Earthlink’s first muni WiFi network made news when it was launched in Anaheim, California, last week, but Earthlink’s VoIP VP Steve Howe, revealed some interesting news to me in a conversation this week. He says Earthlink plans to start selling WiFi-only phones starting in the fourth quarter of this year. The phones will work over Earthlink’s WiFi networks, and will have a voice plan somewhere between $10 to $25. Users have to pay extra for a data plan. That’s in contrast to the dual cellular-WiFi phones that the company plans to sell with its MVNO Helio, estimated to launch in the beginning of 2007.
Steve says Earthlink has narrowed down the WiFi phone search to two manufacturers, though declined to name which ones. (If you know which ones, or feel like speculating, add your comments.) He says over the past few days the company has been testing Earthlink’s WiFi phones over the company’s Anaheim network and that they’re working well up to 40 miles per hour.
Other companies have been offering WiFi-only phones for some time. Skype and Netgear have a WiFi phone, as does Vonage with UTStarcom. But Earthlink’s voice over WiFi could give a significant boost to these services going mainstream. The service could also boost the demand for Earthlink’s WiFi services, primarily because of the voice-data bundle. Earthlink will have to keep the prices low enough to attract mainstream users. High prices of cellular data services have been the main hindrance to mainstream adoption of such services thus far.
Still, there remain significant hurdles to Earthlink’s WiFi phone plan. Right now the phones are expensive. Steve says Earthlink will have to subsidize the phones for a good while, to push the industry standard below its current hundreds of dollars range. But “this business will get really interesting when the phones get down to the $40 range,” he says. Will this become another drain on Earthlink’s cash reserves? The company is spending like crazy on its municipal wireless projects.
Then there’s the basic risk of the citywide wireless deployments, and the big question: Will networks be able to attract enough subscribers to make enough money! There’s been fair enough discussion over that in recent days, and I wrote about this with an interview with Gary Betty earlier this year. It could happen, but given that the networks are so new, it’s entirely unproven.
Earthlink is also assuming that the price of WiFi phones will come down significantly, which will only happen if they become popular enough to support an economy of scale and a resulting price drop. That’s a more risky proposition and some speculate that WiFi-only phones are only transitional devices on the way to dual-cellular phones. With the Helio dual mode plan, the company can hedge its bet somewhat on the WiFi vs cellular debate.
When I asked him if the company had come into any major fights with cellular providers over the upcoming WiFi phones and cheap voice over WiFi offering planned, he says, “They probably don’t stay awake at night over Earthlink. But maybe they should.†It’s a savvy PR move to act as the savior for disgruntled phone company defectors. The company opened an Earthlink store in Seattle last week, and is planning to open another store in downtown San Francisco at 1 Front Street next week to convince more pissed Bell customers to join them.
In an attempt to better convince all those digruntled phone company customers to sign up with Earthlink, the company plans to open an old fashioned brick and mortar retail outlet later this week in downtown San Francisco. The store, which will likely open Thursday or Friday says spokesperson Chris Morse, will be at 1 Front Street, and is intended to help those fed up with Bells and CableCos learn about Earthlink’s products.
For now its only going to be a test-run open for a month, to see if the company can successfully convert walk-ins. It’s smart to move slowly, given its got to cost a chunk of change to rent a high profile store front in dowtown SF even for a month. But maybe it’ll help the company on its more-than ambitious (some would say foolhardy) quest to sell new types of communications services. Last week the company opened a store in Seattle, and plans to followup in other markets where it sells VoIP landline service.
Two class action lawsuits have been filed against Vonage, alleging that the company filed a misleading S-1 with SEC. In a lawsuit, Lockridge Grindal Nauen alleges that “both the Company and Company insiders were losing money, and these insiders, desperate to execute an exit strategy for themselves, embarked on an illegal course of conduct to sell shares of the Company in a public market.”
The complaint also alleges that Vonage’s decision to pre-sell 13.5% of the Vonage IPO shares to customers is in violation of NASD Rule 2310. Pomerantz Haudek Block Grossman & Gross, in a class action suit filed last week, makes similar contention. Vonage stock is now trading at $8.59 a share, down from its IPO offering price of $17 a share.
Ericsson, the Stockholm-based mobile network company, said today that it would buy Netwise, a Swedish developer of Internet phone software, for 300 million kronor, or $42.3 million.
What do you guys make of this acquisition? Good, Bad and perhaps Why?
With all the attention focused on the Vonage’s initial public offering, it just might be the beginning of a steady and long line of VoIPOs (aka Voice over IP public offerings.) Acme Packet, a Burlington, Massachusetts has just filed its registration statement (S-1) with the Securities and Exchange Commission, indicating its desire to go public. Goldman Sachs, JP Morgan and CS First Boston are running the underwriters of this offering. Acme plans to raise $85 million from the public markets, and will list on the NASDAQ under the ticker symbol, APKT
Acme Packet, which started life in 2000 as Primary Networks, has raised about $45 million from Menlo Ventures, Cannan Partners, and Advanced Technology Partners. The company makes session border controllers (SBC), a key component of the new IP-based networks. The company had sales of around $36 million in 2005, and lost $35,000 for the year. SBC were developed to provide connections between various VoIP networks, but in recent times have mutated, and are now being used in many different ways. (Wikipedia has a great tutorial on SBCs.)
