ISPs Are Going To Eat Vonages Lunch

Analysis: Market forces will take care of Vonage far sooner, and more effectively, than any efforts to block its services.

Imagine you are a decision maker at a very large U.S. ISP. You are annoyed because your once-lucrative phone business is slowly being eroded by a new wave of VOIP providers such as Vonage, Skype and Net2phone.

These parasitic phone services are running on your high speed data circuits without paying a connection charge or royalty of any kind, but constantly offering dial tone at a lower cost than you, essentially stealing from your profitable consumer and business phone plans.

Well what are you going to do? The answer is simple—just swat these blood sucking leeches and be done with them before they grow too big! You call all your henchmen together for a meeting, stomp your foot, just like something right out of a Hollywood script. "I want these buggers taken care of!" youd shout.

Thats a dramatic scenario—and perhaps one that consumers dont question. Believe it or not, however, the operators of large telco companies, though profit driven, do not run roughshod over the consumer. Below well detail some of the more likely scenarios and trade-offs being made in the face of this new competition.

Cultivating a reputation of trust is foremost with the service providers. Despite the bumps in the road, these folks know you have some choices as a consumer and are sensitive. Yes, Ill concede that large providers do cycle through periods of poor service followed by corrections like any other business. Keep in mind this is due to the normal apathy that creeps into any large organization and not some far flung conspiracy to rape consumers. There is enough competition, and consumer-based political pressure, that the last thing any provider wants to do is bring on a self induced firestorm of criticism for an unsustainable short-term gain.

You might ask how would I know this? Well the facts are that blocking Skype, Vonage, etc., has not happened yet despite the fact that the technology has been available for a while, and there are no clear regulations governing data networks and the rights of third parties to broadcast. This shows that providers are exercising constraint in the US market.

My connections at several small service providers and one very large provider have told me directly that blocking VOIP services is not going to be their strategy.

So what is their strategy: just take it on the nose and go out of business?

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