1 University of Toronto Master of Engineering in Telecommunications Voice Over IP Industry Analysis...

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University of TorontoUniversity of TorontoMaster of Engineering in TelecommunicationsMaster of Engineering in Telecommunications

Voice Over IP Voice Over IP Industry AnalysisIndustry Analysis

Katherine Lam (Class of 2003-04)

September 23, 2004.

Key Research ObjectivesKey Research Objectives

Objectives: To answer 2 key questions:

1. Is carrier VoIP “disruptive” in the consumer market?

2. Will carrier VoIP “cross the chasm” quickly and easily in the consumer market?

In the context of the big picture of VoIP industry!

Disruptive TechnologyDisruptive Technology

VoIP is disruptive in Enterprise space Is VoIP equally disruptive in the Consumer space?

Source: Professor Clayton Christensen’s books titled “The Innovator’s Dilemma” & “The Innovator’s Solution”

Gorilla Game Gorilla Game Home

Networking

Main Street Main Street

Toll Bypass

Consumer

Wi-Fi VoIPEarly Market

Early Market

Enterprise Enterprise

Source: Geoffrey Moore’s book titled “The Gorilla Game”

Hot Spots

MET Report ContentsMET Report ContentsObjectives and MethodologiesService ProvidersEquipment VendorsSummary of FindingsAppendix

o Gorilla Gameo Disruptive Technologyo U.S. Service Providers Profileso U.S. Overall Observationso U.S. and Canadian VoIP Markets

ContentsContents

Introduction and ObjectivesMethodologiesCurrent Carrier Market DynamicsFuture Carrier Market ProjectionsEquipment MarketCanadian VoIP MarketFuture Work and Summary

AcknowledgementAcknowledgement

Special Thanks to MET Advisory BoardJim Glover, BDC Venture Capital

Mark Woollam, Nortel Networks

Peter Rhamey, BMO Nesbitt Burns

Mark Goldberg, Mark H. Goldberg and Associates Inc.

ContentsContents

Industry Analysis MethodologiesIndustry Analysis Methodologies

Industry Analysis

MarketAnalysis

CompanyAnalysis

Competitive Analysis

Industry Analysis

MarketAnalysis

CompanyAnalysis

VoIP in the U.S. Major battleground for Enterprise VoIP

A lot of hype and news on Consumer VoIP

Industry Analysis

MarketAnalysis

CompanyAnalysis

Service Provider Groupings1. Existing Incumbents

• IXC, ILEC and MSO2. New Players

• Vonage-like

ContentsContents

Carrier VoIP in Consumer MarketCarrier VoIP in Consumer Market2003 - 20042003 - 2004

Years 2003 2004U.S. Residential Voice Lines (Million)

118 115

U.S. Consumer VoIP Subscribers (Million)

0.13 1

% of VoIP Subscribers in Consumer Market

0.1% 1%

Source: Yankee Group

Market Dynamics 2003Market Dynamics 2003

Vonage – Consumer VoIP market leader in 2003

Vonage60%

Other11%Time Warner

Cablevision22%

U.S. Consumer VoIP Market Shares as of Year-End 2003

Total: 130,000 Consumer VoIP SubscribersSource: Yankee

Current Market DevelopmentCurrent Market DevelopmentCategory of

Service ProviderCurrent Player(s) Current Business Priority

Pure VoIP Players VonageNet2Phone

Attack as new market opportunity

Incumbent Multiple Service Operator

ComcastTime Warner CableCablevisionCox

Attack ILECs on local voice businessDefend from satellite operators’ attacks on video business

Incumbent Local Exchange Carrier (ILEC or RBOC)

VerizonQwestSBCBellSouth

Attack IXCs in the business segment as new source of revenueDefend home base business on residential voice

Incumbent Inter-exchange Carrier

AT&TMCISprint

Defend home base business on business/enterprise customers

Pure Players VoIP TimelinePure Players VoIP Timeline

Jun 01: Net2Phone announced the launch of its VoiceLine broadband telephone service

Apr 04: Vonage launched VoIP service in Canada

Jan 01: Vonage was founded and started providing service in the U.S.

Nov 02: 8x8 announced the availability of its Packet8 broadband telephone service

May 04: Vonage consumer VoIP subscriber number reached 155,000

Pure VoIP Players are the earliest entrants

Pure VoIP Player - VonagePure VoIP Player - Vonage Nowadays, Vonage is the

most successful pure VoIP player

Significant factors to determine the future of pure VoIP players: Regulation Resell Partnership Piggybacking on

broadband connection MSOs’ market entrance

Linear Projection• In 2003, Vonage had 78,000 subscribers (60% market share)• Add 20,000 subscribers/month

2003 2004E 2005E 2006E 2007E

Vonage VoIP Subscribers

MSO VoIP TimelineMSO VoIP Timeline

May 03: Time Warner Cable launched the commercial VoIP service in the U.S.

