Google looks set to launch a free broadband-based telephone service that allows users to speak via headsets and a home computer, The Times reported this morning. The US search engine will use established software developed by Skype. The London-based programmer’s software has already been downloaded 54 million times.
Telecommunication firms have the most to lose from the technology. BT, who currently connect 70 percent of UK households, has developed its own service but is reluctant to promote it heavily. The technology is a form of voice over internet protocol, VoIP, which exploits available internet capacity meaning calls are almost costless. The expense is in developing software and linking calls to the traditional phone network. Internet calls are currently less reliable and of a poorer sound quality than on traditional lines. These problems could be solved by investing in capacity.
Julian Hewitt, senior partner at Ovum, a telecoms consultancy, said to The Times: “From a telecoms perspective there is a big appeal in the fact that Google is a search operation — and of course the Google brand is a huge draw.” Google is ideally positioned to exploit its fifty percent market share of internet searches globally.
Mr Hewitt added that search results could be linked to its Net phone service, which allows customers to call a company by clicking on a link. Netimperative suggest that there are many ways for Google to extract value from this service. These range from charging users by the minute to employing their AdSense model, where companies pay the cost if a customer calls from a Google advert.
The Times was alerted by a job advert on Google’s website seeking a “strategic negotiator” to help the company to provide a “global backbone network.” A telephone service is the logical use of such a high-capacity international infrastructure. The firm could cheaply acquire some of the thousands of miles of fibre-optic cable that have been left dormant since the internet bubble collapsed in 2001.
However, search engine expert Mike Grehan told Netimperitive that Google’s desire for a network specialist may simply be down to the fact that “it has to has to distribute 30 terabytes of data around the globe in order to remain current in their network of data centres. I don’t know about them going into the phone business. But it would make sense to have their own data distribution network.”
The business model has been proved elsewhere; in Japan 10 percent of households use VoIP, including 4.4million Softband subscribers. Its success has hit traditional telecom firms revenue. The VoIP pioneer in the US, Vonage, offers unlimited calls from $24 (less than £13). Companies with high phone bills are increasingly switching to VoIP, especially for international calls.
Jeffrey Citron, chief executive officer and co-founder of Vonage, told The Cox News Service that the technology is now mature; calls are clear, easy and cheap enough for the mass market. Vonage has launched a service in the UK offering hardware to use VoIP over a standard telephone.
Vonage, the private New Jersey start-up, was the first to offer internet-based calling in the US three years ago. It is still the market leader with more than 40 per cent of the 1millon subscriber US market. However, despite predicting growth of 600,000 users this year, the company is an underdog. Cable firms can package the service to existing customers and telecom giants like AT&T are beginning to enter the market.
The big telecom companies “had the technology, but there was no reason to rush it into the marketplace until their business was at risk,” said Jeff Kagan, an Atlanta-based telecommunications analyst to The Cox News Service. “Now that all of these companies are getting into it, I don’t think Vonage is going to remain in the lead,” he said. “Vonage had its day and it’s going to continue to be successful, but it’s going to be small.”
There is certainly a strong business case for Google to enter the VoIP market. The dominant position of Google’s search engine product means that it is uniquely placed to take advantage of internet telephone service technology. Whether Google enters or not, the world’s telecom and cable giants will make this an extremely competitive market.