Businesses that flock to hosted solutions are playing the telecom shell game by investing less in CAPEX and taking on a higher hit on OPEX. Still, it makes some sense for small businesses because their cash flows are tight, and often trend negative. The 3% churn rate of hosted voice customers is reportedly tolerable for the providers. Providers push for new signups to add to their subscriber base and to them, cash is flowing in easily, while half of attrition is due to customers that simply go out of business. I mentioned before that hosted voice is very lucrative and it is, so long as you keep the subscribers coming.
Independent hosted providers today and in the foreseeable future will be merging, purging and dropping like flies because of inconsistency, lack of presence, scalability and the ability or inability to compete against dominant carriers. My buddy insisted on going hosted for his office and he had his mind set on buying Cisco phones. He wasn't even cut over a week and his provider was bought by a competitor.
But my primary argument of merging, purging and dropping like flies only holds up if the Tier I carriers have any interest in competing. Demand for memory, storage, processing power, speed and bandwidth keeps increasing, and the carriers will still win big even if they do avoid or ignore the hosted voice market.
The future could be another migratory flock of businesses moving back to dominant carriers such as CenturyLink. Over the years, CenturyLink continues to be slightly ahead of the curve and ahead of the pack--and as Lisa Pierce recently reported, CenturyLink is positioned for growth through cloud services. I think CenturyLink will grow their base revenue but I am not convinced they will grow their customer base. But what about the other dominate carriers?
Verizon still hasn't provided any desirable SMB VoIP solution for FIOS and is too eager to hold on to legacy PRIs and T1s. The WSJ reported in, Verizon Calls Up New CEO, that Mr. McAdam (New CEO) said,
"To be successful, he will have to prevent the telecom giant from becoming a 'dumb pipe,' or a mere provider of connectivity that does not benefit from all of the value being generated by customers using its networks."
Verizon has squandered any opportunity in the SMB space. Verizon isn't a company that befriends itself to SMB thinking and if anything, Verizon alienates customers. The WSJ reported that in 2006, Verizon landline revenues (before EBITDA) declined $4.8B from $14B in 2006 to $9.2B in 2010.
AT&T is I think, slow starting up in the hosted space and appears to just be making a token appearance. I spent hours with a customer hanging on the line, trying to get useable information about AT&T's services and couldn’t even get a price, let alone someone with technical knowledge to discuss their VoIP offerings. The experience reminded me of going into a store that's having a grand opening sale, but forgot to train their employees and to adequately stock their shelves.
Still, as Tier I carriers appear tone deaf to the market demands, some CLECs will adamantly not sell a T1 for SIP trunks for traffic destined outside their domain. Then, the same carriers want to behave like a "phone company" and insist they don’t want their "transport" to be blemished by negative customer experiences. My customer put her representative in touch with me and the rep's T1 price at just $200 is very competitive. Then I asked about SIP and using the T1 as a transport to another provider. They will only offer a closed solution or no solution at all.
Independent hosted providers may come and go, but their future is perilous with threats from looming dominant carriers by way of regulatory bullying. AT&T, CenturyLink and Verizon each want the FCC to impose a fee on VoIP traffic. In short, instead of competing, the dominant carriers are resting their laurels on more FCC regulatory imposition. Hosted providers must integrate themselves with other cloud services to survive, and they must be able to capture significant market share. But this isn't all that faces these yet-to-be determined winners in the hosted voice space. They must have enough subscribers to have an influence in regulatory matters. Dominant carriers are enjoying their captive audiences, and without a significant disrupter to wireless traffic, I don't see a lot changing for the carriers other than their revenues becoming increasingly larger than their pipes.
No one I know wants to return to the old days of the Bell mentality and attitudes. As it is now, it seems to me that AT&T and Verizon are blatantly absent. The FCC is not even aligned with reality but they are fixed on reining in costs to achieve a political agenda. The existing hosted voice providers must include UC and integration to other cloud platforms. They must build value and not just add enough subscribers to pad their cash flow.
In my next post you may be surprised at my thinking of who stands to be a potential big winner in hosted voice. I'll clue you in early, they won’t need to become a phone company to do it. I think you’ll be surprised just as much as I am.
