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How Contract Lock-ins Are Bad for VoIP

Updated on April 3, 2012

Creating Artificial Demand

The adoption of VoIP services around the world varies greatly depending on the economic incentives as well as the culture. In some areas of course, governmental regulation imposes a barrier to the successful adoption of VoIP. Such is the case in India for example. But if you look at a country like Russia, VoIP adoption is well over a third of the entire population. Even India with all its governmental regulation has 25% VoIP penetration. The United States on the other hand stamped at the pathetic 6%. Why? Why is one of the most developed countries in the world lacking so far behind in adopting a new and innovative technology?

The answer of course lies in the way the economic incentives are set up. Telecommunication companies and carriers have established a nice stranglehold on the market and their way of doing business is now enmeshed with the American lifestyle. This is one of the reasons why VoIP is finding it difficult to take off in the consumer market. Interestingly, the business segment of the US has taken to VoIP far more readily. This is because of the tremendous cost savings and additional features which VoIP offers.

So what is it exactly about the US market which pins people down into an outdated technology?

VoIP and Phone Contracts
VoIP and Phone Contracts

The Crushing Impact of Contracts

As matters stand in the US today, almost every smartphone sold comes bundled with a contract. This bundling service attaches a specific type of technology to a piece of hardware that can actually be used for communication in many different ways. However, since the customer is anyway going to pay for a certain number of voice minutes through the traditional PSTN system, they might as well use it. It makes no economic sense for user to let their voice minutes go unused. This is the real reason why alternative technologies like VoIP haven't really managed to obtain a foothold in the US consumer market.

Until and unless the hold of the carriers over the telecommunication market is broken, this business model is likely to be perpetuated forever. The only benefit US consumers obtain from using VoIP when still within a contract is for making international calls. The unbundling of services is a critical step to open up competition and to level the playing field. It's about time we started to view smartphones as minicomputers rather than a phone that can also perform other functions. In terms of hardware, they are as powerful as regular computers were just a few years ago. And now with dual and quad core processors, smart phones are regular powerhouses.

SIP account registration on a hosted VoIP server is extremely easy. The setup time for a business VoIP service can be as little as 15 min. With VoIP, customers can use whatever hardware is in front of them – whether it is a PC, a phone, or a tablet. As the US telecommunication market evolves, one hopes that better business models will prevail and that VoIP will realize its true potential.


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