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Can Mitel and TDS Telecom Own the UCaaS Market?

UCaaS prices rose at an annual rate of 4.87% in the first half of 2019. It marks the sixth-consecutive year of increasing cloud prices, according to Eastern Management Group economists, and published in our report "Worldwide Hosted PBX Market 2019-2025."
Since 2013 UCaaS prices have risen 19%, while IP PBX (premises) prices and traditional PBX (premises) prices fell across all markets.
In the first half of 2019, UCaaS providers also stepped up their promotions, including special discounts and instant rebates, as they made greater use of these tools to grow end-user sales and recruit dealers and resellers.
Pricing Analysis
To determine UCaaS industry prices, Eastern Management Group uses a market basket index. The market basket -- or shopping basket -- consists of a fixed set of features. Quarterly, we have UCaaS vendors provide a price quote for the market basket. The methodology permits an apples-to-apples price comparison across many vendors. We analyze all the quotes with the help of models to determine price changes for the entire UCaaS industry.
2019 vendor market basket prices used in the index are in our hosted PBX report.
Without a standardized pricing approach such as this, price comparisons between vendors may be difficult. For example, what you find on the Internet when investigating competitors’ prices isn’t a street price, nor is it a price that may be used to compare vendor A’s products and prices to those of vendors B, C, and D. Internet prices for UCaaS are a come-on; they exist to attract customers -- to whet the appetite. But they’re of limited value other than to establish a vendor’s brand. The following are some examples taken from the Internet: AT&T’s “Office @ Hand Standard Edition for $20.00/month per-user” isn’t identical to RingCentral’s “Essentials at $19.99/ month per-user,” or Nextiva’s “Basic at $20/ month per-user.” All these prices fail our market basket test because they aren’t apples-to-apples and can’t be compared.
Promotions Analysis
UCaaS is a less mature communications industry than, say, switching and routing, which have long been dominated by companies like Cisco and Hewlett-Packard Enterprise. These established providers use sophisticated promotions to add customers and resellers. They find success with front- and back-end rebates, special offers, allowances, deal registration, and SPIFFs to drive sales. Companies average eight simultaneous promotions, changing the offers monthly or quarterly to grow sales for the quarter and year. That’s not the case today for UCaaS, but it will become the norm.
Rich promotional tools are new to UCaaS, but not so to Mitel, an experienced PBX company, which turned up some UCaaS promotions in the first half of 2019, leaving competitors to catch up.
For many UCaaS providers, we expect promotions will increase in numbers, sophistication, and frequency, especially as more traditional PBX vendors offer UCaaS and other products like hybrid cloud and server virtualization.
In the first half of 2019, Mitel offered among the lowest street prices of any premier UCaaS provider based on our market basket research. Among major competitors, Mitel prices were lower than RingCentral and 8x8 (pure UCaaS providers); Intrado, formerly West (a reseller); and Comcast (a cable provider), for example.
During this period, we found Mitel promotions to be meatier and more likely to drive transactions than competitors we examined. Here are different vendor examples:
  • Mitel New Customer Promotion -- 1 Premier License per user, 1 MiVoice 6910 phone per user, 10 MiCloud Connect contact center licenses, free SFDC plugin, free Jumpstart, free on-demand call recording
  • 8x8 New Customer Promotion -- Free phone
  • RingCentral New Customer Promotion -- Free trial and savings up to 33% for an annual payment
TDS Telecom
Many small and mid-market businesses want to buy their UCaaS from a telco. These buyers may lack IT departments -- companies with fewer than 300 employees are in this boat -- and buying UCaaS from a well-known phone company saves the time of picking a UCaaS vendor from a host of unfamiliar names.
We have extensively researched tier-1 carriers AT&T and Verizon, and whether these carriers have an SMB UCaaS market strategy and underlying business operations is unclear to us; although each one carries UCaaS.
AT&T has been into and out of and back into selling a white label version of a RingCentral UCaaS. Verizon has low prices, but we found shopping for Verizon hard. Based on our research neither company has discernable promotions.
This is the anthesis of TDS.
Fifty-year-old TDS ($5.1 billion annual operating revenue and seventh-largest local exchange carrier) may be in a position to take away a significant share of the UCaaS market opportunity from the tier-1 providers. TDS' strong financials, privately owned backbone network, mobile business (U.S. Cellular), and hybrid IT solutions (OneNeck IT Solutions) challenge the tier-1 carriers’ commitment to the UCaaS business.
TDS Telecom’s UCaaS street prices are somewhat higher than Mitel’s, but this is expected for a telco that must carry an extensive infrastructure, regulatory expenses, and a broad portfolio.
Going Forward
There is no evidence UCaaS prices will stabilize or decline, even in light of a growing number of competitors; based on our analysis prices will assuredly rise.
Promotions will increase in the coming quarters. Other than Mitel, many vendors have no substantial promotions or experience to build on… yet. We think Mitel and TDS Telecom offer significant opportunities for customers and partners while others catch up.
The research used in this post comes from the following Eastern Management Group sources: "Worldwide Hosted PBX Market 2019-2025." and "2018 PBX Customer Satisfaction Report." For more information, please contact our analyst team or John Malone directly at 212-738-9402 Ext. 2201 or [email protected].