Will Enterprises Take to AOLs VOIP Phone Service?

By John Pallatto  |  Posted 2005-03-08

Will Enterprises Take to AOLs VOIP Phone Service?

SAN JOSE, Calif.—America Online Inc.s disclosure on Tuesday that it will introduce a voice-over-IP telephone service will definitely add credibility to the technology, but it is unlikely to provide the long-term growth engine that would ensure the companys survival.

This was the view of three telecommunications industry executives who were attending the VON Spring 2005 conference here who have long been looking for a business catalyst to jump-start the acceptance and use of VOIP (voice over IP).

VOIP is still at the early-adopter stage, although acceptance is starting to pick up, said Mark Hung, director of strategic marketing at Atheros Communications Inc. in Sunnyvale, Calif.

"I think it is awesome" because AOL has the experience and the infrastructure to introduce VOIP technology to a mass market, Hung said.

"I think that AOL can only help accelerate that ramp-up" of VOIP use, Hung said. "If AOL cant succeed, then I think that the VOIP community had better figure out who can," he said.

Click here to read more about AOLs plans to offer VOIP phone services.

AOL CEO Jonathan Miller disclosed in his VON keynote presentation Tuesday that "within the next 30 days," his company will formally introduce a VOIP service integrated with its familiar AOL Instant Messenger console.

The AOL service is likely to prove especially popular with teenagers, college students and their parents who want to stay in touch with them, said Anthony Dalby, a planning engineer at Alltel Communications Inc. in Little Rock, Ark.

Dalby said college students used to using IM to stay in touch with their friends are likely to become ready users of a long-distance Internet phone service that they can access anytime for a flat fee to talk to a friend at a school across the country.

The same thing is true for their parents, even those who dont worry as much about the expense of calling their children long distance, he said.

But AOL will "really have to force their hand to get into the business sphere," Dalby said, because enterprises will prefer to use "their own VPNs, their own IP Centrexes or their PBXes for VOIP" because they will have greater security, he said.

Dalby also questioned whether AOL will be able to capture a hefty share of the VOIP market in the same way it dominated a massive portion of the dial-up Internet access market in the mid-90s.

AOL certainly helps add credibility to the market, but Dalby said he thinks it is a market with fundamental differences. Other big companies, not the least of which are SBC Communications Inc. and AT&T Corp., are getting into the VOIP market, he said.

Other large phone companies will likely follow suit, at the very least to try to protect their customer bases, he said.

Next Page: "AOL is the company that people are migrating away from."

Migrating Away

?"> "AOL is the company that people are migrating away from," Dalby said, because most savvy users have many options for Internet access. He added that the company has not become a big player in broadband access in the same way it once commanded the dial-up business.

The move into VOIP may help delay the erosion of AOLs market position for a time, but its unlikely to reverse the gradual decline in AOLs position that has been under way since the wide availability of broadband Internet access, said Ed Sassone, development director at eTalk Corp., a provider of contact-center systems based in Irving, Texas.

"I think that broadband technology has really marginalized" AOL, with the result that it is "getting squeezed, and at both ends of the market," Sassone said.

It must compete with multiple broadband providers at the top end of the market, while watching its remaining dial-up service evaporate, he said.

Executives at Level3 Communications Inc., AOLs phone network infrastructure partner, expressed confidence that AOLs VOIP venture would meet with great success.

AOL will succeed because it is coming into the 100-year-old telephone market as a market disruptor by "making a new technology simple to use," said Cynthia F. Carpenter, vice president of marketing for consumer voice services at Level3.

AOL is vying for a piece of the residential phone market that is estimated to be worth $100 billion in North America, Carpenter said. The company will do that by appealing to the kind of technically savvy consumer who will be eager to give VOIP a try, she said.

This is also the type of consumer who will be willing to switch to a different service provider that offers the most attractive deal, she said. AOL is going to appeal to these users by offering features beyond simple price discounts, such as "cellular service, broadband, video, and by adding feature that their phones cant do right now," Carpenter said.

Check out eWEEK.coms for the latest news, views and analysis on voice over IP and telephony.

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