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VoIP for the masses

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With a string of major companies launching Voice-over-Internet-Protocol (VoIP) services, the technology is quickly moving into the mainstream. As these services are deployed, chip companies are racing to get their VoIP chips designed into the new phones, switches and routers that make VoIP more accessible to the average consumer.

VoIP first began growing in businesses because it offers significantly lower costs than old-fashioned circuit-switched services. Last year 67 percent of the 52.9 million VoIP ports (or voice channels) shipped were for business applications. But by 2008 two-thirds of the estimated 200 million ports shipping that year will go to the home market, says Sam Lucero, an analyst with In-Stat. The VoIP chip shipments of Texas Instruments , the leading VoIP chip vendor, will be about 60 percent consumer this year, says Bill Simmelink, general manager of TI’s packet voice and video business unit, up from 54 percent last year.

Most of that growth is coming from IP phones. As more and more companies roll out VoIP services, they need a consumer-friendly VoIP phone. That’s good news for chip makers. Many of the chips sold into business applications contain multiple ports per chip, whereas the VoIP chips for phones typically contain only one port. That means the profit margin on single-port chips is much higher. In-Stat estimates that the price per port on VoIP phone chips can run as high as US$10, versus US$1 to 2 per port for the high-density chips used in business equipment such as switches and gateways.

Little wonder that every major DSP chip vendor is targeting this area, sensing that it may explode into a huge market. “People are starting to smell blood in the water,” says Will Strauss, president of Forward Concepts, a market research company.

Until now consumers using VoIP had to have an analogue terminal adapter, a VoIP-enabled box that connects a regular analogue phone to the broadband connection. In an interim step—between having to use this terminal adapter and having all the VoIP functionality right in the handset—some hardware companies will offer telephones whose base units incorporate the VoIP chips, so that no adapter is needed.

The next step toward a fully integrated consumer VoIP phone is a cordless phone that incorporates the VoIP chips into the handset itself. UT Starcom has announced such a phone, targeted at consumers who have a wireless LAN at home. The handset, which incorporates Agere Wi-Fi and VoIP chips, allows users to connect to the Internet through a wireless LAN router and to use Wi-Fi hotspots in places such as cafés and airports. The phone is expected to cost less than US$100 (A$130) and will have four hours talktime and 100 hours of standby time—much like a cell phone, says Mary Cramer, a product marketing manager at Agere. Agere has other customers building similar phones, she notes.

Broadcom is working with several companies that plan to introduce similar phones in the second half of 2005, says Monika Gupta, product line manager for the company’s Wi-Fi phone products. In October 2004, Broadcom announced a Wi-Fi phone chip set that included VoIP protocols. Chip companies, hardware manufacturers and VoIP service providers are all dealing with the question of how best to make VoIP available to the mass market, she says. “The question we’re all asking is, ‘How do you get this into consumers’ hands?’” she says. The market for Wi-Fi/VoIP cordless phones may be huge, she says, noting that households today have an average of 2.5 cordless phones. “We view consumer VoIP as a mainstream market,” Gupta says. “We don’t think it’s an emerging market anymore.”

However, the VoIP-based cordless phone is only an interim solution, she says. The goal is a dual-mode mobile phone that incorporates both Wi-Fi and VoIP. “We at Agere feel that the largest part of the market for VoIP will be these converged handsets - the combination of Wi-Fi and [mobile] phones,” says Cramer. Some 30 percent of all mobile phone calls are placed from home, she notes. Such a dual-mode phone would let users use their mobile phone with the lower-cost VoIP from home and at Wi-Fi hotspots, and cellular for other areas. But how quickly that happens may depend on a couple of things: first, the development of standards that would allow a call to be transferred between a cell and a wireless LAN and, second, the development of a viable business model for manufacturers and carriers.

Efforts are under way to develop a specification, called unlicensed mobile access (UMA), for handing a GSM cellular signal over to a wireless LAN. Participants include Alcatel, AT&T Wireless, Ericsson, Motorola, Nokia, Nortel Networks and T-Mobile. UMA-compatible phones will be shipping by the end of 2005, Cramer says. But at least two other groups are working on different approaches, and some people doubt that a specification will be finalised in the near term. Viseon, for example, considered developing a dual-mode phone but decided to wait until a clear standard emerged, says Harris.

Defining the business model

And then there’s the question of the business model. Today hardware makers are teaming with VoIP service providers, following the mobile phone model in which the service provider subsidises the phone. Although a standard called session initiation protocol (SIP) should theoretically allow any VoIP phone to work with any VoIP service, that doesn’t necessarily work in practice, says Simmelink. Many of the VoIP service providers use their own proprietary protocols to guarantee security and quality of service, he says, which can cause incompatibility. “You can’t just pick up any SIP-based phone or adapter and then go through Vonage.” The Viseon and UT Starcom phones, for example, are compatible only with the Vonage service.

And when it comes time for a dual-mode phone to switch from cellular to VoIP, which service provider bills for the minutes? The mobile service providers see an opportunity to pick up the revenue from 30 percent of mobile phone calls placed from home, but will VoIP service providers be willing to let them?

Many market watchers believe that consumer acceptance of VoIP depends largely on how quickly VoIP phones catch on. One analyst, however, disagrees. Keith Nissen, a senior analyst with In-Stat, says the most significant aspect of VoIP is that it moves with you and that you can use any digital device for VoIP. “VoIP is going to change the way we think about phone service,” he says. Consumers will be able to use VoIP through many different devices, including PDAs, laptops, TVs and game consoles he says. “The conversion to VoIP is going to happen separately from the buying of specific VoIP end devices,” he says. “You don’t have to have a VoIP phone to use VoIP, so most people won’t buy a VoIP phone.”

If VoIP becomes a function within all those different devices, then the future for VoIP chip vendors is bright indeed.

This article was first published in Electronic Business in May 2005.

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