by John Sung Kim, founder of Five9

Many have speculated on the future of VoIP in so many ways. The reality is, there are actually 5 distinct and separate markets for voice over the net:

- Consumer Free VoIP
- Consumer Home VoIP
- Small Business VoIP
- Large Business VoIP
- Telco VoIP

This month we’ll cover the first category of consumer free. In 2004 I started a VC funded VoIP company, and back then we had to license a SIP stack ($70k) and SIP soft-phone clients ($10 each) to our endpoint customers. That was when asterisk and other open SIP stack software was still in its relative infancy and virtual phones as a free application was unthinkable.

Though it’s only been 5 years, there are dozens of VoIP companies (not just Skype) that offer free applications that allow voice over net communication without license fees – unless of course you call to a termination endpoint. What this means is that there are desktop applications for both Mac and PC (and now on smart-phones such as iPhones, BlackBerrys and Andriod phones) that leverage the web to call another client on the web. However, this is where “free” for the consumer ends.

If you call, even using a free VoIP service, another landline via the good old POTS (Plain Old Telephone System) going to the destination is likely owned by the regional (maybe gone national) telephone company. And they charge a “termination fee” to those other entities that call which can range from a tenth of a penny per minute to over 6 cents per minute in more rural areas where there is less competition.

That means when Skype charges 2 cents per minute to call any land-line in the country, they need to charge this to not only turn a profit, but they have to do so at a calculated risk assuming that most people and most calls will terminate in a major metropolitan area. Personal experience dealing with large telco bills tells me that if anyone calls a land-line in Alaska and all they have to pay is 2 cents per minute – someone is losing money.

Photo by inacentaurdump