VoIP and the Effect of the Economic Downturn

VoIP has definitely built up a healthy following over the last few years. Attractive to businesses and home users alike due to its cost effectiveness, it offers a good service at the right price. However, an application that should probably be a great deal more popular has question marks hanging over it, not least the question of how it should be regulated and the fact that emergency calls cannot be placed over the VoIP network. As a technology that is still trying to establish itself, how is VoIP faring in the recession and could the crisis actually be beneficial for VoIP providers?

The VoIP market has never been through a recession as it is a recent phenomenon so it is difficult to say how the market will react. Market research firm Infonetics published a report in March 2009 which highlighted that, in the fourth quarter of 2008, the market for carrier VoIP equipment in North America, Western Europe and some parts of Asia had stalled due to large deployments nearing completion and a shift in company strategies. This news came on the heels of double- digit annual revenue growth in the worldwide carrier VoIP equipment market since 2002. The decline in 2008 totalled 6 percent. The economic downturn has meant that companies have re-directed their capital expenditure to other areas of their businesses.

Meanwhile, despite a slight dip in equipment sales, the number of residential and SoHo VoIP subscribers has continued to increase at a steady rate, totalling 107 million in 2008 driven mostly by the EMEA and Asia-Pacific regions.

Ofcom, the UK communications regulator, has taken some guesses at how the recession may impact upon VoIP. Businesses that are pinched by the recession react by scaling back on previous plans or curtailing initiatives and making cutbacks on purchase of equipment. The equipment manufacturers have already felt the impact as businesses cancel orders. Businesses may also ask VoIP providers to offer less expensive service contracts as they have had to make cuts to their workforce. However, this could also have a silver lining for the VoIP customer as vendors and service providers will offer extraordinary deals to their customers to offload excess equipment and capacity.

On the other hand, Ofcom also believes that VoIP could actually benefit from the recession. As previously explained, the greatest attraction of VoIP is the fact that it is cheaper than any traditional type of telephony – it is often free. This is obviously going to be a huge consideration for business or home user as they look to cut their telecom costs. Ironically, it could even be that a recession will be a golden opportunity for VoIP. For example, businesses could turn towards VoIP to cut travel costs. VoIP offers high-quality voice and video services which could eliminate the cost of lengthy business trips and accomodation.

Still, as markets dwindle, there's a distinct possibility that some smaller and highly leveraged VoIP vendors and service providers will close up shop. That's obviously bad news for those businesses and their employees. However, it could be great news for the failed companies' competitors, who will rush in and scoop up remaining customers. Therefore, a few firms might be able to seize on their competitors' misfortune to build market share that could be maintained in future, more prosperous times.

Despite any silver linings, a sharp, prolonged U.S. recession would likely be painful to most VoIP businesses and their customers. The industry as a whole, however, should suffer no permanent damage. While sales may drop over the short term, VoIP is now a firmly established industry, one that should be able to resume its growth as soon as the general economy begins to recover.

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