Semester Project

Phase III

Telecommunications

(Comments can be sent to bay120@psu.edu and jlj6@psu.edu)



VoIP: DISRUPTIVE or SUSTAINING TECHNOLOGY?

In Phases 1 and 2 we identified VoIP as a disruptive technology in the telecommunications industry. The business model for this new technology is not yet fully developed because the industry and its customer base are in a period of growth and rapid change. Without a historical precedent on which to base predictions, what can be said about the future of VoIP?

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CONVERGING/SUPPLANTED COST STRUCTURES and BUSINESS MODELS

With the increasing and improved availability of VoIP, traditional providers of switched telephone services have had to strategically modify their business models. Traditional providers invested in the current infrastructure while new organizations invested broadband internet infrastructure. These large investments in building the broadband network were made to be able to handle the convergence of voice, video and data traffic. The following table represents the impact of competitors and their potential strategies to remain strong in the market (1).

Type of Provider

Impact of Internet and its Implications Potential Strategies

Pure VoIP Provider

  • The internet made available packet switching and routing technologies and this gave birth to these type of providers.
  • These companies came about because of the existence of the Internet and IP technology.
  • Provide cheaper or free VoIP services. Revenues generated through advertisements on the website. Also, provide discounts because of quality of service.

  • Improve the quality of service and offer value added services such as voicemail, conferencing, etc. Revenues could be generated by subscription fees or price per call.

Traditional Providers of Long Distance Services

  • Their business was based on traditional circuit switching business model and VoIP has been a disruptive technology to this business model.
  • As a defensive tactic, these providers have entered into the VoIP business to prevent lost revenue streams from traditional services.
  • Diversify their business by supplementing their traditional circuit switch-based voice with VoIP investments to be prepared if VoIP does explode in the future.

Regional Bell Operating Companies (RBOCs)

  • Due to deregulation, these organizations have been able to enter the long distance markets and have started to enter the VoIP market.
  • With the introduction of VoIP, their access charges will likely fall because of the VoIP availability which has lower access fees.
  • Attempt to increase access fees for VoIP providers who are using their local networks.
  • Choose VoIP partners and encourage them to use their local networks.

Is the new business model sustainable?

If VoIP is to emerge as a sustainable technology, there are some areas of uncertainty that need to be addressed (1):

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ECONOMY CHANGES

There are many drivers causing these economic changes in the telecommunications industry especially with the introduction of VoIP to the market. Some of these drivers that have been influenced by the availability of VoIP are:

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IMPLICATIONS for ACCOUNTING

If VoIP communications do take hold, several implications for accounting can be identified:

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CONCLUSION

VoIP is still in its disruptive stage. There is considerable uncertainty surrounding the viability of VoIP as a sustaining technology, and of VoIP providers as successful businesses. If traditional telephone service providers continue to ready themselves to also provide internet data transmission, and especially if they win efforts to secure deregulation legislation, they may ultimately continue to dominate telecommunications. The provider landscape chart below (1) indicates that existing long distance phone companies are best positioned to penetrate the mass market with IP telephony.

 

There is also the possibility that phone users themselves can establish the necessary PC connections, if given a registry of computer addresses similar to a telephone book of numbers for every household. The future of telecommunications might lie in the creation of software that would link callers to recipients over the internet, regardless of their physical location.

Whatever its future, VoIP technology is a step in the evolution of the telecommunications industry, and is sure to affect businesses, individual consumers, and society.

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References

  1. "Management in an Information Age: A Study on IP Telephony", www.stanford.edu/~jseade/overview_frame_2.htm.
  2. Dubowski, Stefan, "Net2Phone and Go2Call have your number," CanadaComputes.com, Oct. 11, 2000.
  3. "About VoIPWatch.com," VoIPwatch.com.

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