VoIP providers will need to build revenue generators to combat users mooching off free services, according to analysts.

While VoIP penetration has reached an impressive 1.1 million, only 230,000 are paid subscriptions with analysts blaming free offerings for the false readings.

Research firm Market Clarity director Shara Evans said VoIP services have only begun to catch up with subscriptions, despite VoIP technology being available since 2004.

"Internet-based VoIP is expected to generate revenue of close to $85 million in 2006 to 2007 which represents low average revenue, considering the population will reach 1.4 million users in the same period," Evans said, adding subscription levels include free accounts which may be inactive or have up to five accounts signed to a single user.

She said while revenue can be gained from enhanced services such as VoIP to PSTN, or by underwriting advertisement into free services, the technology will contribute very little to total telecommunications revenue, even by 2011. But regardless, VoIP technology is charging ahead. Evans says mobile VoIP is active in Australia and leverages WiFi to negate expensive cellular data fees.

"There are a number of providers offering mobile VoIP in Australia now which use IP architectures to save on hefty cellular data fees," Evans said.

Skype director of business development for hardware and mobility, Eric Lagier, said inhibitors for true mobile VoIP are expensive data fees for cellular networks and the lack of High Speed Uplink Packet Access (HSUPA).

Smaller vendors such as Jajah and Fring have stolen ground from the big players in the mobile VoIP space by requiring users to log-in to Web portals prior to calls, or requiring middleware installations on handsets, which is already commercially viable.

Carriers' large-scale transition to VOIP may not begin in earnest until 2010, though spending on gear for the new calling technology will roughly double over the next five years, according to research company Dell'Oro Group.

Network equipment providers sold more than $US2.4 billion worth of dedicated VOIP infrastructure products last year, a number that will grow to $US4.7 billion by 2010, according to Steve Raab, an analyst at Dell'Oro.

Dell'Oro counted softswitches (servers that switch packet-based calls), media gateways (devices that translate between packet and circuit-switched networks) and products that combine those elements, Raab said.

It did not include VOIP elements built into other products such as multiservice switches.