The FCC data tells us that in the US, between 1994 and 2004, the price of an international voice minute (on average) went from $.91 to  $.14, while the combined number of international minutes billed by US carriers went from 13B to nearly 63B. In economics, price elasticity is the notion that inclination to buy varies in proportion to price. Price goes down, volume goes up, voice minutes are elastic. Traditional carriers are facing a tough battle: the combined US revenue for international voice went from $12.5B to $8.5B over the last 10 years while VoIP revenue passed the $1B mark in 2005.

Packet8 and Vonage have announced their free international calls to parts of Europe, Asia, and South America. All VoIP providers have to pay for terminating the calls, but they are making the bet that the recurring fees will cover these costs, including customer acquisition costs. It's analogous to what the bells did for local calls, to what wireless carriers do with free handsets and minutes, and Sun with Java. More disruption.

Ebay is announcing free SkypeOut calling, I wouldn't be surprized if Yahoo and Google would follow suit quickly. The price of minutes to customers is really $0 because these companies can sell advertisements or added-value services on top of their voice services to cover the fixed costs and eventually make a profit. This is not only for the .com giants; Virgin Mobile announced free airtime in exchange for viewing advertising from top brands like Pepsi or Xbox. This could constitute a solid effective brand reinforcement strategy for advertisers faced with media consumption fragmentation (100s of TV channels or publications). But advertisement is not the only way to maintain or increase ARPU in the face of declining traditional voice revenue.

The fundamental transformation that is taking place in this industry is the shift of focus in the communication value chain: voice is no more the center and valuable element of the exchange. It's not about the airtime of the car calling the car dealer, it's the increased vehicle safety. It's not about Amazon offering free voice, it's about more shoppers' eyeballs. Anyone who's read the "Innovator Dilemma" from Clayton Christensen, understands how new technologies can rapidly chang ;business rules. Underestimating new threats or giving up markets because there seems to be less value has caused many companies to disappear. The telecommunications industry could be soon rich in examples for a volume 2 of Christensen's book, but carriers taking the offensive could be featured in a second "Innovator's Solution".

A two pronged-strategy:

• Lower the price of voice to compete with new entrants. Keep the cost of delivery voice services down by reducing power, increasing performance, reducing footprint in data center and increasing productivity with automated provisioning.
• Deploy added value services that provide a seamless experience across various devices and networks and provide access to content users (think youtube, myspace). Partner with advertisers and brands that will rely on your coverage and relationship with customers to increase advertisement efficiency, and eventually ARPU.