Which explains why Acme Packet is finding buyers amongst large mobile carriers such as Italtel, T-Com, KDDI and Vodafone Spain have started to buy from Acme in increasing numbers. Acme is also is a key supplier to Alcatel, which is using the technology in British Telecom’s 21CN Network. Acme Packet had sales of $19 million for the quarter ending March 31, 2006 and turned in a profit of $6 million. Impressive numbers, but on a more macro-level SBC-market is not that huge. Infonetics Research shows that global sales of session border controllers in 2005 was $86 million and expects them to grow to $613 million by 2009.
Our revenue growth may be constrained by our product concentration and lack of revenue diversification…Three customers accounted for 72% of our total revenue in 2003, three customers accounted for 39% of our total revenue in 2004, four customers accounted for 51% of our total revenue in 2005 and three customers accounted for 42% of our total revenue for the three months ended March 31, 2006.
It is a highly competitive market which is overcrowded to say the least. Netrake, Newport Networks and NexTone, Ditech Communications ( which acquired Jasomi,) and Juniper Networks, (through its acquisition of Kagoor) are some of the players in this space. Of course there is Sonus Networks. If you recall, during the last round of SBC consolidation, prices went south really fast.
Anyone who has been reading this blog, or many of the Vonage forums very well knows about the patchy nature of the Vonage VoIP service. If you have used it, you have experienced the issues with Vonage first hand. Perhaps that is why I was surprised to read that PC World had named them their VoIP service of 2006.
PC World says Vonage set-up is easy, which is pretty accurate. But then they praise their audio quality, and their support website, but I bet there is a lot of customers who disagree. One of the common refrains about the company has been its customer service. Regardless, I think the reason to use Vonage, if you have to is their softphone access, and using it as a back-up, especially when you are on the go.
There are so many ways to interpret today’s disappointing reception to Vonage’s big day, and you’d be pretty hard pressed to call it V-Day. I’ve been pretty busy sharing my take with the media and on my blog (http://blogs.pulver.com/jarnold/), and Om has been nice enough to give me this soapbox as a guest blogger here.
No need to rehash the numbers – the market’s appetite was tepid at best, closing below the targeted range of $16-$18. A lot of people have been calling this a flop, and maybe it is. I guess it all depends on your expectations and time horizons. The stock closed $2.15 below the $17 target, but who’s to say bargain hunters don’t bid the price up tomorrow after digesting today’s action?
Let’s look at the downside first. No doubt, the telcos and cablecos like the news, and maybe even the IM players. And the institutional money knows too much about the numbers behind Vonage, the harsh competitive environment, and little things like Datek. So, the “I told you so” from these players is well founded. And they’re all nodding in agreement saying Vonage is going IPO because no one has come along to acquire them yet, and this is the only way they can raise enough capital to stay in the game.
For those who really feel smug about things, it’s easy to add that their window has passed, and they should have done this last year before Skype got acquired, before the MSOs got serious about VoIP, and when they were still keeping the RBOCs up at night. AT&T is back stronger than ever now, and it’s payback time now for CallVantage. Maybe.
On the bright side, with 33.8 million shares trading hands, the gross take is still a half a billion dollars. That’s pretty much what Vonage has spent historically to date. Looking forward, there’s a full tank of gas, and at current marketing spend levels, this money can carry them for up to 1.5 years. If they can’t make a go of things by then, well, they never will.
So the table has been set. They’ve got their money, they’re closing in on 2 million subscribers, $400 million in revenues, and healthy gross margins of about $17 per subscriber. Putting the marketing costs aside for a moment, these are pretty good building blocks for a business that’s got a lot of upside ahead, a strong brand name and an insurmountable market position relative to other VoIP pure plays. Problem is, these guys aren’t their competition. Details, details.
With so few VoIP IPOs going, I for one thought that retail investors would have been all over this today. No doubt this is the biggest IPO in VoIP’s short history, and when investors were denied a chance to buy into the other mega-brand – Skype – you’d think they wouldn’t pass up a chance to get a piece of Vonage. For those of us who blog and/or work in the telecom/tech space, we’re too close to this, so it’s easy for us to see all the shortcomings. But investor emotion is an intangible that I thought would have more impact here in the retail market. This isn’t 2000, where IPOs had no revenues or customers. True – very few companies have yet to make money with VoIP – but at least Vonage has a real business with real customers.
Clearly, retail investors weren’t so in love with Vonage as Vonage would like to think. One reason could be the fact that existing subscribers were entitled to buy shares, so they were already in. Arguably, once you get past this fan base, maybe the rest of the market just isn’t that excited, and the support falls off from there, especially once you look under the hood, even a little bit. And after you discover Skype, and even AIM, you realize Vonage isn’t the only game in town, and maybe there are better places to hedge your bets on VoIP. Clearly, Vonage will need time to make this all work, and the IPO buys them that time. As I’ve been saying elsewhere, they need to do three things:
Reduce customer acquisition costs – they need to be aggressive, creative, and make much better use of viral and referral marketing.
Keep churn down – their only hope of long-term survival is customer retention – they need 5 years to fully amortize their acquisition costs to make good money on their subscribers, which is a very long time in VoIP years.
Increase ARPU – this is going to be very tough as prices continue to fall, and their options for bundling are limited. Wireless is where the money is, and they really need find ways to generate revenues here. They can gain incremental ARPU with premium features for landline VoIP, but that won’t be easy given how competing services keep giving away more and more features.
