December 15, 2000

Ovum predicts that by January 2006, 166 million Internet users world-wide will be regular users of PC-to-phone IP telephony. This represents almost a quarter (23%) of Internet users growing from only 5% today. Wide availability of services, improvements to quality, and ease of use will be the major factors driving the growth.

PC based IP telephony, or "e-calling" as it's sometimes referred to, took off in late 1999 stimulated by services offering "free" calling. These services allow phone calls to be made from a PC connected to the Internet anywhere in the world, to an ordinary telephone, and the only cost to the user is any charges for connection to the Internet.

Free PC-to-phone calling is now available to around 30 countries worldwide and very low price calling to many more. Free services are paid for by banner adverts that are displayed on the caller's PC screen during the call. The free services have increased consumer awareness of e-calling and have also grown the market for the many services which make a small per-minute charge, usually offer better call quality.

E-calling eliminates geographic boundaries and bypasses any local regulation of telephony. Even those countries that have not yet introduced competition in voice telephony will not be able to stop people using their PCs to make international calls. Consequently, there is also considerable growth of e-calling in much of the developing world as well as in developed countries.

"Many observers believe that "free" advertising supported services are just a short-term way to build a customer base by companies that have raised capital during the frenzy to invest in businesses and that the business model is not sustainable in the long term," says Peter Hall, principal consultant Ovum. "Although the downturn in financial markets for technology stocks has made life tougher for existing and new players, advertising will continue to be a major component of e-calling services."

"Future growth in e-calling will be led by major portals who are ideally positioned to attract first time users as well as use advertising to support their costs," says Hall. "Portals including Yahoo! and MSN entered the market in 2000 and many more will follow. Many portals will expand their offering beyond PC-to-phone and PC-to-PC calling to provide a full range of consumer telephony services, which will pave the way to some becoming the future global consumer telcos."

Ovum predicts that world revenues for PC-to-phone services will reach $6.2 billion in 2005 and a third of this will be generated in advertising. PC to phone calling will become popular not just because its cheap, or even free, but because other services like voicemail and unified messaging will be part of every service offering.

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