The threats to telco IP voice revenue

Everyone in the IT industry understands (or should) that it is constantly evolving and traditional revenue models are therefore constantly at risk. In this post I look at IP voice, or VOIP, and look at how this segment is changing.

As it stands today, a very significant portion of DTS’s revenue is derived from the calls clients make using our Verse IP telephony service, but I am trying hard to understand how many more years this income stream has left to run.

Analogue phone services are almost finished dying. The number of businesses still using the old copper phones lines is getting smaller by the day.

Most of the businesses moving away from analogue services have moved to VOIP (also called IP voice or SIP) in one of two forms:

  1. SIP lines connecting to a physical PABX on site
  2. Hosted cloud based PABXsidebar_verse

In either form, there are typically charges for the lines or extensions, and charges for each call minute used.

There is also the increasing use of Skype for Business (formally Lync).

My concern is the that the move from analogue services to IP voice services is only the first stage of a continuing series of moves away from phone services as we have known them.

Do we really need a desk phone?

The use of a desk phone is as much about the feel we are used to than anything else.

We can use soft phones (browser based phones) or just have all calls made/received using applications on our mobile phones. All DTS’s intra-company communication is handled using Skype, so why can’t external communication be handled in the same way? It can of course, but people take a while to change behaviours.

Get in touch…but not by phone

Banks, insurance companies, vendors of all sorts, are trying to get you to email, use online chat, use social media – virtually anything other than call.

Artificial intelligence can be used to automate answers when online chat or social media is used, which drives down costs. People in seats can be idle, or overworked, but either way, cost a lot more over time.

Customers have to dig deeper and deeper on most companies’ websites to find a phone number to ring nowadays.

This trend is particularly concerning as the head of a telco business, because tollfree inbound revenue is a solid earner.

Third party smarts, flat rate calling

We are currently in a period where large SaaS vendors are starting to provide a larger portion of the functionality that was once provided by PABX’s. Skype for Business is a prime example, and the requirement for DTS to provide SIP lines/channels for clients using this application is growing. This keeps calling revenue with the telco, but removes a lot of the fixed monthly revenue that was previously derived from hosted PABX charges.

Unlimited data and unlimited calling?

95% of our clients are now on unlimited data plans, and while a significant quantity of voice clients are on bundles of one sort or another, none of them are unlimited calling plans.

ISP’s buy bandwidth, essentially pipes, to provide upstream internet access to their clients. This means that selling individual users internet access in that same manner is not problematic.

Voice is universally sold at a wholesale level on a p/minute cost basis, therefore to sell to retail clients on an unlimited basis leaves the retailer open to incur costs that exceed their own charges. We have seen the emergence of some offers of unlimited calling from vendors such as Vodafone on a p/user basis, but the reality is that these often inflate prices for SME’s, not reduce them.

In Australia we have seen retailers go out of business by pursuing un unlimited pricing strategy in advance of the required equivalent change at the wholesale level.

Calls will continue to be charged on a p/minute basis unless there is a tectonic shift in the way wholesale vendors price their services. If they move to a p/line charge which includes unlimited calling, the retail market will follow.

Don’t need fixed voice, mobile does the trick

To a certain extent this is true, but will depend on the calling patterns of the users. Intra-company calling is often free on mobile plans, as it is with IP voice, but if a high volume of inbound tollfree calls exist, or there is a large number of outbound calls made to third parties, this option can get expensive in comparison to fixed IP voice services.

To wrap this up

I give the current voice revenue model five more years in its current form, and that is probably generous. Between now and then, voice will become part of a flat rate package, but unlike today’s options, it will scale well.

Inbound call revenue to tollfree numbers will drop as customer interaction models change, and the trick will be to incorporate a customer facing interactive tool into our offering.

Margins will fade (what’s new?) and will need to be offset by scale and an increase in the number of services sold to each user.

Brendan Ritchie

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