They could also try to become a consolidator and acquire other pure play VoIP providers, but I suspect it will be very difficult for them to hold on to all these subscribers, and then you’re starting all over again. Bad idea. Another option is to focus on the small business market, which can be attractive in terms of the upside for revenues and likely lower churn levels. They’re already doing some interesting things such as Office Anywhere, but to ramp this up, they may need to explore partnerships or acquisitions with companies who can give them a really strong value proposition. Examples could be Iotum for advanced call routing/presence management, or Diginiche for multimedia collaboration, or Voxlib for using voice recognition to bridge among all types of endpoints and platforms.
Failing that, where does Vonage go from here? Long term, they can’t win going head to head with the MSOs and RBOCs. They have to find their niche and be the best-damned VoIP pure play out there. As long as we still have a landline market, Vonage will have a place. PC-based telephony may be the norm for the Internet generation, but there’s a much bigger market out there. As Niklas Zennstrom says, everybody likes to talk. On the other hand, Vonage can’t sit still. If they can’t come up with a winning game plan quickly, an acquisition exit is probably their best option. All those customers have got to be worth something to somebody, most likely a cableco or an ISP who needs to extend their footprint in a hurry. Any guesses?
Jon Arnold is Principal of J Arnold & Associates, an independent telecom analyst and marketing consultancy with a focus on IP communications.
Vonage IPO post game analysis has begun, and there is a lot of interesting opinions out there. Mathew Ingram’s take is here. Andy has his take. I have Jon Arnold’s guest column coming up here, but more than anything, I just wanted to get your feedback and thoughts on the IPO. Take the poll!
Streamcast, makers of Morpheus have sued eBay, claiming that Skype is using their technology. Andy had this information way way back, but there have been some amendments to the suit. It all about squeezing out some dollars from eBay. Nothing more, nothing less.
Sequoia investments - Plaxo and Jajah are playing nice with each other. It will be more impressive if the two companies didn’t have “synergies.” Now Plaxo users can use Jajah and click to call those in their address books. (More on this later… too much going on today.)
Vonage, the company that introduced a haunting jingle and low cost voice calls over the Internet to the masses is all set to go public. The company is likely to start trading tomorrow, according to news reports, despite some last minute doubts about its long term viability. The plan is to sell 31.25 million shares in the $16 to $18 range, which could put the value of the company at around $2.6 billion. The company, based in Holmdel, New Jersey- could raise as much as $493 million, some news reports suggest. That’s nearly double the number originally expected. But will the cash last?
“Right now it’s a perennial money loser. And the growing competition also makes life harder for Vonage,” Jon Arnold, of J Arnold Associates tells Reuters. It is an argument we have made time and again.
Seldom have more doubts been raised about any company going public. Almost free phone calling from Skype could KO Vonage’s plans, said Andy Kessler, who knows a lot about the technology stocks. Wall Street Journal reported on the growing number of customer complaints. Our analysis showed them no money anytime soon, especially as the competition from the cable companies intensifies.
In anticipation of this IPO, the company has been spending aggressively in order to add new subscribers. Telegeography, a research firm, says that there were 5.5 million subscribers at the end of first quarter 2006, versus 1.9 million at the end of the first quarter last year. Stephan Beckert points out that, that “Vonage still rules the roost in terms of subscriber numbers–in fact, in a reversal of recent trends, they put a bit of distance between themselves and Time Warner in the first quarter.” Unfortunately, in terms of revenues, Vonage has had to take a back seat to its much bigger rivals.
How this IPO turns out we shall see tomorrow. How the stock performs in the weeks and months to come..!
The company introduced a $20 a month plan which allows subscribers of its $35 a month voice service to call anywhere in the world. Since the plan is capped at 500 minutes a month, that works out to about 4 cents a minute. Many believe that it is a way to respond to Free Skype or a blatant attempt to take the wind out of Vonage IPO’s sails. But that’s overlooking Cablevision (and its cable-cos brethren) real enemy: the phone company.
The New York-based cable and broadband service provider is trying to turn the screws on its phone company rival, Verizon. The availability of this plan - will prompt Verizon customers to ask questions, and perhaps seek a similar deal from Verizon. There is a good chance that Verizon will have to respond with a similar if not better offer. (Of course, they can let customers switch!)
Since Verizon’s footprint is much larger that Cablevision, it would have to offer a similar package to its entire customer base, and that could start eating into the voice revenues. Cablevision of course could kill birds with one stone - it will force that hand of the likes of Vonage to respond in kind as well.
This dovetails with my previous arguments that Cable guys can leave the phone guys twisting in the wind. The phone-companies video networks are nowhere close to mass deployment, which leaves them dependent on data and voice revenues. Cable guys, as Cablevision’s announcement shows, can do a handful of things that can inflict financial pain to the phone companies. (Oh how I love the sound of two leviathans - phone companies and cable companies - crashing into each other!)
If you look at the Cablevision announcement, it is publicity ploy which doesn’t cost the company much. And instead the can boast about no hidden fees. Of course there are upfront fees - a monthly $35 voice plan - but that is a minor detail when it comes to reporting. Cablevision will have nothing to lose, because of this little trick that will suck-up those 500 minutes in a jiffy.
One-minute rounding is in effect. We round up to the nearest minute. Example: A 25 second call = 1 minute.
Just to nit-pick, if you look at Cablevision’s geographic footprint - in New York, Connecticut and parts of New Jersey, you will find a heavy concentration of immigrants - the most lucrative segment when it comes to long distance dialing - from South Asia, China, Puerto Rico and rest of Latin America.
