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by John Sung Kim, founder of Five9

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

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

rcphoneThis 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 were unthinkable.

Though it’s only been five years, there are dozens of VoIP companies (not just Skype—here are a few alternatives to Skype if you’re interested) that offer free applications that allow voice over net communication without license fees. What this means is that there are desktop applications for both Mac and PC (and now on smartphones such as iPhones, BlackBerrys and Android 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), you’ll pay a “termination fee” to network operators. The fee 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 Skype’s charge of 2 cents per minute to call any U.S. landline is calculated to turn a profit – but also assumes that most calls will terminate in a major metropolitan area. Personal experience dealing with large telco bills tells me that if anyone calls a landline in Alaska and only has to pay 2 cents per minute, someone is losing money.

Photo by inacentaurdump

Originally published Oct 29, 2009, updated Oct 24, 2022

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