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

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University of TorontoMaster of Engineering in
Telecommunications Voice Over IP Industry
Analysis

• Katherine Lam (Class of 2003-04)
• September 23, 2004.

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Key Research Objectives

• Objectives To answer 2 key questions
• Is carrier VoIP disruptive in the consumer
  market?
• Will carrier VoIP cross the chasm quickly and
  easily in the consumer market?

In the context of the big picture of VoIP
industry!
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Disruptive Technology
Source Professor Clayton Christensens books
titled The Innovators Dilemma
The Innovators Solution

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

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Gorilla Game
Home Networking
Toll Bypass
Main Street
Main Street
Enterprise
Enterprise
Consumer
Hot Spots
Wi-Fi
VoIP
Early Market
Early Market
Chasm
Chasm
Source Geoffrey Moores book titled The Gorilla
Game
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MET Report Contents

• Objectives and Methodologies
• Service Providers
• Equipment Vendors
• Summary of Findings
• Appendix
• Gorilla Game
• Disruptive Technology
• U.S. Service Providers Profiles
• U.S. Overall Observations
• U.S. and Canadian VoIP Markets

FOCUS
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Contents

• Introduction and Objectives
• Methodologies
• Current Carrier Market Dynamics
• Future Carrier Market Projections
• Equipment Market
• Canadian VoIP Market
• Future Work and Summary

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Acknowledgement

• Special Thanks to MET Advisory Board
• Jim Glover, BDC Venture Capital
• Mark Woollam, Nortel Networks
• Peter Rhamey, BMO Nesbitt Burns
• Mark Goldberg, Mark H. Goldberg and Associates
  Inc.

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Contents

• Introduction and Objectives
• Methodologies
• Current Carrier Market Dynamics
• Future Carrier Market Projections
• Equipment Market
• Canadian VoIP Market
• Future Work and Summary

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Industry Analysis Methodologies
Industry Analysis
Competitive Analysis
Market Analysis
Company Analysis
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Industry Analysis Methodologies

• VoIP in the U.S.
• Major battleground for Enterprise VoIP
• A lot of hype and news on Consumer VoIP

Industry Analysis
Competitive Analysis
Market Analysis
Company Analysis
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Industry Analysis Methodologies
Industry Analysis

• Service Provider Groupings
• Existing Incumbents
• IXC, ILEC and MSO
• New Players
• Vonage-like

Competitive Analysis
Market Analysis
Company Analysis
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Contents

• Introduction and Objectives
• Methodologies
• Current Carrier Market Dynamics
• Future Carrier Market Projections
• Equipment Market
• Canadian VoIP Market
• Future Work and Summary

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Carrier VoIP in Consumer Market2003 - 2004
Years 2003 2004
U.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
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Market Dynamics 2003
U.S. Consumer VoIP Market Shares as of Year-End
2003
Total 130,000 Consumer VoIP Subscribers
Source Yankee Group

• Vonage Consumer VoIP market leader in 2003

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Current Market Development
Category of Service Provider Current Player(s) Current Business Priority
Pure VoIP Players Vonage Net2Phone Attack as new market opportunity
Incumbent Multiple Service Operator (MSO) Comcast Time Warner Cable Cablevision Cox Attack ILECs on local voice business Defend from satellite operators attacks on video business
Incumbent Local Exchange Carrier (ILEC or RBOC) Verizon Qwest SBC BellSouth Attack IXCs in the business segment as new source of revenue Defend home base business on residential voice
Incumbent Inter-exchange Carrier (IXC) ATT MCI Sprint Defend home base business on business/enterprise customers
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Pure Players VoIP Timeline
Pure VoIP Players are the earliest entrants
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Pure VoIP Player - Vonage

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

• 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

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MSO VoIP Timeline
MSOs will become the most active players
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ILEC VoIP Timeline
ILECs will focus on enterprise market first
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IXC VoIP Timeline
IXCs will also focus on enterprise market
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Contents

• Introduction and Objectives
• Methodologies
• Current Carrier Market Dynamics
• Future Carrier Market Projections
• Equipment Market
• Canadian VoIP Market
• Future Work and Summary

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Market Projection 2005
U.S. Carrier VoIP Consumer Market Projection in
2005 by Yankee Group
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Carrier VoIP in Consumer Market2007
Years 2003 2004 2005 2006 2007
U.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
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Potential 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

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Potential Market Dynamics 2007(Separate ILEC
IXC)

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

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Carrier VoIP in Consumer Market

• Now, we can answer the 2 key questions.
• Is carrier VoIP disruptive in the consumer
  market?
• Will carrier VoIP cross the chasm quickly and
  easily in the consumer market?

The answer to both questions is NO!
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Contents

• Introduction and Objectives
• Methodologies
• Current Carrier Market Dynamics
• Future Carrier Market Projections
• Equipment Market
• Canadian VoIP Market
• Future Work and Summary

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Enterprise VoIP Equipment Market
Total Revenue 2004 Q1 U.S. 596M
Total Revenue 2004 Q1 U.S. 307M
Source Synergy Research
Worldwide Enterprise IP Telephony (IP PBX, IP
Phone Hybrid) Market Shares 2004 Q1
North America Enterprise IP Telephony (IP PBX, IP
Phone Hybrid) Market Shares 2004 Q1
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Carrier VoIP Equipment Market
Total Revenue 2004 Q1 U.S. 159M
Total Revenue 2004 Q1 U.S. 90M
Source Synergy Research
Worldwide Carrier VoIP Market Shares 2004 Q1
North America Carrier VoIP Market Shares 2004 Q1
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Carrier 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
  Christensens model

Sonus Telica 31 Market Share
VoIP is not disruptive in equipment market
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Contents

• Introduction and Objectives
• Methodologies
• Current Carrier Market Dynamics
• Future Carrier Market Projections
• Equipment Market
• Canadian VoIP Market
• Future Work and Summary

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Future 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 differentiation
• Less direct competition

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Contents

• Introduction and Objectives
• Methodologies
• Current Carrier Market Dynamics
• Future Carrier Market Projections
• Equipment Market
• Canadian VoIP Market
• Future Work and Summary

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Future Work
1. Enterprise VoIP
3. VoIP value chain and supply chain
Industry Analysis
5. New Business Models (P2P/Skype)
2. Study on other nations such as Korea, Japan
and China
4. Wireless Substitution
Competitive Analysis
Market Analysis
Company Analysis
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P2P/Skype as a disruptor

• P2P has disrupted the music industry
• Napster and KaZaa are the best examples
• Founder of Skype is the founder of KaZaa
• Skype could be potentially disruptive to the
  telecom industry

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Summary

• VoIPs disruptiveness in carrier VoIP space
• VoIPs capability to cross the chasm
• VoIPs disruptiveness in equipment market
• VoIPs deployment in Canada

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The End.Thank You!