Price continues to be main component of marketing strategy for VoIP players

Voice over IP service providers, whether cable companies or independent players, continue to focus on price as the main component of their VoIP marketing strategies, according to one telecom analyst. Jeff Fan, director, equity research analyst, telecom and media for UBS Securities Canada Inc., says the move by cablecos and telcos to use bundles as a key marketing tool has turned the VoIP fight into one based almost solely on price. His comments were made during an analysts’ roundtable last week at the VON Canada conference in Toronto. Despite all the talk of the capabilities that VoIP can offer such as unified messaging, find-me follow-me, and others, IP telephony providers continue to focus on cheap telephone service. One need only scan rates from some of the providers in the market: Vidéotron ltée’s offers service at $15.95 per month, plus $9 per month for a five-service package of calling features and a $2.95 long distance plan. Vonage Canada’s unlimited offering runs at $39.95 per month. Primus Telecommunications Canada Inc. recently lowered its rates when the customer buys the $99 gateway. The company’s unlimited plan is $29.95 per month. This focus on price has set the table well for the cablecos and will make it difficult for some of the smaller firms to compete effectively. Fan says the cable companies have the greatest potential upside in such a market and that "you’re going to see some casualties." In an interview with Network Letter after the session, Fan says the casualties won’t necessarily be outright company failures, but that those with grandiose aspirations could very well end up being niche players. He adds that the ILECs could be casualties in the sense that they will lose market share. Some of the other VoIP providers have shifted gears in their marketing approach to focus on features and capabilities that IP telephony brings to the consumer. Fan says that, generally speaking, the average consumer doesn’t know what features they use. In the U.S., "people are not paying for features, they’re just paying for cheaper voice. It surprises me that they are focusing on something the customer doesn’t understand and doesn’t really care about. What they care about is price," he says. Ron Gruia, program leader of enterprise solutions at Frost & Sullivan, fears that the telcos and the cablecos will eventually settle into a comfortable oligopoly. "Competition between the MSOs (cable operators) and the ILECs is going to help (consumers) out, but only to a certain degree…The dynamics there are equal to the dynamics of an oligopoly, so prices will only drop so much," he says. It will take the emergence of a major third player, a broadband wireless play perhaps, before the consumer starts to reap the rewards of VoIP, he adds. The cableco advantageThe metrics for a cable telephony offering are pretty compelling as they have invested relatively little money, compared to the incumbent telephone companies, in preparing to offer voice over cable plant. Estimates pegged the Rogers Cable investment at less than $100 million. Despite the propensity to compete on price, at least for the time being, don’t expect the cablecos to offer a service at a loss simply to steal market share away from the incumbent telcos, says Fan. "I wouldn’t categorize this as a loss leader, but it will look like startup operations in the near term." He expects that Rogers, Vidéotron and Shaw Cablesystems to become cash flow break even on their voice operations around 2007/2008, and that once the cablecos hit the 10% penetration level they begin to make a profit on voice subscribers. Offering voice services also serves to help the cablecos maximize their network infrastructure investments. Fan says that cable providers only serve about 70% of the homes their plant passes, so in essence 30% of the network is wasted investment. But voice gives the cable operator the opportunity to not only recoup investment, but, in fact, grow its subscriber base. Fighting for control of the broadband home With the introduction of the bundle, it has become increasingly clear that the next battleground is for the ownership of the broadband home. Both cablecos and telcos have compelling offers to entice homeowners, but as it stands now, cable TV providers have the clear upper hand, according to Fan. "It goes back to who has the ability to deliver everything to the broadband home. The cable companies have that advantage today," says Fan. "Not that it will be a hands-down victory for them because it could get pretty ugly (between the cablecos and the telcos) and I think the only winners could be the consumers." Network Letter will have more from the VON Canada conference in an upcoming issue.

Price continues to be main component of marketing strategy for VoIP players

News | 04/26/2005 4:00 am EDT

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