Like virtually every executive in the voice-over-IP market, David Span, senior vice president of product management and marketing for Net2Phone, can talk for hours about the features and applications enabled by a move to VoIP. Fixed-mobile convergence, presence management and the latest and greatest in messaging all come to the fore. But talk to a real customer, and the list of concerns generally becomes a lot shorter.

“It starts and ends with price,” Span said.

Indeed, for as much as the industry wants to talk about the productivity enhancing — or just plain cool — applications, customers from the residential market all the way up to the largest enterprises often see price as the primary differentiator between service providers. Those involved in selling, developing and marketing VoIP service and the equipment around it, though, say attitudes are slowing changing. Net2Phone, as well as other carriers, has started stressing not just the initial cost of service, but also the cost of comparable features in the circuit- switched environment.

“Price is more than just the price of your minutes,” Span said. “The features are important, and people see that it's a feature-rich environment. When you compare it to [the public network], you can get most of the same features, but you pay for it. I think the Class 5 features now are taken for granted. It's still about price, but you're getting everything else.”

Even more companies, particularly those serving the enterprise and small business market, are shifting their tactics to focus on the total cost of ownership.

“I'm not sure price ever comes off the table,” said Randy Ritter, vice president of product/portfolio management for Sprint. “If you look at where customers have been, with basic network convergence, there's a savings related to access. The other key factor is the cost savings associated with moves, adds and changes. As we go forward, it's really all about our customers' access to their customer as they define it. As customers have more choice and flexibility, that's what gets them to not just be focusing on price.”

For Sprint, the focus is on getting customers to think about ways to blend the traditional Sprint wireline network with its newly bulked up wireless capability that comes courtesy of the recently closed merger with Nextel.

“[VoIP] is really about wireless integration and making sure we're providing seamless communications from the desktop to the wireless device,” Ritter said.

But although carriers such as Sprint and Nextel can talk up the applications and overall savings, whether the industry is at the point where customers no longer use cost as a primary motivator to switch to VoIP is uncertain. To a large extent, it depends on the customer. Or at least the type of customer.

Though the body of research is still somewhat slim, in general it appears that residential users are the most price conscious and will continue to be for some time. In the business market, both the size and type of customer plays significant parts in influencing the decision-making process.

“In many cases, it's merely a replacement for what you have,” said Diane Myers, senior product marketing manager for BroadSoft. “Today there hasn't been a huge value placed on these features because people aren't familiar with them. Consumers are always going to be price driven. But on the enterprise side, it's more likely to see features drive decisions.”

In a study of enterprise customers in 2002, Nortel Networks found that many viewed reduced cost as a primary benefit of VoIP but that the ability to converge networks also ranked high. This year, the same survey showed enterprise users much more interested in applications.

“The number one item was mobility and flexibility,” said Steve Brock, senior manager of VoIP and multimedia services marketing for Nortel. “We're definitely seeing a shift toward productivity and flexibility.”

For VoIP service providers, regardless of their existing market position, there is plenty of opportunity to capitalize on that shift. One of the reasons behind the Nortel survey is to give the vendor some intelligence to pass on to carriers. In the current environment, one of the best opportunities is to figure out ways to layer multimedia on top of their packet networks and package everything up as part of a VoIP service, Brock said.

“This shift has just happened recently. An example of service providers, in say, the U.K., would be like Timico,” he said. “They already have hundreds of business customers, and now they're overlaying multimedia services.”

Getting to that point, though, requires something of a mindset shift for carriers, according to several vendor executives. Jeff Liebl, vice president of marketing for Ubiquity, said carriers must adopt a more sophisticated selling approach than they've had in the past. And in many ways, carriers themselves are to blame for reinforcing the concept that VoIP simply means cheap dial tone. When AT&T unveiled its CallVantage service, for instance, most of the marketing revolved around the flat rate with no mention of potential applications. Vonage, one of the biggest Web advertisers of them all, similarly focuses most of its entire message on price. For carriers to get users out of that mentality, they themselves may have to do some of the initial pushing.

“If it's an enterprise, you have to show them a productivity gain,” Liebl said. “If it's a consumer, you have to show them entertainment or something worth opening up their wallet for.”

