The number of subscribers for Internet phone services surged to about 3.6 million in the third quarter as providers aggressively signed up customers, according to an independent report released yesterday.
That was up 33 percent from 2.7 million subscribers at the end of June, said the report prepared by TeleGeography, a research firm owned by privately held Primetrica Inc. Revenue from Internet phone services jumped 38 percent, to $304 million, during the period, the report said.
While the numbers are small relative to the 93.2 million residential phone lines TeleGeography estimates are served by Verizon Communications Inc. and similar carriers, they show the dramatic growth of Internet calling over the last year.
The firm estimates that voice over Internet protocol (VOIP) users have risen about 400 percent from 714,000 in the third quarter of 2004, while revenue soared 473 percent from $53 million.
"The threat to traditional phone companies is substantial," said Stephan A. Beckert, director of research for TeleGeography, saying his firm projects traditional carriers will see local phone revenue shrink by $4.8 billion and long-distance revenue by $1.8 billion by 2010 because of VOIP competition.
Major phone companies such as Verizon, SBC Communications Inc. and BellSouth Corp. are all watching their local phone businesses get eaten away as consumers switch to wireless service and abandon second phone lines once used for dialup Internet access.
Verizon and SBC are building fiber-optic networks to prepare their businesses to sell high-speed Internet access and video services in competition with cable companies.
TeleGeography found that VOIP subscribers grew even faster than expected during the third quarter, partly because of "the impressive performance of Time Warner Cable, which was the fastest growing cable VOIP provider in each of the last three quarters," the report said.
The top VOIP providers are Vonage Holdings Corp., Time Warner Inc.'s cable unit and Cablevision Systems Corp.
Beckert said the biggest lure for customers is price, saying even the most expensive VOIP providers -- usually cable companies -- charge $5 to $10 per month less for local and long-distance service than typical phone companies.