The $35 a month voice plan Cablevision sells offers unlimited calls to the U.S., Canada and Puerto Rico. That’s one big demographic segment that really doesn’t need to spend an extra $20 a month. Other countries like say India, Bangladesh, China and many Latin American countries have high termination charges, so perhaps its going to cost Cablevision some money. But the $35 a month voice plan, and those rounding-tricks should ensure that the losses aren’t too much.
Cablevision reported impressive growth in its broadband and voice telephony business in the first quarter of 2006.
High-speed data customers up 112,289 or 6.6% from December 2005 and 366,044 or 25.4% from March 2005.
Voice(IP) customers up 133,967 or 18.3% from December 2005 and 500,828 or 137.4% from March 2005.
UBS analyst Aryeh Bourkoff estimates that now Cablevision’s Voice subscribers represented 19.2% of homes passed as of 1Q06 and will reach 26.4% by the end of the year, which implies about 1.2 million voice subscribers by end of 2006.
The company says it will increase its spending in 2006 on equipment that will help with broadband upgrades to compete with Verizon FiOS service.
“While the phone companies are only just starting to dig up your yard, cable is already in your house,” Dick Parsons, CEO of Time Warner laying down the smack on the phone companies. He has a point…
On the data side, phone companies added 1.513 million broadband connections, while cable companies added 909,000 connections so far, with Cox and Cablevision yet to weigh in .. my guess is that the quarter will be a tie for the two companies.But cable companies are hitting phone guys where it hurts the most…the voice business.
BellSouth - total access line declined 6.1% (238,000), residential lines declined 8.8% (120,000) to bring down the total access lines were 19.8 million.
AT&T saw 6% (600,000) drop in access lines to bring down the total to 48.8 million
Verizon lost 7% (830,000) access lines to bring the total down to 47.97 million
Qwest lost 5.2% of total access lines.
That works out to about nearly 1.75 million lines. I suspect some portion of it is going to wireless providers (which are mostly Bells without wires…) because people just want a cell phone. Still, in comparison to phone companies, cable guys added 550,000 voice customers. Cox/Cablevision are yet to report.
Sylantro Systems, an IP-PBX vendor raised $11 million, and that brings the total funding upto $106 million. Why is the company being shy about its fifth round of funding? Maybe because their post-investment valuation is $99.4 million, Light Reading says. Have their cumulative revenues passed the total funding raised? And whatever happened to the IPO plans?
Motricity, a mobile software company raised an additional $40 million in funding from Advanced Equities who lead the round, along with dollars from existing investors New Enterprise Associates and Technology Crossover Ventures. Total funding raised so far: $120 million.
Intel invested in Zensys, developer of the Z-Wave mesh networking technology for wireless home control and automation. Z-Wave competes with Zigbee technology.
One Connect IPgets $5 million andSkyPilot Networks is looking for $25 million.
Jeff Pulver and Tom Evslin are working hard on petitioning FCC about things that need to be done right in case of a disaster, mostly for a VoIP perspective. They have been asking others to spread the work.
Actually, when reading through the documents to better understand the petition, I was struck by how much work needs to be done from a consumer VoIP (PSTN home phone and VoIP home phone services) perspective. I chatted with another wise soul and we realized that despite all the marketing dollars and early adopter fascination with VoIP, basic phone service from the bells is better on all counts, except price. If you use a service like Vonage then…
You lose reliability of the phone system.
You sacrifice quality.
You lose 911 service
and most importantly…
Update: You can use only one phone plugged into the ATA, unlike PSTN where you can jack your handset in pretty much any phone outlet inside the house. (Of course, you can buy a wifi handset for about $100, but that’s not the same thing as what I am mentioning.) I did find a way to get multiple phone-jacks working on a single VoIP line, thanks to a AT&T Callvantage brochure. Still it doesn’t address the ease of use issue. I know smart folks like those in the comments section, can do it easily, but can mom?
Now that said, if you use SBC or Verizon PSTN,
You lose ability to call from a softphone. (But then not everyone is a laptop carrying freak like me!)
You lose Virtual Phone Number capability.
You really cannot brag at a party that you are hip to the new VoIP thing.
Regardless, folks please head over to Jeff’s site and send your comments to him about his post disaster communications petition.
What a week… a wave of mergers has hit the VoIP space. First Comverse acquired Netcentrex for $164 million in what seems to be a move to round out its triple play portfolio.
Then Genesys, a division of Alcatel that makes contact/call center products acquired-rival and #2 player in the market, Toronto-based VoiceGenie, for an undisclosed amount of money. Genesys had acquired Brazilian GMK only a few weeks back. And today came the news that Skype, (yes Skype) is buying Sonorit Holding, a Norwegian speech processing technology start-up for $27 million.
Sonorit was started by the guys from Global IP Sound (GIPS), a Swedish company that has a near lock on the speech processing business in the Voice-over-the-Net market. GIPS has filed a lawsuit against Sonorit, Andy points out. Some speculate that Skype’s purchase is a move to reduce royalty payments to GIPS.
The common thread between these three deals: picks and shovels. While most are obsessing about the consumer facing VoIP services such as Sun Rocket and Vonage, the reality is that small fortunes are being made (and lost) in the boring sometimes mind-numbing under the hood stuff, that is called real technology.
Back in the go-go nineties, we knew we had hit a top when companies started to offer free internet access to anyone. The argument was the advertising would be enough to pay for everything, and helped the free-access proponents make money. Well, that didn’t work out too well!
