E.B. Writers of Dallas

Web Host Industry Review, September 2005
By Wayne Epperson, Correspondent

Trying to find somebody who doubts the viability of Voice over Internet Protocol is about as tough as pulling off a straight flush in a hand of Texas Hold ‘em. You can’t hardly do it.

What you find are any number of players willing to up the ante, no matter how high the stakes, as excitement over the potential of VoIP builds in anticipation of a big payoff. Just like the final showdown in Texas Hold ‘em when a combination of strategy, hunches and even a little luck determines the winner, there’s money to be made in this technology that some consider the next killer app of the Internet.

Many Web hosting companies already are realizing additional revenue streams from the sale of bundled VoIP services to their customer bases. And the extended offering appears to be one way for any hosting provider – small or large – to enrich and cement relationships with their customers.

The growth potential of the VoIP market is so lucrative that a number of companies have invested in nationwide VoIP networks and will bundle branded voice services for hosts to resell as their own products. The only requirement for rapid deployment of VoIP service is that the hosts’ customers have access to broadband.

One such company is iOnosphere of Greenville, S.C. The company has used VoIP since 2000 in its international wholesale telecommunications business to transport telephone calls to carriers located throughout the world.

The company recently launched a dial tone consumer VoIP service that is sold to resellers. iOn’s Private Label Reseller Solution allows a hosting company to offer a quality VoIP telephone service to their existing customer base without incurring additional network or product development expense. The host company labels the VoIP product and establishes its own retail price. The service is designed for residential and small office/​home office users.

The rich feature set of a VoIP service is typical of the laundry list-like lineup that generally includes voice mail, voice mail delivered to email, speed dialing, automatic call back, caller ID, call waiting, call forwarding, call blocking, call return, three-way conferencing, toll free numbers, geographic mobility, virtual numbers and low rates for international calling.

“Recent rulings by the FCC requiring that E911 be provided with VoIP service is another step toward VoIP becoming a replacement for traditional fixed line telephone service,” says Tom Berning, director of VoIP sales. “By reselling VoIP services, a hosting company can easily add revenue and profits by selling a new product to their existing customer base.”

Tampa-based IntelaCom and its sister company, YourNetPlus of Monroe, N.Y., also sell VoIP wholesale to Web hosts and ISPs. Their service can be deployed quickly and is cost effective since it does not require a provider to build their own VoIP network for delivery. The companies are among the largest wholesale aggregators, utilizing more than 30 different carriers and eight national backbones.

Recent analyst forecasts expect the growth of VoIP consumers to rise from four million by the end of 2005 to more than 28 million by the end of 2008, says Gary Stanley, president of IntelaCom.

“If you are in the Web hosting business, or any type of Internet-related business at all, VoIP is something you need to pay attention to,” Stanley says.

Voice over IP, as in anything else on a network, uses servers, routers, switches, applications, directories, and different protocols to not only support communications but also collaboration tools.

It’s easy to think that traditional viruses, worms and denial of service attacks can bring havoc to the VoIP application. It is essential that network security people sit down and ask themselves if their data network is secure and if they practice good security management by applying patches and updates regularly. They also should determine whether security logs are monitored and if personnel are trained properly.

If an organization’s data network is secure, that level of security can be extended to the VoIP services network.

Another major player in the category is Sunnyvale, Calif.-based Ensim that recently acquired TeleGea, a provider of solutions for hosted VoIP services.

Ensim is a hosting automation company whose software enables service providers to automate and manage their back office and OSS environment. The company has extension expertise in the Web hosting space and the hosted messaging and collaboration space.

Its control panel software now will be able to automate everything from provisioning to the administration and integration of all of the systems necessary for VoIP services, thus allowing service providers to get to market quickly and minimize their operational costs in the long haul.

The company knows the value of integrated voice and data integration. It had been using its own in-house hosted Voice over IP service model for quite some time before it entered the market with the purchase of TeleGea.

Ensim is counting on the prediction of IDC that the majority of the nation’s small to medium businesses will be using hosted Voice over IP services because of the cost and the value received on their dollars spent.

Any discussion about the lucrative market begs the question of why hosts don’t choose to build their own networks and keep a larger share of the profits. After all, they get more margin when they own the network and infrastructure.

In such cases, prudence usually steps forward to shine the light of reason and reality on those discussions because of the considerable upfront costs that must be gambled for the prospect of more profits.

“A lot of smaller vendors have chosen to become resellers as the first step to determine whether the opportunity is really there. They can focus on sales and marketing and then, if there is a real uptake and there is a confidence in the business, they can slowly take on more of the infrastructure,” says Shay Mowlem, vice president of marketing and alliances at Ensim.

Hosting providers stand to increase their benefits by utilizing the service themselves.

A sophisticated, high quality VoIP offering can help communications service providers broaden their portfolios, expand their geographical boundaries and boost their revenue streams with significant capital investment or time commitments. That same offering then can help hosts lower their own telecommunications costs and enhance the network functionality needed to lower expenses -- without risk -- while carving out competitive advantages.

“Providers that can offer new services, and can roll them out rapidly without sacrificing quality in the process, are well positioned to earn loyalty rewards from their customers and stand apart from their competitors,” says Mark Peterson, vice president of marketing at CommPartners of Las Vegas, Nev.

CommPartners’ VoIP network coverage area includes 92 percent of the calling public in the domestic United States, including Hawaii. It offers the IP-based network coverage to delivered residential, SMB and enterprise hosted VoIP services.

The company designed its network for business quality VoIP services, 911 emergency services capabilities and compliance-emerging issues that pose challenges to many VoIP service providers.

The company says it was formed to “Enable the VoIP Promise” by offering the services that include IP Centrex, hosted PBX and conferencing functionality and IP to PSTN connectivity to broadband and service providers. It also offers a privately branded VoIP service.

