CHICAGO--

Even for large incumbent carriers with embedded costs in a legacy network, migrating to voice over IP is a “choice without an alternative,” according to Jack Waters, chief technical officer for Level 3 Communications. Overwhelming economics are driving carriers to make the switch to VoIP, even if means cannibalizing their traditional circuit-switched businesses, Waters said.

Speaking at the "VoIP for Service Providers" conference hosted by Telephony, Waters noted that most families currently spend $60 to $70 monthly for local and long-distance voice service. With VoIP, they can spend $30 for an all-distance VoIP service provided over broadband connection that costs $30 to $40 per month, he said.

“Guess what? That means you’re getting the broadband for free,” Waters said. Because VoIP can work over any broadband connection, consumers also have a new level of choice--“You don’t have to buy local phone service from the guy who brings the wire into your house,” he said. Given this freedom, residential customers are opting for all-distance packages from providers such as Vonage, and more than 12 million have downloaded VoIP software from viral software provider Skype.

Waters acknowledged he does not understand Skype’s business model but said, “I would not underestimate the power of anybody who can get to 12 million customers in nine months … [Skype] is the ultimate friends and family.”

Despite this increased competition from independents and cable companies offering VoIP packages, Waters said discounting incumbent local exchange carriers would be a big mistake.

“The news of the incumbents’ death is really overstated,” he said. “They are very good at getting before the customer and selling enhanced services.”

In particular, Waters noted that incumbent carriers have made significant revenues by selling caller ID and call forwarding options--the type of enhanced features that will become much more prevalent on a VoIP platform. And Waters believes ILECs will offer VoIP services over DSL connections long term, not via a new fiber-to-the-premises network.

“Fiber to the premises is an incredibly expensive thing, and I don’t see any way to build it,” he said.