Economics

Bart Stuck and Michael Weingarten, “Can Carriers Make Money On IP Telephony?” Business Communication Review, Volume 28, Number 8, August 1998, pp. 39-44.

"What is the reality in the battle over packet-versus-circuit telephony, and what is hype?

Looking at the potential savings by cost element, it is clear that in 1998, access arbitrage is the major economic driver behind VOIP. By 2003, we anticipate that switched-access arbitrage will diminish in importance, as the ESP exemption disappears and/or access rates drop to true underlying cost.

However, we believe that the convergence between voice and data via packetized networks will offset the disappearance of a gap in switched access costs. As a result, VOIP will continue to enjoy a substantial advantage over circuit-switched voice. Indeed, as voice/data convergence occurs, we see standalone circuit-switched voice becoming economically nonviable.“

[Emphasis added by GQMJr]

Note: Enhanced Service Provider (ESP) exemption means that ISPs do not pay access charges to local phone companies {since the ISP just receives calls from users}

Transcript

[slide48] The economics. Bart Stuck and Michael Weingarten wrote an article called "Can Carriers Make Money on IP Telephony?" And they basically said, yes. The answer is, we take advantage of it.