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Analyst Insight: IP Telephony Will Drive Open Standards

April 1999

IP telephony is too often thought of as a technology that saves individuals money on long-distance at the expense of voice quality. But it goes much deeper than rate arbitrage: IP telephony is fomenting a lifetime revolution in the communications industry. In the near future, disparate IP networks will conform to industry standards, become interoperable and enable the most intelligent, feature-rich, low-cost and all-encompassing network to emerge.

The market will grow rapidly. Revenue from IP telephony-related software, hardware, products and services is expected to reach $14.7 billion by 2003. Minutes of communication services traveling over IP telephony networks will grow from 70 million minutes (less than 0.1 percent of all public switched telephone network minutes in 1997) to over 80 billion minutes (6.1 percent of all PSTN minutes) by 2003.

Ultimately, traditional service providers will make IP telephony a mainstream technology. Today, however, these vendors are caught in the middle of a large-scale convergence of voice and data services, causing an immediate need for trials and infrastructure testing. Although these trials will continue through 1999, massive deployment of IP telephony services will not begin until 2000. In the meantime, new carriers will work to introduce the technology to the world.

With the Internet now viable for more business and recreational uses than ever before, the addition of telephony opens up an entirely new communications frontier, one that will usher in radical new services to enhance our everyday communication needs – and even those needs we cannot yet imagine.

Edward R. Jackson is a senior research analyst at Piper Jaffray.