The telecommunications industry is poised to ride the next industry trend--voice over Internet protocol (VoIP). While VoIP has been around for a long time, it is still an industry in its infancy. Over the last year, it has started to develop into a full-scale business that will need to employ more realistic business models.

Right now the push and pull is on between the “free” or “minimal cost” VoIP services and companies that are working to develop real value-added tools that take advantage of the highly flexible infrastructure that VoIP brings to the network architecture. The next few years are going to be critical in steering the industry in the right direction. VoIP has to be a part of a larger discussion about how to build value rather than digressing into a price war that will tear the industry apart.

Think about the airline industry today compared with 25 years ago. Now airline carriers offer no extras or frills. On most domestic commercial flights a meal is considered a “value-added” service. Competition is cutthroat, and instead of offering additional services and differentiation in brand the main selling point is price, price and price. It is no surprise that airlines have continued to dramatically slash costs and that more and more of them have sunk into Chapter 11. The same could happen to the developing VoIP industry unless it realizes it needs to grow beyond the low-cost world and create value in revenue-generating services that customers may not even know they want or need--yet.

So what does adding value actually mean? It is important to point out that value isn’t necessarily the direct opposite of low cost. But value does imply being able to create new services that end users--both business customers and consumer--are willing to pay for. VoIP has to be included in this larger view of the industry. While it isn’t the only factor at play, it certainly will have a huge hand in creating some of the converged services communications providers will be able to offer. Since 1999, the share of household spending on telecommunications has decreased (US Department of Commerce, Bureau of Economic Analysis, Dean & Co. Analysis), while the relative spending on entertainment services and media has increased substantially. The challenge for the telecommunication industry is to leverage that growing spending on entertainment and media versus just offering low-cost voice that will only lead to declining business.

Past experience has shown us that the road to success is paved not with technology itself, but in how that technology makes our life better and improves our productivity at work. We are all two users at the same time--consumers and business users. In a world with blended lifestyles we are often doing both personal and business functions simultaneously. This is a reality of the modern world. The increased mobilization of the workforce will even accelerate that trend.

The current crop of business people are used to some level of “multi-tasking.” However, many of us are still shaky on doing two functions at the same time--such as instant messaging (IM) while talking on the phone. In the coming years, though, the workplace as we know it will change. The first generation of workers who grew up using the Internet and capabilities such as instant messaging has started hitting the workforce. This will have a direct impact on the types of services offered for them both at work and home.

When VoIP and the many possibilities and capabilities of the Internet are brought together it can change the way we interact. The interworking of these applications can be achieved through an overarching open structure that is called the IP multimedia subsystem (IMS). IMS creates a framework that blends VoIP, data and multimedia services in theory on any kind of device. In the IMS world, you could be at home watching a baseball game when your taxi arrives to take you to the airport. You decide to pause the game on your television using your digital video recorder and get into the cab, where you would pull out your PDA or smartphone and continue watching the game where you left off. Today, this sort of simplistic scenario would require coordination between multiple networks and service providers, and would be very complicated to achieve. But as voice, data and video traffic begins to ride across an all-IP network powered by IMS, this blending becomes a very real possibility.

This leads to the real promise of VoIP and its future iterations. As it develops it has the power to change some of the fundamental principles that the telecommunications industry has been resigned to for the last 100 years. For example, phone numbers are one of the most arcane practices. We have been trained to learn to remember 10 numbers to call Mom. In fact more recently we have had to remember at least two 10-digit numbers, because even Mom now has a cell phone. What we actually want to do is “call Mom,” and the network will figure out how to make that happen. The network knows my “list of friends and coworkers” and also the location and presence of Mom. To a certain extent this intelligence already exist in today’s Internet through domain name servers translating a fairly user-friendly domain name into a complicated IP address. Who wants to use IP addresses in their address book? The network would also be able to dynamically update address books and phone numbers, so contact information is always current and refreshed.

The adoption of VoIP has had its ups and downs. It was first talked about in the mid ‘90s in service provider circles, but then lost favor as quality issues proved challenging while the Internet and data services began to occupy the mind space. However, in a number of recent technical revolutions, while the hype was dying down, suddenly real business cases evolved. In the VoIP world, enterprises were intrigued with the value proposition and actually starting to implement the technology to lower the costs of their expensive PBX-based voice networks. So instead of the traditional model of service provider “selling” the technology to its customers, customers have started to push their service providers for the new services.

This changing role of the customer means, that at the end of the day, the end user is in the drivers seat with VoIP and next-generation lifestyle services. They will drive the industry to be creative and revolutionize both our workplace and homes. This may also pose new challenges, since it can be extremely difficult to predict the whims and trends of end users.

However we need first and foremost to recognize that the communications business is moving in a new unchartered direction where the end-user is in the driver seat.

While no one has ready-made directions on how to do this, one step in the right direction is moving the discussion away from price only and starting to think about value. The companies that get the “value-over-IP” equation right will lead the way into the future.

Stef van Aarle is Vice President of Marketing and Strategy of Lucent Worldwide Services.

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