Now that the good times are back, well so is that business model. UK-based mobile phone retailer Carphone Warehouse is going to be launching a free broadband service. Its free as long as you sign-up for their Talk Talk VoIP service. Oh oh! In the US, with Google’s recent patents and Wi-Fi plans, the ad-supported access model is ready to hit prime time as well. Tom Evslin thinks this is a model that has legs, and could work. (To some extent it works - Yahoo’s advertising dollars are helping subsidize the cheap DSL offerings from the Big Bells.)
My two cents: it might work for Google (and maybe Yahoo), but the copy cats who might want to jump into the fray will have a tough time. Just like their predecessors.
Earthlink reached into an old trunk full of brands, and pulled out Mindspring, and revived it as a PC-to-PC soft (phone) client. This is a re-branded Vling client, and has the usual features, IM, PSTN-connect etc. I fail to understand why they would relaunch yet another brand for their VoIP. How about just staying focused and using one brand.
How many more of these soft clients does one really need? When will this me-too game end? We saw the launch of TalQer earlier. Yahoo, MSN, AOL and SIP Phone, all have their own soft clients. Skype is still the big daddy of these kind of products. Come-on VoIPers innovate, not imitate.
One of the biggest short comings of Google Talk was that you could not use it to make phone calls to plain old phones. You could do that from Yahoo IM, AOL IM, MSN IM and of course from Skype. But now Fremont, California-based Vozin Communications, has released TalQer, an add-on to the Google Talk. You can use Google Talk to make phone calls to plain old phones, even though it is capable of a standalone application.
I chatted with Charlie Paglee, President of Vozin this morning, and he said that he will soon be releasing software that will help integrate TalQer with Salesforce.com, and users can click and dial from within the application. Vozin’s engineering team is split between US and China. TalQer/Vozin has all the usual PSTN-in and PSTN-out features, but I guess the only thing that makes TalQer interesting - it is offering prices which are lower than Skype.
Talqer offers affordable rates: every single Talqer rate is lower than Skype. Calls to 22 countries cost only 1.5¢ per minute: a 33% savings when compared with Skype for US callers and a 53% savings for European customers (no VAT). We offer calls to another 8 countries at just 2¢ per minute. That’s thirty (30) countries at 2¢ or less!
Selling cheap minutes is a sucker’s game - not much money to be made and as Vonage has shown, the marketing costs can be steep. Paglee is betting that the Google Talk’s installed push would help him get going. He is also working on developing ways to integrate his application with other clients, and services. Paglee says his China development center helps him keep the costs low.
Still with deep pocketed competitors with more marketing firepower, such as the likes of Yahoo making a strong push for the voice market, I wonder how much is left on the table for small upstarts like TalQer. What happens when Google releases its own voice service? Well, lets track this one and see how things turn out for TalQer. We certainly wish them well.
And it has been two months since it updated that document, which to Wall Street insiders means that the company might actually be looking to shop itself to another player. “It could be that Vonage’s underwriters have tested the waters and may see that an IPO may not raise the necessary money for Vonage to continue deploying its marketing plan,” David Menlow, president of IPOfiancial.com tells CNN/Money.
Cash is going out like crazy, competition is rising - tough times, but you already knew that. “I think they are looking for a buyer. Going public is something in their back pocket,” Greg Gorbatenko, an analyst with Jackson Securities tells CNN/Money. Who is going to buy them? Isn’t that the billion dollar question? Gorbatenko suggests Qwest, but I find it hard to buy into that. I think like the IPO, finding a buyer would also be a big challenge for the company.
The incumbents world wide are facing a difficult time, according to research firms, Gartner and In-Stat. They are caught between a rock and a hard place. A whole generation is leaving behind wireline voice and switching to a wireless only lifestyle. On the other hand, VoIP is having a deflationary effect on prices, and is siphoning off dollars from the wireline revenues.
In-Stat predicts that the US wireline revenues are going to decline 3.3% annually up through 2009, and even the broadband sales may not be enough to make up for the losses in the consumer wireline voice revenues. “Voice services, which have experienced persistent pressure from wireless alternatives, are increasingly being challenged by VoIP solutions,” says David Lemelin, In-Stat analyst.
I am not sure, if entirely agree with these conclusions, because right now Bells are selling low-cost plans. They can increase prices, which they might when they have premium speed offerings. There is enough evidence that the consumers are happy to happy for higher speeds. And with the most recent wave of consolidation in the US service provider industry, the Bells will come out even, because of their wireless holdings.
The big x-factor in this whole equation is cable - which is doing a good job of their triple play offerings. Of course, they never complain about Skype and other VoIP plays, because ultimately those offerings siphon off voice dollars from the Bells, and also attract customers to their higher capacity (and higher margin) broadband access offerings.
When Carl Icahn was needlessly hounding the Time Warner management (my employers), I urged caution and asked them to stay the course. A few weeks ago, a chart in The Economist showed that despite a checkered past, there is web life in this conglomerate called Time Warner.
Time Warner should dump its capital-hungry distribution businesses — its cable operations and the dial-up part of America Online — and become a pure content company.
I tend to believe more in pipes and networks than in the new new mantras that preach that content and distribution should be independent of each other.
I think we have to be very careful about preaching radical change without taking into account the fact that we are living with an effective duopoly when it comes to the Internet access in the US. Time Warner Cable is one half of that duopoly, which puts it at an advantage. Giving up on distribution is giving up on a good thing.
