IP Telephony Service Market Tops $10B in 2007

There were 66.8 million IP telephony subscribers at the end of 2007, generating more than $10.1 billion dollars in revenue, according to data from Point Topic. The research firm’s latest estimates indicate subscriptions have grown to 77.2 million worldwide, adding more than 10 million users in the first half of 2008.

"This puts [IP telephony] at the top of the league for revenue generation amongst consumer broadband value added services,” said John Bosnell, senior analyst for Point Topic, citing other services such as IPTV, video conferencing and software on demand. “It's still early days, yet this early domination suggests it will be hard to topple from the top spot.”

Growth has been driven primarily by ISPs bundling the service with a broadband subscription as part of their drive to increase average revenue per user (ARPU) and to reduce churn. There continues to be a land grab approach in many markets where bundled service tariffs are often lower than charges for a broadband line alone with the operators hoping to make up shortfalls with call revenues.

Although VoIP in some form has been available for a long time in Internet terms, there still are many issues to be resolved. In some of the biggest potential markets, China and India for example, VoIP traffic is either still illegal in many forms or only very recently sanctioned. Some markets require standard PSTN lines are a requirement to provide emergency, or “lifeline,” cover in addition to an IP telephony service amongst other incongruities.

These anomalies have resulted in a significant number of undeclared users of VoIP in a number of markets. In China, despite the illegality, Point Topic estimates there are 3 million mainland users, and stories in the Indian press have claimed that 30 percent of the country's outgoing voice traffic was VoIP in some form.

Markets where regulation is further along and internet penetration is higher may give an idea of the final potential of IP telephony. Yahoo Broadband had more than 90 percent take up of its IP telephony service amongst subscribers at the end of 2007. While this number is gently scaling back, it provides an indication of what is possible.

"With the uncertainties that still exist in many markets and the swiftly changing nature of the broadband and VoIP markets there may be a pause for breath as the world catches up with the startling growth in [IP telephony]," said Bosnell.

"The potential for growth however remains considerable as voice services migrate to VoIP from traditional telephony subscriptions. VoIP is likely to become an even more valuable value-added application for broadband in the future, competing to be top dog in value added services.”