Editorial: The Telecom Industry: Still Driven by Voice
Dr. Jerry Lucas
07/01/2005
You can talk all you want about IPTV, Mobile TV, the last 10 feet of the Internet (RFID) and other IP-based developments, but if you are charged with plotting a course for business success or survival, don't take your eyes off voice service. No telecom company in the past succeeded with a data-only offering, and the same holds true for the future.
The good news for telecommunications providers is that they can survive on primarily old and new voice-generated revenues. The bad news is they have to upgrade their BSS/OSS.
To understand why voice revenue is king, consider its lead service positioning by industry segment and by new IP technologies. . First, by industry segment.
Industry Segments: ILECs and Voice
Every trade magazine and general newspaper is full of articles about telcos spending billions on FTTP/FTTN in order to offer video services. A small, rural ILEC competing against a weak cable company can show an ROI on this type of investment, but a Tier 1 telco can't. So then why are Verizon and SBC investing billions to offer video? My view is it's the triple play bundle that will keep their voice customers from moving to cable or mobile wireless.
Will the ILECs lose customers to cable and mobile wireless, even with a triple play offering? Yes. Will their net voice revenues—and more importantly, their net profits from voice—go down? No, not when you look at what is going to happen in the next year: less competition, and thus higher prices. Yes, cable and mobile wireless will win among telco customers, but within a year telcos will see a flood of customers coming back—or, in reality, switching from wholesale to retail service.
Consider that today roughly 18 million U.S. residents and small business customers are being served by IXCs and CLECs that subscribe to wholesale ILEC UNE-P and local resale services. UNE-P goes away in March 2006, along with the two gigantic UNE-P based providers (MCI and AT&T). Just because AT&T, MCI and CLECs don't advertise their local service doesn't mean that they will shut off their present UNE-P and resale customers. Bottom line: Come March 2006 you will see a surge in voice revenues for the ILECs with virtually no new investment. Will the competition (cable and mobile wireless) get a share of the abandoned subscribers? Yes, but a small share. But all boats will rise when the subscriber flood (former UNE-P-based customers) comes in.
But what about the VoIP over DSL subscribers, who are projected to be over 1 million by year's end? This won't last, either, because those subscribers will be converting to ILEC, cable and mobile wireless service. VoIP over someone else's broadband is not a sustainable business model in the residential area. There are small niches (MDUs) and the SME market. Todays VoIP over broadband providers will eventually have to comply with E-911, CALEA, taxes, access charges, USF and so on, and this will kill voice margins, not to mention the cost of keeping upthe expensive marketing campaigns. Bottom line: There is no way to turn a profit in either the short term or long term. Yes, you could stop advertising and ride it out until your customers leave, but that is not a sustainable business model.
Cable and Voice
No other industry segment can benefit more by moving into voice than cable. First, the cost of market entry and the expensive two-way cable plant (hybrid fiber/coax) has been built, and the telco infrastructure can be outsourced. Second, a flood of 18 million CLEC, UNE-P-based customers is up for grabs.
And lastly, adding voice to a cable operator's service offerings reduces churn. According to Bernstein Research (May 2005), cable companies that offer VoIP (Cablevision, Time Warner and Cox) gained 90,000 subscribers last quarter, and cable companies that don't sell VoIP (Adelphi, Charter and Mediacom Insight) lost 44,000 subscribers. Voice is a churn killer!
Mobile Wireless and Voice
Again, the trade shows and trade magazines hype up mobile Internet access, content delivery and mobile TV. In reality, data and content services today generate only a measly 4 percent of mobile wireless providers' revenue. Yes, there are also services like ring tones—but why would you pay for a ring tone if you didn't want to talk, or at least screen your calls?
OK, what about new mobile wireless content opportunities? Yes, there are some, but content is the sizzle and voice is the steak.
For example, MVNOs: These guys have a great marketing program, like Virgin Mobile, which resells Sprint voice service to the teen pre-pay market. But the new MVNOs that promise content may be in for a challenge. In this arena there are two sure winning segments that can create customers who will actually pay for their content: One is sports (say, ESPN), and the second is pornography. The sizzle (sports or porn) may land the customers, but voice will generate the revenue.
CLECs and Voice
Other than some niche residential markets, the only market a CLEC has a chance with going forward is the enterprise space. Here again, voice service stars and is becoming the differentiating product among service providers. In the past, corporate voice service based on circuit switching CPE and TDM network services was simple, and data services (frame relay, private lines, ATM and the like) were complex. Today, as service providers move to an all-IP platform (IP-VPN), VoIP is complex and is the differentiator, whereas data (which is IP packets) is relatively simple and has become a commodity service.
ISPs and Voice
Even ISPs are differentiating themselves by offering voice. In April, AOL moved into the VoIP over broadband market with a bundled voice and IM product. In May, both Yahoo and Google announced a voice/IM product and VoIP service provider and VoIP service provider acquisition as well.
New Technologies: Session Initiation Protocol (SIP)
SIP is a signaling protocol that can support voice, data or video simultaneously; connect, disconnect or add on users to a session; and more. The No. 1 selling SIP device is an adapter that plugs into a phone on one side and a cable or DSL modem on the other to enable voice calls over broadband. If it weren't for VoIP, no application developer or service provider would likely consider or have interest in SIP.
Session Border Controllers (SBCs)
Among the hottest new products out on the market today are SBCs. Again, they are needed to support VoIP, particularly in the enterprise environment. SBCs prevent denial of service attacks on VoIP phones, block network access (a network busy signal), support lawful intercept and much more. Without VoIP, you wouldn't need SBCs.
IP Multimedia Subsystems (IMS)
Again, IMS is a hot network architecture; and again, it's driven by VoIP. First, what is IMS and why do you need it? IMS, in reality, is the next-generation VoIP switch architecture and service delivery platform that unbundles the features in today's softswitches (it creates subsystems) and supports multimedia services (video, wireless, push-to-talk and so on). IMS is needed because the current generations of softswitches use proprietary software that cannot exploit other vendor's subsystems and can't support multimedia applications. IMS has its roots in 3G wireless, because current softswitches can't address mobile subsystems, such as home and visiting location registers, and more.
That's the good news. You as a service provider can survive with voice as your lead service, using the technologies discussed above. The bad news is that new voice technology (VoIP) must be supported by a new generation of OSS/BSS.
If you need the latest on OSS/BSS strategies and products to support next-generation voice services, plan on attending TeleStrategies' VoIP World November 1–3, 2005, in Washington, D.C. For a complete agenda and list of exhibiting companies, go to www.telestrategies.com.
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