I have covered the cloud communications space for two decades and, throughout this time, business models and value propositions have evolved dramatically. Market power has shifted many times across vendors and service providers as various factors, including innovation velocity, strategy ingenuity, and pocket depth, pushed certain participants to the top of the ladder, only to favor others a few months or years later.
Telcos and communications service providers (CSPs) dominated the early hosted IP telephony and UCaaS market. Capitalizing on the power of their networks, customer bases, and highly symbiotic relationships with hosted IP telephony pioneers such as BroadSoft and Metaswitch, telecom operators were the first to launch PBX-replacement services that provided a robust feature set and the service reliability most businesses expect. However, as Internet access became faster, more reliable, and nearly ubiquitous in many countries around the world, nimble and innovative over-the-top UCaaS providers using their own proprietary platforms gained traction and visibility, challenging telco supremacy in the cloud communications space.
Recently, a new challenge has emerged. The symbiotic relationships between telcos and their technology developers are being tested, with dominant developers such as BroadSoft and Metaswitch being acquired by Cisco and Microsoft, respectively (see my recent story, “
Microsoft & Metaswitch: What’s Next for Enterprises, Operators?”). Faced with agile competitors on one side and the need to reassess strained developer relationships on the other, many in the telco community are questioning what their future in the market looks like.
A Seismic Transformation in the Business Communications Market
To date, technological and business model evolution in the UCaaS market has been mostly incremental; most providers continue to lead with voice (cloud PBX) services and typically use advanced collaboration tools to differentiate and appeal to the most demanding and savvy users. For decades, the telephone number used to be the core of a business’s or a user’s communications identity. However, today, we are on the verge of a more profound transformation. The shift to Internet-based communications has resulted in email addresses and online user profiles taking a more prominent role as identifiers than the telephone number. New software-based tools also offer a variety of additional benefits, including richer collaboration, presence awareness, and more flexible access to services from any connected device. As a result of this trend, the importance of public switched telephone network (PSTN) access and the traditional PBX feature set — call park, call forward, extension dialing, shared line appearances, and others — is rapidly diminishing. In fact, many businesses are reassessing the need to assign direct inward-dial (DID) numbers to certain employee roles.
Yet, the truly disruptive impact of software-based tools on the telecom space is still to be seen. A new competitive front is forming as certain vendors aim to take their platforms much beyond communications and collaboration and turn them into more comprehensive productivity hubs. Microsoft is leading the charge with Teams; however, others — e.g., Google with Workspace, Salesforce with Customer 360, and Zoho with One — are also aspiring to become the productivity hub for office workers, contact center agents, and even front-line workers.
The potential to build additional functionalities into the same software platform is unlimited, as
Microsoft’s launch of Viva, an employee experience platform, clearly demonstrates. In adding new employee experience management capabilities to its already-rich 365 portfolio, Microsoft is looking to fully own modern workers’ productivity toolset and dominate the enterprise software environment. This is likely to mark the beginning of a new era in business software whereby communications will become just one of many building blocks in a much bigger whole.
The new trends will favor technology companies with strong expertise in a variety of business software tools. So where does this leave the telecom operators and other UCaaS resellers? How can they position for success as the market rapidly evolves?
The Importance of the Telco Channel in Reaching UCaaS Buyers
You must not underestimate the power of telecom operators and CSPs and the value they bring to UCaaS deployments. Frost & Sullivan’s survey shows that 50% of digital technology buyers purchase their solutions from telcos, among other parties. Brand power, network ownership, vast geographic reach, and existing customer contracts make telcos both formidable competitors and highly desirable partners in the UCaaS market.
Recently, over-the-top UCaaS providers have placed a renewed focus on the telco channel. This is happening as UCaaS providers such as 8x8, Dialpad, Fuze, Intermedia, NFON, and RingCentral, which have historically relied on direct sales or agents, value-added resellers (VARs), and managed services providers (MSPs), pursue telcos as a new route to market. Though generally more nimble and innovative than telcos, next-gen UCaaS providers lack the resources, market reach, broader expertise, and brand power that telcos possess. For many next-gen UCaaS providers, the telco channel offers opportunities to expand geographically; integrate and bundle UCaaS with other telco services; tap into new customer segments; and better address the need for extensive implementation, integration, and managed services in more complex enterprise environments. This new type of partnership between next-gen UCaaS providers and telcos is posing a competitive threat to the more traditional telco partners such as BroadSoft/Cisco, Metaswitch (now part of Microsoft), NetSapiens (now part of Crexendo), and Enreach, but is providing more bargaining power to telcos.
