VoIP Poised to Overtake Traditional Telephone Services

Aging infrastructure, rising costs and availability of alternative services mark the decline of POTS.

Traditional telephone service, also known as Plain Old Telephone Service (POTS), is contingent on aging infrastructure on which there is almost no innovation taking place. Subscription rates are actually declining, but Federal Communications Commission (FCC) regulations require that telecommunication companies maintain a minimum level of service. As time goes on the cost burden of maintaining this aging infrastructure will fall on a smaller subscription base and the cost of POTS will increase.

The reason for the declining subscription rates of POTS is the availability of alternative voice communications services, namely mobile telephones and Voice over Internet Protocol (VoIP), which lets users make voice phone calls over high speed Internet connections. In fact, as of 2014, VoIP adoption was at 60 percent in the residential market and 20 percent in the business market. When it comes to business services, VoIP is in direct competition with POTS because of the improved Unified Communications (UC) features available with VoIP and the significant cost savings associated with transitioning from POTS.

VoIP adoption is growing thanks to its scalability, flexibility, and cost savings. In the majority of cases, switching to VoIP can be accomplished by simply plugging existing office phones into Internet wall ports. The phones work like regular telephones with some additional features. This model is scalable, because adding lines does not require any additional infrastructure investment. Flexibility is an inherent property of VoIP because services are delivered using a web-based platform. Communication functions can be accessed by authorized users from anywhere with high speed Internet access. This makes it easy for employees to work on the go while staying connected to coworkers and customers. The cost savings arise from the fact that VoIP does not require capital investments; the VoIP service provider maintains server infrastructure.

VoIP costs about half as much as POTS: The average amount spent on a single telephone line in 2013 was $141, and just $66 for a single VoIP line (including the cost of broadband Internet access). For a medium-sized company with 100 phone lines, a VoIP subscription could save about $90,000 per year. This cost differential between VoIP and POTS is expected to persist well into 2017.

Not only does VoIP reduce costs, it also reduces risks. The cost structures associated with VoIP and POTS are very different: POTS is based on capital expenditures. In order to access UC services, a PBX system must be installed and maintained by the company. PBX systems increase fixed costs and the risk of excessive capital depreciation over time. VoIP infrastructure, on the other hand, is maintained by VoIP services providers. Subscribers to VoIP services need only pay a monthly subscription fee to use the web-based platform, which can be accessed with existing telephone and computer equipment from virtually anywhere in the world.

If your company has not yet made the transition to VoIP, we recommend contacting a reputable service provider to conduct an analysis of the potential cost savings for your unique situation. A telecom expert could also discuss the particular VoIP features that are proving to be the most valuable for companies in your industry.

To learn more about the financial implications of transitioning to VoIP, please download our latest white paper: The Evolution of Telecom and the Financial Impact on Business.

1 TIA. (2014). TIA’s 2014-2017 ICT Market Review & Forecast. Arlington, Virginia: Telecommunications Industry Association.

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