The sky is falling! Vonage is teetering on the Verizon patent infringement cliff. SunRocket exploded and left customers looking up in the sky to figure out what happened. This must surely mean the end of the VoIP hype.

Chicken Little is alive and well. There are people who think this is the end for VoIP services. I remember people saying the Internet could never succeed. No one would use an unmanaged network without anyone responsible for overall administration and quality. We all know how that worked out.

Why did SunRocket fail? Is Vonage next? Can anyone, including cable companies, ISPs, or CLECS, make money offering VoIP services?

I cannot tell you why Sun Rocket failed nor prognosticate on Vonage’s prospects for prosperity. However, there is nothing magical about VoIP as a business. The same issues that apply to manufacturing, professional services, or almost any other industry apply here too. When all is done, you must have a business plan that demonstrates–in a reasonable amount of time–how you are going to generate profits. For prospective service providers, this means honestly assessing everything that goes into your cost of goods sold (COGS), the scope of the market opportunity available to you, what prices the market will bear, and what percentage of the market you can reasonably expect to capture. If the end result is a negative number, you have a problem.

Let’s evaluate the viability of existing or planned VoIP service provider business plans using three criteria: plan meet need, workability, and feasibility. Does the “plan” meet the need? What are you trying to sell? Residential services only? Business services only? A combination of the two? What features and functions do your customers require? Are you looking to do only voice services, or are videophones an area of interest? Are there quality-of-service requirements or minimum bandwidth thresholds? Do you have a captive customer base for “value-add” sales, or are you expecting to conduct mass-marketing akin to Vonage or even SunRocket? Where are you selling? Does your plan address the requirements of the marketplaces that you have defined?

Is your plan workable? If you are going to be installing or operating the system yourself, you must ensure that all of the components are interoperable with themselves and that your system can interoperate with other service providers and enduser devices. There are a significant number of complex elements that go into creating a VoIP service. These generally include a softswitch, session border controllers, applications servers, proxy servers, media gateways, firewalls, and other similar devices. In addition, interface with billing systems and back-office monitoring, data management, and data-mining systems are critical. Ensuring that all of these “play well” together is no simple task. If you and your staff are not up to the challenge, you may need to hire additional personnel or use an outside systems integrator to help. If, after considering all of the facts, this approach of assembling the VoIP system seems unworkable, consider a complete outsourced solution. There are companies whose primary focus is helping VoIP service providers deliver service without the need to build it from scratch. Be sure that whatever plan you have chosen is workable, including the ability to scale to meet your anticipated growth requirements.

Is your plan feasible? How much does it cost to implement your VoIP service provider environment? Are costs low enough that you still have reasonable margins after offering services at a competitive price? How long will it take you to implement the service and start generating revenues (and hopefully profits)? If it takes six months, nine months, or more than a year, will the market have passed you by? At the end of the day, an honest assessment of the market, required capital investments, personnel, and ongoing operating expenses will tell you whether or not your plan is feasible.

The VoIP market is real. Every indicator tells us that as quality becomes acceptable and costs are no longer an impediment, the use of VoIP services will continue to change the face of telecommunications worldwide. It isn’t that the sky is falling on VoIP providers. Rather, it gets back to good-old boring Business 101. If you cannot capture customers fast enough and your revenues do not exceed your expenses, the sky really is falling (or may already have fallen). For those service providers that put together a well-considered business case, the sky’s the limit! V

Joel Maloff (www.maloff.com) a former COO, CTO, and GM with 30+ years of experience focuses on emerging technologies and security. He can be reached at: jmaloff@ gmail.com.