The shift may already be occurring, but it's still in the earliest stages. Some providers simply haven't been forced to push for the move out of an all-price mentality. In the early days of VoIP, price was the only factor in its favor. A lack of quality of service, best-effort connectivity and no support for traditional CLASS features ensured that early adopters would be focused on price. As VoIP pioneers begin accumulating some mass of customers, and the service moves closer on par with circuit-switched products, those same providers are finding out that selling cheap dial tone is a becoming a more difficult proposition. That holds true particularly in the residential market, said Mike O'Malley, marketing manager for Tellabs' global portfolio marketing group.

“If you look at the residential market and the success of business models like Vonage and Skype, and the number of users they're adding, that's a strong indicator that you're moving beyond the first movers,” he said. “Once it does that, it turns into a model where all voice calls are packet-based, but the customer doesn't know the difference. Now you can drive a lot of those applications.”

In fact, many vendors and carriers believe that regardless of the market, price is going to be an initial attraction. Getting potential customers to differentiate service providers based on applications won't happen until after they already are using VoIP.

“I think the price point is the way in, but even Vonage has seen that they need to get some stickiness to their service,” said Paul Miller, vice president of packet telephony for Tekelec.

Carriers, of course, have plenty of incentive to sell applications instead of price, said Rick Moran, vice president of markets for Cisco Systems' IP communications group. As the prices for a month of VoIP service have dropped, so have the margins. Given all of the built-in cost some incumbent carriers have, it behooves them to not get into a price war with anyone, much less a lean start-up that can survive on much thinner margins.

“Any one service by itself doesn't have enough margin in it, but bundling things together makes it works,” added Mark Whittier, vice president of corporate marketing for Tekelec.

However, many also believe that the market is segmenting itself, with enterprises and other businesses making the transition to purchasing applications while residential VoIP decisions will be based on price for some time.

“The incumbents are not too excited about jumping into that residential market until they see a clearer business model,” Miller said. “They already own a set of customers in their territories. The lower cost is a different play for them. They would like to know how we squeeze $2 per month from the soccer moms.”

That's not to say that getting corporate customers to base their decisions on which company has the best applications will be easy. For many carriers, it's going to require significant changes, not just to the way they sell, but the entire organizational sales structure, said Jeff Spagnola, vice president of service provider marketing for Cisco.

“It's a long journey for them if they're going to use their existing sales organizations,” he said. “Probably the most dominant approach we see is an overlay team where you have specialists that are there to parachute in for some of these advanced services. That scales well for the large accounts, but when you get down into the mid-sized accounts, you're challenged there.”

To some extent, Cisco has had the same challenge, he said, in getting the sales organization to not focus just on selling routers. The difference in the case of the carriers is that their vendors may be looked at for help. At a recent meeting of service provider customers, Cisco asked about the biggest challenge they face in moving into IP services.

“Over 30% of the audience said sales training,” Spagnola said. “We have to ask ourselves, ‘What are we doing to help the sales guy walk into a customer and sell things like security? Those are all challenging things for them to sell.”

More challenging still, but perhaps even more important will be getting carriers sales teams to push applications at the desktop. Because while VoIP as cheap dial tone may get a service provider in the door, it's on that individual user's desk and on his or her wireless device where the real productivity gains are made, said Michael O'Hara, general manager of the service provider business for Microsoft.

“Something like click-to-dial has been around a long time, but they've been based on portals,” he said. “When you start to get the control on the desktop is when people start using it. The fact that it's there and you don't have to go anywhere to get it makes it compelling to use. Our belief is that this type of user experience is going to drive the voice-over-IP experience. One of the challenges of carriers is that this can be difficult to sell. It's not a traditional service, and so we find ourselves doing a lot training on that side.”

Making things more complex will be the addition of wireless elements to the overall VoIP package and the expected blending of applications enabled by the IP multimedia subsystem (IMS) architecture.

“The industry is at the corner of a transition point,” said John Marinho, vice president of strategic marketing for Lucent Technologies. “The [IMS] architecture represents bringing together telecom and IT in a holistic way to deliver applications to end users and deliver those applications independent of the access network. That starts to change the value proposition to the end user.”