Telephony companies have traditionally made their money from carrying voice calls. The cost to the caller, particularly from long-distance calls, was substantial.
This was because it reflected the cost of building and managing a network infrastructure and connecting with other companies to create international coverage.
Notwithstanding the monopoly-busting deregulation of voice markets in the mid to late 1990s, large national telephony companies still dominate voice markets and voice revenues (driven by call duration and distance) remain a key component of the sales mix.
Cue the entrance of funky new internet companies such as Skype and Vonage and the VoIP offerings of big internet companies such as Google, Yahoo and Microsoft. They present VoIP as a disruptive technology that will overhaul the business models of the incumbent telephony dinosaurs.
These companies have no existing voice business to cannibalise, no infrastructure costs to recoup, are adept at marketing to internet users and can offer national and international voice calls for free, or at extremely low costs. All of which explains the mounting cacophony surrounding the imagined death of traditional telephony companies.
The reasoning that underpins this contention is, however, spurious. Telephony companies have been operating in an increasingly competitive environment since deregulation, and the margins on their voice businesses have been remorselessly squeezed as a consequence.
VoIP technology will inevitably stimulate further competition in the voice market and accelerate the tightening of margins. However, shrewd companies have been aggressively diversifying their overall offerings away from voice revenues for a number of years.
The communications market is now far broader than merely fixed voice, a market segment that is indisputably in decline. Once mobile voice, data access, managed network services and content provision are added to the mix, the market no longer appears to be in terminal decline but is both far larger and growing at a healthy clip.
Communications requirements for professional and personal purposes is spiralling. People both need to be contactable and to process information, whether that means remote workers getting sales figures from head office or residential broadband subscribers sending holiday snaps to friends.
Network access is consequently key to consumers and home users alike, all of whom are now spending healthy sums for non-voice services such as e-mail, internet access, data storage and backup.
Other services are also emerging that will place further demands on consumer wallets (video on demand and online games) and corporate budgets (video-conferencing and enterprise applications).
As dependency on the network and the services that flow over it grows, innovative communications companies that see opportunities rather than threats are strengthened. They have large networks, strong brand names, scale, credibility and large customer bases.
So, before armchair market pundits mourn the demise of BT, they should listen to Ben Verwaayen, chief executive of BT, talking about how his business should be seen as a global IT services company that manages the data networks of its large corporate clients, provides outsourced services such as remote desktop support to its small and medium enterprise clients and serves video content through broadband lines to its retail customers. Traditional telephony now accounts for only 15 per cent of BT’s total revenues.
There is an illuminating example of the seemingly destructive, but ultimately beneficent, power of the pervasive network in another market. Look at the surging growth in online revenues at the leading record labels, until recently complaining about piracy and intellectual property protection and trying to sue students who used file-sharing to swap music.
In the networked, broadband world of the near future, voice will simply be reduced to packets of data to be served, alongside myriad other packets containing video, text, music or spreadsheets, to and from connected users.
There is no intrinsic commercial value to the content (your voice is not a Hollywood blockbuster) and the technology required to enable VoIP services is increasingly standard and inexpensive.
VoIP will simply be a standard application in an integrated communications bundle.
The critical issues for the corporate customer will be the coverage and integrity of the network, the security of the data, the prioritisation of applications.
Consumers, on the other hand, want more bandwidth at lower cost, whether at home or while mobile, and more interesting content.
Voice was formerly the lifeblood of the telecoms industry, but leading communications companies that capitalise on the opportunities offered by the IP-networked world will be far too busy making money from the provision of network access and value-added services to worry much about sweeping up the crumbs offered by VoIP.
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