In the legacy system, the cost of maintaining the infrastructure is high, forcing call costs, such as long–distance calls, to be high. Hence, the services are dominated by large telecommunications companies like as AT&T. Small companies, such as local exchange carriers, find the cost of installing legacy systems prohibitive. Hence, they are restricted to local geography.

Voice over Internet Protocol, or VoIP, is an open architecture that can be seamlessly upgraded and can have new best-in-class products easily built-in, unlike legacy systems where the structure is locked with limited chances of upgrading or upgrading at huge costs. As such, major telecom players and small carriers who want to upgrade their services and enter into voice services are deploying VoIP systems and applications. The VoIP market has, therefore, become highly competitive.

VoIP service is not a stand-alone opportunity. For the end customer, there is just one face to VoIP service, that of the VoIP provider. Behind the provider, the value chain extends from Internet Service Provider, phone retailers and wholesalers, gateways providers, PSTN carriers, GSM networks and a myriad of software-based services such as billing and call monitoring. The VoIP ecosystem is so networked that the failure or absence of one link in the chain leads to a failure in providing quality service and resulting customer dissatisfaction.

VoIP, as part of the bigger network, is sometimes subsidized by the providers from other operating businesses. Soft phone services subsidize free intra-subscriber calls through calls emanating to non-subscribers. Hence, the strategy of VoIP providers is to focus on value-added services such as differentiated call plans that generate more revenue in order to subsidize generic services like local calls. This is particularly suitable for small local exchange carriers.

The top-line profit of the provider is reflected by average revenue per user (ARPU), and the consumer market is growing faster than the business VoIP. The bigger companies such as Cisco, Motorola, Clariys and Juniper networks, will face stiff competition.

In this highly competitive market, locking the customers by networks can be seen as beneficial in the short term, but as the customer loyalty is low, customers will often change to better services. Hence VoIP services have to place quality, reliability and cost as their core values.