Let me explain why. Given that about 70 odd analog channels bring in around $50 a month, the per-channel value is pretty low. However, that very same channel when used for broadband brings in about $40 a month. On an average, the cost of offering broadband is about $10 a month per subscriber.
Compared to the cost of content creation in a TV channel, and what Time Warner has to pay to say MTV or whomever; broadband is the cheapest and most effective use of spectrum available inside the cable system. Add voice to the mix, and the revenues increase to about $80 a month. Distribution, aka pipes, is a pretty good business. Even AOL dial-up makes money. AOL sells dial-up for $25 a month, but since the whole modem banks and management of the whole network is outsourced to Level 3, it really costs about $8 a month. Do that math: it may be dying a slow death, but dial-up is still cash money. It helps pay down the debt.
The problem with Web 2.0 is the one dimensional thinking. It only thinks about the web. The world has transformed - on one network rides voice, video, data and mobile. They are not discreet networks, but instead part of an big IP-mash-up. Any company which plans to remain relevant in the future has to treat these as features of a big network. And content is the glue that brings them together. Voice, for instance is the cheapest and unending user generated content, that only enhances the value of that “one network.”
Viacom is making all these herky-jerky digital moves because it doesn’t have the pipes. Similarly, News Corp. has that very same problem. TW on the other hand is not that much of a problem. With network neutrality in bit of a jeopardy, TW Cable can ensure that the company is first among equals - Comcast, AT&T, Verizon and Qwest. That pipe is going to ensure that rest of Erick’s suggestions actually get to see the light of the day. I could go on about this, but I will stop. Still, what is Erick’s best suggestion?
Meanwhile, the remaining AOL.com content business — which includes such underutilized assets as AOL Instant Messenger and MapQuest — should relocate from Dulles, Va., to Silicon Valley. That way it can cross-pollinate with the true innovators of the Web and possibly pick up some entrepreneurial zip that it has sorely lacked.
While walking the floor at the Spring VoN in San Jose last week, I heard rumblings that Veraz Networks, a telecom software company [softswitches, media gateways and digital compression products… that sort of stuff] might be headed towards an IPO later this year.
The demand for VoIP related gear is likely to remain strong according to some research firms. The VoIP bonanza will help the company nudge past the $100 million in sales later this year, my sources tell me. Given that the VoIP is hot, there will be an appetite for a Veraz offering. The softswitch maker which started life as IPVerse, raised millions from the likes of Norwest Ventures, and Kleiner Perkins.
It almost died in the telecom bust but Norwest helped keep it alive, and the company was reborn as Nextverse. Nextverse, then merged with a division of ECI Telecom, an Israeli telecom gear maker. That combined company is called Veraz Networks. So if this offering does happen, it could be a big pay-day for Norwest.
For some odd reason, this one simply slipped under the radar. Sequoia Capital has invested in JaJah, an Austrian-VoIP start-up that wants to be what else: a Skype-killer. (Not that Skype needs any help - not when their client sucks up 95% of the CPU power on a MacBook and a PC.) I had mocked them previously, and ignored them because well, it was hard to take them seriously after they dropped phrases like “vision” and “ground breaking” and “pioneers” in every second line.
Of course, there was nothing they said on their site which made us even feel comfortable. So they added a blog, which actually helps with some information on the company. Of course I didn’t track them enough because frankly the low-cost dial-back number services doesn’t get me too excited. PC Magazine, is a tad skeptical of these guys. EULA and Privacy Policy is a bit hair raising.
Not that it mattered to investors like Sequoia. While surfing the Sequoia website for other reasons, I found Jajah on the list of the companies they had invested in. Haim Sadger of Sequoia Israel is the lead on this one, it seems, though there is no information on how much investment was made! After googling found that TJ and Euro:A:C had reported on this earlier this month, but none of us picked up on the news. They are now calling Sequoia’s Sand Hill Road digs as their headquarters, according to their website.
Yahoo, which has already released a new version of its Communicator (Instant Messaging) product overseas, plans to launch a similar client next week, according to sources familiar with the company’s plans. The new release of the IM client has a brand new voice core, and it allows users to make phone calls to PSTN phones as well, in addition to PC-to-PC calls.
The pricing for the callout numbers is not certain as yet, though the current generation communicator allows unlimited incoming calls for $2.99 a month or $29.99 a year. The new offering, according to those in the know is likely to put Yahoo on an equal footing with Skype. Yahoo, clearly has designs on stealing market share from Skype.
As part of this new release, Yahoo is also going to incorporate banner ads in the Communicator client and will use some of the inventory to educate folks about how to use the built in phone/conference type features. The thinking within Yahoo is that by since they serve a more mainstream audience, a little handholding is not such a bad thing. Of course, the advertising revenues could help defray the “everyday low prices” on voice minutes.
While walking down the VoN showfloor, I discovered a wifi phone which will be sold by AT&T and has a link-up with Yahoo IM client. It looked pretty slick. Seems like Yahoo is getting serious about VoIP and Voice opportunities. It took them long enough, it seems.
This past week, a stormy one in this part of the country, saw me visit the Silicon Valley locales like Palo Alto, Sand Hill Road, and Mountain View, twice in three days. In addition to all that, I was busy finishing up stories, and what not. So this weekend is going to be much quieter, as I finish a piece for Business 2.0, and mentally brace myself for the next week, when Spring VoN kicks off in San Jose.
