U.S. Residential VOIP to Surpass US$1B in '05

Answer: US$1-billion. Question: What does Vonage plan on spending on marketing before it finds a suitor, or the amount of revenue expected to be generated by U.S. service providers in the U.S. residential market this year? For now the right answer is the latter based on a new research done by TeleGeography. It forecasts the number of VOIP customers will rise to 4.1 million by the end of the year compared with 2 million in March 2005. TeleGeography also forecasts that Cablevision, Comcast and Time-Warner will have two million subscribers in 2005 and nearly 50% of the residential market.
One of the key questions is why the VOIP market has so much momentum. Clearly, an important factor is price as consumers look to pay less for telephony service while getting more features. It was interesting, however, to hear Steven Koles of AOL Canada in a presentation yesterday at the Canadian Telecom Summit talk about price inelasticity – meaning lower prices do not have much of an impact on demand. This stood in contrast to Primus Canada, which saw a huge bump in second-quarter subscriber growth after it dropped its prices to as low as $15.95 a month. Koles' view is not surprising given AOL has a track record in trying to position its services at premium prices. While AOL may not want to play the price game in Canada with its TotalTalk service, it may have little choice but to play this game to be competitive with Vonage and Primus.