voice services

Verizon’s new telco model: Traditional voice doesn’t matter

Verizon made official what we’ve been saying for a year or more; wireline voice doesn’t matter. Verizon CEO Ivan Sidenberg told an investor conference that he was no longer worried about wireline voice losses because video and fiber were the future.

He’s right of course. Voice service pricing cannot be protected in a world where more and more users are on broadband. He’s also right that video has a better forward revenue stream by far, and that fiber plant is considerably more valuable than copper plant. Thus, Verizon may be the first of the world’s major carriers to face the future squarely, which will be interesting because we’ll have a close look at how the process goes.

We expect the speech to be an indicator of a major shift by Verizon in 2010, a shift to exploit VoIP and mobile more than it has. It may be, in fact, that the real transition or “convergence” of networks is just starting. We don’t expect this to ring vendor cash registers, however, because it has to be timed to roll out without excessive first cost. We see a revenue-driven shift that would focus on FiOS deployment and would then use FMC and LTE to draw users into a new model.

Related article: Next-gen voice services create carrier opportunities

Verizon’s Q2 earnings indicate difficult voice migration

Verizon reported earnings and the results were in some ways alarming. The company’s net income fell 21%. Neglecting the Alltel acquisition, revenues grew less than 2%, about a third of prior-year levels. While wireless and FiOS were strong, Verizon (like AT&T) saw business and wireline revenues decline.

The announcement that the company will cut another 8,000 jobs will hearten Wall Street, and many attribute this to prudent response to revenue decline, but we think it’s really something different. Like all wireline/wireless providers, Verizon is finding it attractive to transition its wireline voice customers to either a wireline package like FiOS that creates ARPU, or to wireless. In the case of wireless, the result is a reduction in operations costs, since wireless has no “installation” or outside plant maintenance on a per-customer basis.

In short, Verizon and other operators are now looking at getting out of the wireline voice business, at least in the sense that they’re actively hoping to migrate any voice user to something more profitable.

BT sends signal on future voice services

A securities analyst has reported that BT may be slow-rolling 21CN and may in particular be rethinking its notion of migrating from TDM/PSTN voice to VoIP, at least in the near term. The information came out as it related to the impact that a VoIP cutback might have on Sonus. Obviously it could be significant.

What could be more significant is why this might happen. On one hand, the TDM plant is more depreciated than ever, and so barriers to replacement are falling. Yet there’s nothing as cheap as something you own that has no residual value to write off against your top line. Balanced against this is that operating costs for aging equipment typically grow. So at some point, you must assume BT would have to change.

The most logical starting point here is that it makes no sense to do something that involves TDM-to-IP conversion; you are forced to invest in the gateways. But if you have any TDM circuits, you can’t avoid that. Thus, we think that the likely issue here is a migration to packet voice for wireline and wireless, eliminating circuit technology in one sweep.

That would imply, in our view, that BT might synchronize three things before moving forward: 4G/LTE, FMC/femtocells and wireline migration to VoIP in some form. The question is what form. There are indicators that a P2P voice model, or at any rate something other than a SIP model, might be cheaper to deploy. Given Skype would likely offer voice services on any OTT-ready smartphone and over all home broadband, it makes no sense to spend a lot on your own voice program; you will have to match the Skype price or lose.