Andy Abramson is one of the people I am looking to catch up with, also with wonderful people he has written about. Of course, the new improved James Enck, will be in town, and there is a dinner in the works. And that’s not the end of it all. I just wonder where will be time to blog. I think this is the constant dilemma - when you are scrounging for information, the lack of time gets in the way of writing. If you are not-reporting, but offering an opinion, its easier. Sadly, no easy way out this next week.
Talking about conferences, I am going to be at Freedom 2 Connect conference organized by David Isenberg, though I am worried that Jim Crowe might beat me up for not so obvious reasons.
Dave Winer, whom I have not seen in three weeks (what’s up dave!) has a great post on the March 2006 conference season. Or as I like to call it March Madness. He delves into the politics of tech conferences, and how they are a velvet rope club. Dave, not known to mince words is at his finest in this latest polemic.
When eBay bought Skype last year for a whopping $4.1 billion ($2.6 billion in stock/cash and rest as an earn out) my theory is that the first step in integration of the two companies would be adding a Skype Me feature for all sellers on the eBay system. Well, time to say, told you so.
It seems that eBay is already mash-ing it up Skype in some European countries. Switzerland for example, where, buyers can talk to sellers via Skype, and also with eBay customer service. Didier Durand has posted a lengthy french language post on his blog sent me the heads-up. Thanks DD. Didier says that since eBay’s European headquarters are in Bern, Switzerland the small size of the market, and its multilingual nature (4 national languages), it is often used for experiment like the one made by Ebay.
eBay has confirmed this on its Swiss website. Similar tests are going on in Belgium, Holland, China and Taiwan according to Ute Moritz which works for Ebay in Germany. Similar tests were conducted in Norway as well. It makes sense, especially as eBay starts to move high ticket items like cars, and expensive jewelry, as people would like to talk to each other before closing deals. But Skype calls when selling a phone power adapter… yikes!
I find it interesting that most of the tests are in countries that are not hostile to Skype. I think such a roll-out in the US would have the MSOs and the phone company(s) up in arms. Now if you are like me, then you are asking: this is it for $4.1 billion? There’s got to be more, right.
Venture dollars continue to flow into the Voice-over-IP start-ups. The latest company to raise big dollars is Blue Note Networks of Tewksbury, Massachussets. The VoIP software company snagged $15 million in series B funding from Commonwealth Capital and existing investors Fidelity Ventures and North Bridge Venture Partners.
Las week, TelTel, a Santa Clara-based start-up that hopes to become the SIP-based Skype-type service provider raised $8.8 million in Series A venture capital from no-name investors such as Purple Communications, Acorn Angels and Parawin Venture Capital. With over 1.5 million registered users and partnerships with service providers worldwide, TelTel claims it is the world’s largest SIP-based Internet telephony user community.
A few days ago I wrote about Tello, a company co-founded by Jeff Pulver, which had raised $5.5 million from the likes of Craig McCaw and former Apple CEO John Sculley. Michael Robertson, the founder of MP3.com recently snagged $6 million in funding from Dawntreader Ventures.
The murky regulatory scenario, and the ultra-crowded landscape makes investing in VoIP start-ups clearly risky. Sure Skype managed to get $4.1 billion from eBay, but that’s a one-off deal, much like Yahoo buying Broadcast.com. Barring the Skype-sale, the exits in the VoIP sector have been few and far between. For instance, the only VoIP IPO, CBeyond is trading below its offering price of $12 a share.
Many industry insiders believe that the Vonage IPO and its after-offering performance will determine the future of VoIP, at least from a financial perspective. A bad IPO could chill the new investments in the entire segment. Nevertheless, the immense potential of VoIP as a transformative technology, continues to lure the VC investors.
Did you know that Vonage’s chief marketing officer (also the chief brand officer), Dean Harris left the VoIP service provider? It is hard to figure out when he really left, though his name is not in the S-1 filing anywhere. I had no idea that he had left the company, and only figured it out when I read this old press release from (February 16th) about him joining Kayak.com, a travel industry start-up as the main marketing guy. Kayak was launched on February 7, 2006 2005, by the co-founders of Orbitz, Travelocity and Expedia. Given that Vonage issues press releases by the dozen, the silence about this news is deafening. Update: I screwed up - the site was launched on February 6, 2005. I mis-read it as 2006.
Cablevision, the last MSO to report its fourth quarter earnings added 130,000 new VoIP customers, up just 7,000 from the previous quarter. The company also added, 94,000 new broadband customers, up from 81,000 adds in the previous quarter. For 2005, Cablevision added 341,793 broadband subscribers and 458,653 VoIP subscribers. Time Warner had also experienced similar growth for its broadband and VoIP services. Some of the smaller players are experiencing triple digit growth in their voice subscribers. According to UBS research estimates, there were 5.1 million cable voice users at year end, up 63% annually and 14% sequentially.
Telegeography estimates that nearly 900,000 new subscribers were added in the final three months of 2005, and cable providers now account for nearly 52% of the total market. Their total differs from UBS by about 700,000 subscribers. Telegeography says that there are 4.5 million VoIP subscribers in the US. Phone companies come in with 11% share of the market, and independents like Vonage have 37% of the market. They are forecasting that there will be 7.9 million VoIP subscribers by end of 2006, and revenues will hit $2.1 billion. That is up from about a billion dollars in sales for 2005.