Dec 03: Cox launched its residential VoIP service to customers

Sept 02: Charter launched residential VoIP service

May 04: Comcast confirmed its VoIP roll-out plans in the residential market

Sept 03: Cablevision launched “Optimum Voice” VoIP services in the U.S.

MSOs will become the most active players

ILEC VoIP TimelineILEC VoIP Timeline

May 04: BellSouth launched IP Centrex to business customers

July 04: Verizon launched its unmanaged “VoiceWing” VoIP service to its residential customers

Nov 03: SBC launched nationwide Hosted IP service to business customers

Jun 04: Qwest launched its “OneFlex” VoIP services to both of business and residential customers

ILECs will focus on enterprise market first

IXC VoIP TimelineIXC VoIP Timeline

Mar 04: AT&T rolled out its national VoIP service named “CallVantage”.

Dec 03: MCI and Sprint partnered with Time Warner Cable to offer VoIP service

July 04: AT&T announced to retreat from residential voice market.

Aug 04: AT&T co-markets “CallVantage” VoIP with MSOs and Best Buy in U.S.

July 04: AT&T’s “CallVantage” has been successfully launched and is available in 100 U.S. markets

IXCs will also focus on enterprise market

ContentsContents

Market Projection 2005Market Projection 2005

MSO56%

IXC & ILEC25%

Pure VoIP Provider

U.S. Carrier VoIP Consumer Market Projection in 2005 by Yankee Group

Carrier VoIP in Consumer MarketCarrier VoIP in Consumer Market20072007

Years 2003 2004 2005 2006 2007U.S. Residential Voice Lines (Million)

118 115 114 113 113

U.S. Consumer VoIP Subscribers (Million)

0.13 1 4 7 12

% of VoIP Subscribers in Consumer Market

0.1% 1% 3.5% 6% 10%

Source: Yankee Group

Potential Market Dynamics 2007Potential Market Dynamics 2007

Our Market Projection (By Linear Projection) Wide deployment of VoIP by MSOs in the U.S. ILECs and IXCs are broadening their VoIP priorities to

both businesses and consumers Pure VoIP players will remain to be niche players

MSO59%

IXC & ILEC28%

Pure VoIP Provider

Potential Market Dynamics 2007Potential Market Dynamics 2007(Separate ILEC & IXC)(Separate ILEC & IXC)

ILECs show more interests and potentials than the IXCs in the consumer VoIP market

Pure VoIP Provider

13%IXC4%

ILEC24%

MSO59%

Carrier VoIP in Consumer MarketCarrier VoIP in Consumer Market

Now, we can answer the 2 key questions.

1. Is carrier VoIP “disruptive” in the consumer market?

2. Will carrier VoIP “cross the chasm” quickly and easily in the consumer market?

The answer to both questions is NO!

ContentsContents

Enterprise VoIP Equipment MarketEnterprise VoIP Equipment Market

27%14%

4%3% 9%

Nortel

Alcatel

Siemens

Others

Worldwide Enterprise IP Telephony (IP PBX, IP Phone & Hybrid)

Market Shares 2004 Q1

25%13%

North America Enterprise IP Telephony (IP PBX, IP Phone & Hybrid) Market Shares 2004 Q1

Total Revenue 2004 Q1 U.S. $596M

Source: Synergy Research

Carrier VoIP Equipment MarketCarrier VoIP Equipment Market

21%20%

Nortel

Siemens

Lucent

Telica

Alcatel

Others

Worldwide Carrier VoIP Market Shares 2004 Q1

North America Carrier VoIP Market Shares 2004 Q1

Source: Synergy Research

Carrier VoIP Equipment MarketCarrier VoIP Equipment Market Lucent has created an

opportunity for Sonus Lucent acquired Telica

in May 2004 VoIP is an extremely

high growth market, but not a disruptive one in the sense of Clayton Christensen’s model

Nortel

SonusSiemens

Lucent

TelicaAlcatel

Others

VoIP is not disruptive in equipment market

Sonus + Telica = 31% Market Share

ContentsContents

Future of VoIP in CanadaFuture of VoIP in Canada

Canada will lag behind the U.S. in the carrier VoIP deployment in the consumer market

2 Major Reasons:Less price differentiationLess direct competition

ContentsContents

Future WorkFuture Work

Industry Analysis

MarketAnalysis

CompanyAnalysis

2. Study on other nations such as Korea, Japan and China

1. Enterprise VoIP3. VoIP value chain and supply chain

4. Wireless Substitution

5. New Business Models (P2P/Skype)

P2P/Skype as a disruptorP2P/Skype as a disruptor

P2P has disrupted the music industryNapster and KaZaa are the best examplesFounder of Skype is the founder of KaZaaSkype could be potentially disruptive to

the telecom industry

SummarySummary

VoIP’s disruptiveness in carrier VoIP space

VoIP’s capability to cross the chasm

VoIP’s disruptiveness in equipment market

VoIP’s deployment in Canada

The End.The End.Thank You!Thank You!

1 University of Toronto Master of Engineering in Telecommunications Voice Over IP Industry Analysis...

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