Its solution includes the CommPartners Management System, a proprietary OSS platform for automated provisioning, billing, user interface and back office support capabilities.

Another provider that has developed a laser-like focus on the business market chose to keep its engagements in a well-defined major metropolitan area.

M5 Networks is a leading outsourced IP phone system provider in the northeast United States. The company was founded in 2000 and has been entirely focused on delivering reliable business phone systems service to its customer base in the New York Metro market.

Its customers have chosen not to buy PBXs at all, and instead connect Cisco IP phones to their local area networks, which are then connected to M5’s dedicated network or the Internet.

The company provides unlimited moves, adds and changes, local calls, long distance calls, and often, Internet access.

“During the first five years that M5 has been in business, we have focused on the basics of building a very reliable service platform because our clients’ CTOs and CFOs care most about not losing dial-tone and avoiding breakdowns,” says Dan Hoffman, CEO and president. “Now, we’re working on developing more advanced, targeted vertical applications to add value to our client’s investment in VoIP technology.”

A new player in the field of VoIP is America One Distribution of Knoxville, Tenn., distributors of VoIP and network telephony communications equipment for residential, businesses and enterprises The company is part of the privately held America One Companies with resellers in the United States and Canada.

It’s the aim of the company to help its VARs plan a strategy for selling and marketing VoIP to their current customers, making sure their networks are ready for VoIP, and assisting with installations, whether onsite or by phone support.

“We want to support the user after the phone system is in, and make sure that every time they pick up a handset they get service comparable to that which Ma Bell offers. We are not selling VoIP equipment, we are selling total customer satisfaction,” says Christopher Pearson, CTO of America One Distribution.

Another opportunity that is unfolding for hosting providers to explore is the wireless VoIP market. Voice over WiFi is a compelling application in its own right because people want their personal communications unattached so they are free to move.

While it hasn’t taken off with quite the velocity of the VoIP, the WiFi networks are gaining traction in some quarters.

For businesses that already have wireless LANs, running voice over the infrastructure is a natural extension of what they are doing. Over the last few years, it has made significant uptakes in hospitals.

“It makes sense for hospitals to leverage existing wireless networks for voice, and as WiFi moves from a vertical technology to a more horizontal network infrastructure, you’ll see other companies doing it as well,” says Stanley of IntelaCom.

What WiFi is doing is creating a ubiquitous wireless mesh of broadband connections, which means that access can be gained to the Internet in a broadband manner from anywhere. But for hosting providers, the question remains whether they are in an area where wireless broadband is available because not all areas are currently being served.

Others say there may be a tangible opportunity for hosts in the wireless VoIP market, but a provider must think through what they are trying to accomplish with the technology.

It’s not just about ISPs looking to reduce churn or to make as much money as possible. Hosts need to work with a VoIP partner that will help them achieve wireless success by evaluating their capabilities and network infrastructure, as well as explain what tools will be most successful for their customers.

Still other VoIP providers say the quality of the WiFi handsets that recently have been developed and offered needs improvement to match the quality of traditional telephone service.

So, the future of VoIP and its wireless sub-technology hold the promise of delivering a lot more functionality than can even be realized today.

Mowlem of Ensim says VoIP is not really a voice service, but is rather a pipe that enables support for various types of services. What VoIP is doing is converging the voice and data services, but more importantly it’s enabling any type of service to be provided over a data pipe.

That means there will be a proliferation of a tremendous number of high-value services over the very cost-effective vehicle.

“What I would say to the Web hosting community is you’ve got an opportunity to offer something very compelling to the residential and particularly small-medium businesses you offer services to today,” Mowlem says.

Distributor Pearson sees the possibilities of VoIP as being endless. He considers VoIP to be the next big trend and says the foundation has been laid for hosts to integrate voice services into their offerings.

As VoIP consumer knowledge and broadband penetration increase, there will be a significant increase in VoIP users. Lower cost and additional features as compared to traditional telephone service will drive consumer uptake of VoIP services.

And the extensive television advertising of Vonage and its attention-getting humorous messages cannot help but heighten consumer awareness and understand of VoIP.

Microsoft is already bundling hooks for SIP-based applications into its operating system, and this will become more and more important in the future.

There is a threat of market confusion, however, with the risk that some carriers will underestimate the importance of responsive and reliable service and jump into developing complicated applications and phone systems before they are ready to be delivered reliably.

Still, Hoffman of M5 Networks predicts that as the Internet becomes more reliable as a transmission mechanism for VoIP and more carriers offer quality-of-service guarantees, businesses will rely on additional hosted voice applications.

While CommPartners is building a network for control, quality of service and cost reduction, it’s not replacing the Private Switched Telephone Network. What’s needed is a migration path where voice and IP totally converge. Peterson expects the migration path will be a long one and that the VoIP industry will have to raise money and stay focused on its objectives.

Another player in this high stakes game of VoIP isn’t bashful about his enthusiasm for what the technology promises to delivery.

“VoIP is the next killer application for the Internet. Voice has long since been the way people communicate and now bringing it to the Internet is certainly going to be the most sought after application by the general consumer and small businesses, as well as enterprises, for this next Internet boom,” says Stanley of IntelaCom.

Anytime someone makes a telephone call whether to friends, family or co-workers, they are calling a person, not a place. In the future, Stanley sees that call being made not to a traditional number, but to a discrete number for a specific person. He believes telephones of the future will be both GSM and 802.11 capable so they can switch from a cellular network to a wireless network automatically. They will also switch automatically from the Web to cellular, no matter where the parties are.

So, as VoIP services develop and more hosting providers enter the market with confidence, there’s sure to be a straight flush in the cards for many of the players.