from a single converged network.
New standards simplifying VoP deployment (including MGCP and SIP).
Technology advancements.
Existing enterprise networks already based in packet technology.

Insight analysts believe that VoP technologies will account for an increasingly larger share of the total telecommunications revenue pie over the next five years. VoP-based services accounted for $870 million in 1999, but that figure is expected to exceed $98.7 billion by 2004-which is still just a small portion of the total voice revenue received by service providers (see Figure).

Explains Insight president Robert Rosenberg, "We consider our forecast to be somewhat conservative, as our model assumes only minor moves by AT&T, MCI WorldCom, and Sprint to voice over packet. A major commitment by any one of these carriers would dramatically increase our estimates. However," he adds, "we just don't see the incumbent long-distance carriers adopting VoP as aggressively as the ILECs, CLECs, and ISPs. Instead they may wholesale services from other VoP providers."

The report, "IP Telephony vs. Circuit Switching: Service Revenue and OSS Expenditures in Voice over Packet Networks 2000-2004," examines total carrier revenue, voice revenue, and VoP revenue in both North America and international markets. The report also forecasts worldwide OSS expenditures for VoP by application, including billing, provisioning, and network-management segments. A free report excerpt and table of contents is available online at www.insight-corp.com/iptele.html. For additional information, contact Insight Research Corp. at (973) 605-1400.