VoIP consolidation to continue apace

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Despite the global downturn, consolidation in the voice over internet protocol (VoIP) sector will continue to gather pace as telecoms and IT companies battle for market share, a new report is predicting.

Research from analyst Frost & Sullivan, which forms the basis of a report by business and financial adviser Grant Thornton into VoIP convergence, said competition for a share in the market expected to generate £13.5 billion in global revenue by 2010 would be fierce.

It also forecast that migration from fixed-line to mobile and VoIP services will increase exponentially in coming years, resulting in heavy consolidation in the sector through 2008 and signalling the death knell of traditional telephony.

Sarika Patel, head of technology at Grant Thornton, cited the doubling of the VoIP customer subscriber base in 2006 and its fourfold growth in the last two years as one of the reasons to believe that the VoIP worldwide customer base will top 250 million in two years.

"VoIP is no longer next generation telephony, it is here now and 2008 should see strategic acquisitions of independent software developers and ISPs [independent service providers] by large telcos looking to consolidate their VoIP offerings," she said.

She added that VoIP had disrupted the traditional value chain in the communications industry with the focus now falling on internet protocol (IP) as opposed to traditional voice calls. "As such, there is a bitter turf war taking place in the fragmented market of service provision, particularly for customer ownership," Patel said.

The report goes on to say that the predicted land grab will help incumbent operators to offset declines in traditional voice revenues and retain customers, where potential targets for acquisition in 2008 may include smaller UK independent residential and enterprise ISPs and resellers such as Lumison and NDO, Prodigy Networks, Fast.co.uk, Firefly Internet and Breathe Networks.

"Private equity will also see plenty of opportunity in this sector," added Patel. "Already, venture capital has poured in nearly £1 billion into VoIP and related businesses in the four years to 2005 and, although many thought funding would dry up over the past two years, VoIP continues to attract the overtures of the private equity community."

But the report stressed that addressing concerns over security and encryption technology development, quality-of-service issues, reliability, scalability and the development of sensible industry regulation will also be key to growth in this sector.

If these can be overcome, it also predicts the next great horizon for VoIP is internet protocol television (IPTV), as it will enable telecom operators to charge for a "triple" or "quad-play" package of services.

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