VoIP continues to evolve as a technology and an offering. The services offered through IP-based networks have expanded throughout the year on the basis of features, pricing and availability. VoIP has been proven as a disruptive technology, and providers are emerging using multiple business models to promote variations of the service.

The carrier profiles contained in this report explore the IP technology revolution in every segment of the VoIP industry. As legacy networks continue migration to IP-based networks, new entrants develop new networks and software applications that continue to generate a wealth of VoIP products and services.

The number of VoIP providers continues to grow, as does the number of segments serving the industry. 2005 saw the emergence of a new class of provider as Internet powerhouses AOL, Microsoft, Google and Yahoo! jumped into the market with voice-enabled instant messaging services. The industry may be segmented as follows: ILECs, CLECs, cable telephony, IM telephony, PC-to-PC telephony, pure-play VoIP and wholesale providers. Each segment serves individual niches, uniquely delivering VoIP to different target customers.

Factors contributing to the increase of carriers in this industry are the FCC, which decided not to regulate voice traffic over the Internet in November 2004, and the low cost of providing services. With low barriers to entry, competition has been encouraged to flood the market and differentiate services by selecting niches on which to focus efforts.

The low cost of service delivery, and increased competition, have encouraged the decline of prices for VoIP services.

Despite the decline in prices, the cost of VoIP allows these carriers to continue generating the profit margin that traditional TDM-switched voice services have enjoyed. This dynamic has encouraged traditional phone companies with legacy systems, CLECs and ILECs, to partner with wholesalers and accelerate the internal migration of networks to support VoIP products and services.

The number of VoIP subscribers appears to continue to grow. It is difficult, however, to ascertain the number of unique VoIP users. With service provided through multiple delivery methods, a user may rely on VoIP from multiple sources. For instance, a subscriber of IM telephony may also be a cable telephony subscriber. The easily accessible and inexpensive nature of these services makes accounting for overlapped service usage into a difficult proposition.

While some research firms are attempting to extrapolate future penetration based on existing usage estimates, few consider how high-speed Internet usage is a limiting factor to the growth of this industry. Based on our VoIP research and broadband Internet penetration statistics, NPRG estimates that there are approximately 6 million VoIP users in the United States. It is expected that this number will climb to 9 million users by the end of 2006 and 24 million by the end of 2008. Future growth rates are subject, in part, to the increasing availability of broadband Internet to residential and business locations.