While most telecom giants have left the voice business for dead, new entrants are seizing emerging technology opportunities in the $230 billion market. According to a new report by Forrester Research, Inc. (Nasdaq: FORR), “Voice’s Next Evolution,” the voice market is ripe for reinvention. Moving voice from circuit-switched to packet-based networks (often referred to as voice over IP or VoIP) will unleash new low-cost communications services for business customers and consumers, posing enormous challenges for telecom incumbents and gearmakers.

“Right now, voice services are the orphans of the telecom industry — big carriers can’t abandon them fast enough because they no longer bring in big profits — especially in the long-distance market,” said Seema Williams, senior analyst at Forrester. “A host of new equipment entrants are introducing softswitch gear and will foster the development of packet technologies, which hold the potential for future growth and innovation in the voice business.”

As packet voice technology matures, carriers will rely on it to deliver a more sophisticated voice-communication experience at lower costs. By marrying the visual interface and innovative applications of the Web with voice telephony, VoIP networks will provide a platform for developers who can in turn design the coveted killer app of the voice business, creating a cheap entrée into voice for players like cable providers.

“For business customers, the gradual rollout to packet networks means the long-awaited promise of unified messaging is about to become reality: The aggregation of all voicemail and email messages in one application — anytime, anywhere,” added Williams. “For consumers, it means the phone call of the future might allow you to attach a digital photo of the grandchildren along with a voicemail message using a new IP phone.”

Telecom companies aggressive enough to implement the new packet voice platform will succeed. However, incumbent carriers are reluctant to spend money to rearchitect their networks for the slow-growth voice business, especially on immature technology. Conversely, new voice companies see the technology as a strategic advantage and believe that softswitch gear and new applications will help launch new voice services without overhauling the current network infrastructure. Despite their differing perspectives, both incumbents and upstarts are experimenting with packet voice, if not implementing it.

“Voice’s Next Evolution” details how competitive pressure and new revenue opportunities will force carriers to replace aging circuit-switched networks with packet equipment. Once voice becomes an application on a data network, service providers will offer voice as a loss leader in a bundle of services. With voice riding the network alongside Web pages and corporate email, carriers will need to find new ways to manage their product mix. As voice takes a back seat to data and applications, carriers must modify their business analytics to measure success by revenue and profit per customer instead of by minute.