As the war for global domination heats up, over-the-top UCaaS providers will increasingly seek to partner with telcos, which will determine competitive power in the UCaaS market.
There are at least two different models in which UCaaS providers are seeking to partner with telecom operators: bring-your-own-carrier (BYOC) strategies and resale partnerships.
Bring Your Own Carrier
UCaaS providers leveraging the BYOC model typically seek to:
- quickly tap into new countries where they do not own phone numbers
- move businesses to UCaaS before their existing connectivity contracts expire
- attract businesses that prefer to use SIP trunking providers and/or calling plans of their choice
- support businesses that require hybrid deployments or are not fully committed to moving communications to the cloud
Resale Partnerships
An increasing number of next-gen UCaaS providers and technology developers-turned-UCaaS providers are seeking deeper relationships with telecom operators. These new partnerships go beyond plain-vanilla connectivity and include a variety of UCaaS resale arrangements, as well as IP multimedia subsystem (IMS) integration services, with the objective of finding new ways for the over-the-top UCaaS providers to scale across geographies and customer segments and leverage the telcos’ robust salesforces, reseller channels, mobile networks, and other capabilities to accelerate growth. Telcos, on the other hand, are looking to fill gaps in their portfolios, including advanced collaboration, contact center, mobile UCaaS, and composable user experiences.
RingCentral’s partnerships with AT&T, BT, TELUS, Horizon, and Vodafone are already delivering considerable benefits for both RingCentral and the telcos. With Webex, Cisco is gaining traction among telecom operators — both new Cisco partners and those deploying BroadWorks and HCS platforms. The wholesale model has also worked well for Alianza and is bearing fruit for 8x8. This model is likely to become even more popular in the future as both sides — telcos and their partners — evaluate their options in a fiercely competitive market.
To succeed in the telco channel, technology partners and UCaaS providers must be able to address key requirements:
- Sustainable profitability
- Innovation velocity
- Rapid service provisioning
- Ability to fill existing portfolio gaps (e.g., mobile UCaaS, contact center) or address new customer segments (e.g., micro-businesses, multinational corporations )
- Feature modularity and flexible packaging and pricing
- Geographic reach and ability to deliver services globally
- White-label or co-branding programs allowing telcos to boost their brand equity
- Ability for the telco to influence the technology roadmap and co-innovate with the technology vendor
- E-commerce and digital customer journey capabilities
- Ability to customize solutions to address vertical or customer-specific requirements via flexible APIs and programmability
- Migration programs for the provider’s legacy Centrex, analog line (POTS), and digital circuit (PRI) customers
Final Thoughts
No doubt, the business communications space is evolving faster than ever and we are likely to witness both evolutionary and disruptive trends mold future user experiences. Regardless of how future cloud communications services are designed and delivered, they will inevitably require robust connectivity, which will place telecom operators in a favorable position. Mobile connectivity and 5G networks, in particular, will play a key role in how businesses consume and leverage communications and IT to enable new digital workflows and broad business transformation. This trend will give great power to mobile operators and their partners.
It is also certain that competition in business communications, in general, and UCaaS, in particular, will intensify further and providers of various backgrounds will need to engage in healthy co-opetition to ride the immense transformation waves that will rock the market in the next few years. As partners and resellers, telcos will serve an important role in determining other UCaaS providers’ success. Telecom operators are likely to exercise great caution when selecting their partners to ensure that they are well prepared for the next phase of market evolution. Over-the-top UCaaS providers seeking telco partnerships will need to carefully assess gaps in telco portfolios that they can fill, as well as other telco requirements that need to be met, to succeed in the telco channel and get ahead of competitors.