Cable telephony subscribers currently represent roughly 9% of telephony-ready homes, 10% of basic cable subscribers, 24% of cable-modem subscribers or roughly 7% of Bell households, UBS says, which means that things are going to get a tad difficult for independents like Vonage and Sun Rocket, and also for Bells which are scrambling to roll out their triple play offerings.
The cable VoIP growth is going to be good news for folks like Motorola (GI group) which has been doing a lot of work on VoIP quietly. Motorola has shipped over 2 million voice-enabled cable modems to date, according to company sources. I think it is time to focus away from RAZR and instead zero in on the broadband division.
Voice-computing mash up continues. Today, France-based OpenWengo released a Firefox extension that allows users to make free phone calls to each other. Open Wengo’s parent company, Neuf Telecom offers the optional Wengo call-out service so that you can dial out to PSTN/Mobile numbers. Till recently, they have been pushing a classic softphone, but I am betting that the Firefox extension is going to be quite popular. If you are signing up for this, let me know … we can chat!
Open Wengo, in many ways is like OpenZoep, an open source effort by Dutch start-up, Zoep . They also have a a Firefox extension that allows users to make phone calls from within their browser. Like Open Wengo, it is SIP based and allows you to call old-school PSTN (and Mobile) numbers. Zoep acts like a back end engine for this service.
OpenWengo and OpenZoep are two examples of “mashed-up” apps that have a potential of mimicking the viral growth of Skype.
MyPeople, a division of Momentum Telecom, which has started to offer wholesale VoIP services to any small and medium sized cable operator, who can then in turn offer the service to their consumers. It is a business model that has been tried before with marginal success. Net2Phone was chasing that market, and go some traction, before being bought out by former parent, IDT Corp.
The launch of My People (wholesale) shows how crowded and commoditized the VoIP service provider business has become. It doesn’t bode well for folks who are pure play service providers such as Sun Rocket and Vonage. But what kind of fate awaits folks like VoX, which just announced new plans, that are pretty competitively prices. A 1000 minutes across the U.S. and Canada for just $14.95 or VoX Unlimited plan plus 1000 VoX Worldwide Minutes across 34 popular countries for $39.95. They are also offering wholesale packages to resellers.
How long will we keep seeing the emergence of me-too VoIP Service Providers? And what will be their exit strategy? Any thoughts folks? I wonder when, not if, will I see a press release saying, “How to start your own VoIP provider in a day?”
British Telecom is getting serious about VoIP. Under competitive pressure from upstarts, they are taking battle into the enemy camp. The proof of this comes in their decision to bring price parity in their BT Communicator (PC-client) and BT Broadband Talk (that uses an ATA) services. The British incumbent will also offer its BT Broadband Talk service to customers who don’t buy broadband access from BT.
This is a good move for the UK incumbent which is facing increasing competitive pressure from upstarts. The biggest threat to BT’s voice business comes from Tesco, the supermarket chain that has started to market its bargain-basement VoIP services to its customers. Wanadoo, another BT rival has signed-up 100,000 customers in less than 12-months it has offered a VoIP package. Dixons, VoIP Cheap, and scores of others have jumped into the VoIP arena, in a situation reminiscent of the early days of DSL. Nevertheless, BT’s efforts will dampen (and perhaps further increase marketing costs) of voice service providers such as Vonage.
Google’s click to call feature seems to be live. You see a “green phone” icon next to the “paid advertisement.” When you click on the icon (or the link) then a little window slides down, where it asks you to put your phone number and then connects you to the advertiser. I just mucked around with it, and well, not a single call connected. Secondly, I am getting the “Google version” of Busy Signal. Like Venkatesh I wonder why the click through doesn’t go to the “advertiser” website.
Advertisers can either bid for “click to call” or just click throughs. Not many of th
The complaint also alleges that Vonage’s decision to pre-sell 13.5% of the Vonage IPO shares to customers is in violation of NASD Rule 2310. Pomerantz Haudek Block Grossman & Gross, in a class action suit filed last week, 
One of the biggest short comings of Google Talk was that you could not use it to make phone calls to plain old phones. You could do that from Yahoo IM, AOL IM, MSN IM and of course from Skype. But now Fremont, California-based Vozin Communications, has released 
I tend to believe more in pipes and networks than in the new new mantras that preach that content and distribution should be independent of each other. 
For some odd reason, this one simply slipped under the radar. Sequoia Capital has invested in JaJah, an Austrian-VoIP start-up that wants to be what else: a Skype-killer. (Not that Skype needs any help - not when their client sucks up 95% of the CPU power on a MacBook and a PC.) 
As part of this new release, Yahoo is also going to incorporate banner ads in the Communicator client and will use some of the inventory to educate folks about how to use the built in phone/conference type features. The thinking within Yahoo is that by since they serve a more mainstream audience, a little handholding is not such a bad thing. Of course, the advertising revenues could help defray the “everyday low prices” on voice minutes. 
eBay has confirmed this on its Swiss website. Similar tests are going on in Belgium, Holland, China and Taiwan according to 
Cablevision, the last MSO to 
Voice-computing mash up continues. 
Open Wengo, in many ways is like 
Google’s click to call feature seems to be live. You see a “green phone” icon next to the “paid advertisement.” When you click on the icon (or the link) then a little window slides down, where it asks you to put your phone number and then connects you to the advertiser. I just mucked around with it, and well, not a single call connected. Secondly, I am getting the “Google version” of Busy Signal.