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January 23, 2008

8x8's Huw Rees Chats about the VoIP Industry

By Erik Linask, Associate Editor,
Internet Telephony magazine

This afternoon in Miami, Florida, at INTERNET TELEPHONY Conference & EXPO, 8x8’s (News - Alert) vice president of sales and marketing Huw Rees sat down with TMC president Rich Tehrani to discuss the state of the VoIP market, trends, and developments at 8x8. Judging from the range of topics the two discussed, it’s clear that VoIP is as hot as ever.
The Governator’s Task Force
Governor Schwarzenegger had something called the California Broadband Taskforce Report, which studied the penetration of broadband in California and made some recommendations as to how penetration can be improved. What was 8x8’s involvement in that task force?
8x8 CEO Bryan Martin (News - Alert) was the chairman of the Emerging Technologies and New Applications Workgroup for the California Broadband Task Force, which was an initiative put forward by Governor Schwarzenegger with hopes of advancing the state broadband in California. Part of that project involved gaining an understanding of who really has access and how to improve it. 
The metrics that came out if this exercise were:
  • 96% of Californians have access to broadband;
  • 50% of Californians have access to at least 10 megabits;
  • The bad news is that only 50% subscribe to broadband services.
So, according to Rees, there are a couple of initiatives there. One is obviously to increase that 96% to as close to 100% as you can get, by basically viewing broadband as a utility, like water or roads. In addition, create more demand, so people have more requirements to use broadband access. Part of this includes ideas to implement an eHealth network and eLearning facilities within the state. It also includes creating a competitive environment in order to help drive down prices and increase broadband penetration.
Mobility and Wireless
Packet8 has traditionally been a residential and small business landline VoIP service, making this its first foray into the mobile space — MobileTalk. Basically, it allows users to make international calls from their cells phones over the Packet8 network through a small application that downloads onto their cell phones — Rees says MobileTalk currently supports some 450 mobile devices.
The idea, he says, is to not change user behavior. So, if you’re dialing internationally — typically beginning with 011 or + — the MobileTalk application recognizes the international code and intercepts the call and routes it over its own network. Thus, users only pay for their mobile airtime, not their international termination.
Interestingly, the MobileTalk service is not only attracting consumers and service providers, as expected, but Packet8 is also seeing interest from large enterprises as well.
The Year of the SMB
Last year, we saw questions like, “What is VoIP?” and “Does it really work?” start to finally go away, and according to Rees, SMBs are really starting to look at the feature sets that are available with VoIP systems and services.
“We’ve crossed a barrier, and I see great strides ahead in 2008,” said Rees. “I agree that 2008 will be the year of the SMB.”
Video Takes Hold
8x8 has had a number of video phones over the years, though most have been a consumer play — only 5%, in fact, have been sold to businesses. 
“It’s a pretty small percentage and we’ve been thinking about what we can do to change this,” said Rees.
So, the company recently integrated video into its Virtual Office solution, and Rees expects so see significantly greater success with this venture. With consumers, he laments, sales people are unable to really sit with customers to explain the benefits of video, and thus, expectations and reality tend to differ. However, on the business side, it’s much easier to meet, build relationships, and really explain the video solution.
SunRocket Burns Out
When VoIP SunRocket shut its operation, Packet8 was the first to announce it was opening its doors to abandoned SunRocket users. Rees believes SunRocket will not believe the last such provider to shut down.
“It’s a trend of consolidation that will continue through 2008. There will be other service providers that will transition out of the VoIP business.”
He explained many people mistakenly believed the VoIP business would be an easy one to get into, and in some ways it was — but creating a sustainable business model with a reliable business proved not to be so simple.
Rees noted Vonage’s (News - Alert) $250 million dollar debt, which comes due this year, and joked (or, perhaps not) that Packet8 might soon have to prepare for adding some 2.5 million subscribers at the end of the year.
In addition, 8x8 has, over the years, accumulated a large number of patents, which, Rees says makes the company less of a target for other providers. The large patent portfolio, he says, doesn’t really have to be used for anything really, but merely having it serves as a protective mechanism.
Customer Service
Rees acknowledged that, while people are, in fact, starting to “get” VoIP, there are still some that experience deployment issues — and though the number is only near 5%, he says it’s a significant enough figure that Packet8 felt it worthwhile to address. 
One of the initiatives taken by Packet8 is developing a set of tools to pre-qualify customers and determine the source of potential issues. The majority of difficulties today, he says, are LAN related, not issues with the last mile. He also says the company is looking to launch similar services for existing customers later in the year to be able to determine if customers’ quality is deteriorating.
In terms of looking for new customers, Rees says 8x8 has spent time determining whether to attack specific verticals with its marketing efforts, or to take a lateral approach looking for certain sized businesses. Ultimately, 8x8 chose the latter, because it offers the potential to reach the greatest number of potential customers.
Otherwise, Rees reiterates that 2008 and beyond should, indeed, present a great opportunity for the VoIP industry.
Erik Linask (News - Alert) is Associate Editor of INTERNET TELEPHONY, IMS Magazine, and Unified Communications (News - Alert).  Prior to joining TMC, he was Managing Editor at Global Custodian, an international securities services publication. To see more of his articles, please visit Erik Linask’s columnist page.


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