IP telephony market faces crunch

IP telephony service providers (ITSPs) face being squeezed out as large conventional telcos move into the market.

A report by telecoms consultancy Schema says competition on cost alone will not be enough, and that ITSPs will have to compete with public telephony operators (PTOs) on value-add services too. However, according to the report's author, Robin Duke-Woolley, this will lead to more innovation and faster growth in the IP telephony arena for corporate networks.

Due to European telecoms deregulation, the tariffs charged by PTOs for international calls are expected to fall to less than half of current levels by 2003, the report claims. Duke-Woolley said ITSPs are "in a race against falling tariffs" and that in the later stages, market share will be determined by service offerings such as video and teleconferencing, quality of service, multimedia and screen sharing.

"New operators need to work faster than the existing PTOs, and need to be more innovative if they are going to succeed," Duke-Woolley said. However, he also said that when PTOs move into the IP market, they are in a better position to offer the value-add services with little or no investment.

As part of the study, Schema questioned 500 businesses and concluded that by 2003, more than two million business sites around Europe will use IP telephony on their corporate networks.