Selling Enhanced IP by Not Leading with Voice

The voice sale has been a race to zero for some time, thanks to rabid competition and the rise of VoIP, which has allowed carriers to deliver voice for an ever-cheaper tariff because of the lower cost-per-bit profile that comes with packetization. And it used to be that pitching businesses was about saving money on voice, either via conversion to IP PBXs, SIP trunking or hosted VoIP long-distance bundles. The rest of the sale — data, video and the like — came after. But now, it looks like carriers are trying to flip that equation.

“The market [is moving to] a new era where voice, data and video are seamlessly integrated, which allows service providers to bring to market next-generation communication services to their customers," said Michael Tessler, CEO and president of VoIP application software company BroadSoft Inc.. BroadSoft recently partnered with Microsoft Corp. (MSFT) to create a hosted unified communications offering for carriers to take to end users, where voice is just one function out of many.

In fact, a historically accurate barometer — carrier spending — bears out the lessening importance of voice as a standalone offer. The Dell’Oro Group found that global sales of voice gear (be it Class 5 or softswitches) to service providers is in decline. IP voice equipment fell 8 percent year over year to $861 million in the second quarter of 2008. The drop from the first quarter of 2008 was an even worse 10 percent. Dell'Oro Vice President Greg Collins said carriers, whether RBOCs, CLECs, cable VoIP companies or other pure-play providers, are finding their voice business is shrinking, both in terms of overall subscriber numbers and ARPU.

So what are service providers to do to replace the shortfall? Insight Research found that even though voice, and specifically VoIP, will generate little revenue going forward, other IP-enabled communications services that go along with it will, in fact, become cash cows, generating more than $700 billion for cellular and landline phone companies worldwide over the next five years.

Robert Rosenberg, an analyst at Insight, noted in a brief that with free PC-based VoIP services offered by Skype, Yahoo!, Google and others, even carrier-class VoIP is likely to be heavily discounted when it is part of a bundle and that for all intents and purposes, it will be given away. But cellular carriers are likely to generate substantial revenue by offering location-based services and presence-based services, and both fixed line and wireless carriers will see substantial revenue gains from other enhanced IP-enabled services like video telephony, fixed-mobile convergence, file sharing and download services, and streaming services.

"These new IP-enabled services are the first tangible fruits of next-generation networking," said Rosenberg. “And while [the six IP services mentioned here] represent only 2.5 percent and 8.5 percent of global telecommunications services revenues forecasted in 2008 and 2013, respectively, they indicate the direction of future revenue growth as voice revenue declines.” He added that these six IP services together will generate about eight-and-a-half times that of basic VoIP services by 2013.