U.S. VoIP Price Wars

May 02, 2006

Following the age-old advice of if you can’t beat them, join them,; Verizon has slashed the monthly price of its consumer Voice-over-IP (VoIP) offering, from $34.95* to $24.95 per month. This move puts the price for Verizon’s VoiceWing VoIP service in the same level as competitive upstarts such as Vonage. It is also positioned far below the VoIP offerings of cable MSOs, such as Time Warner and Comcast. Cable companies typically offer VoIP at a bundled rate of $40 per month.Verizon’s move risks cannibalizing revenue from its own, lucrative traditional voice services. Nevertheless, Verizon’s price cut may prove to be a wise defensive move, designed to staunch the flow of customers to rival VoIP service providers. Telegeography’s latest research indicates that 5.4 million U.S. households now subscribe to a VoIP service; up from just 2.7 million one year ago. Even more troubling, 2.8 million of those households have defected to cable MSOs and VoIP services and have cancelled their local phone lines altogether.

By year-end 2005, Verizon had lost more than 8 percent of its residential phone subscribers. According to the results from an April 2006 survey conducted by TeleGeography, the number of customers jumping to VoIP will only accelerate over the next year. Based on the survey results, TeleGeography projects that by year-end 2010, VoIP will have attracted over 21 million subscribers – nearly one in five of all U.S. households.

These numbers spell trouble for traditional phone companies. Subscriber migration to VoIP translates to $13.9 billion in lost long-distance revenues over the course of the next five years, and $17.4 billion in lost local phone service revenues. If ILECs can woo some of the cable defectors back to the fold, or at least discourage customers from canceling their local phone or DSL line in favor of cable broadband and VoIP, dramatic moves such as Verizon’s price cut may pay off.

This analysis is excerpted from the U.S. VoIP Research Service.

The U.S. VoIP Research Service has been discontinued. For a full list of TeleGeography’s research services, please visit http://www.telegeography.com/research-services/.

- The TeleGeography Team

*NOTE: Before its price cut, Verizon charged subscribers of cable modem and rival DSL services $34.95 per month for its VoiceWing VoIP service. Verizon charged Verizon DSL subscribers $29.95 per month for the first 12 months, and $34.95 thereafter, for VoIP