In this last of our five-part survival guide series, I find myself drawing comparisons between the early dial-up Internet access days and today’s VoIP services market. If the dial-up Internet access business of the late 1990s taught us anything, it was that you should always be a price leader but never lead with price alone. A low-price only strategy is a formula for certain failure for service providers.

We should look to the market leaders in the early days of the Internet space including MSN, AOL, and EarthLink to draw parallels about what worked best for them and why. These market leaders distanced themselves for the dial-up commodity business early on as they focused on content services. They provided everything the customer wanted from customizable home pages, personal Web hosting to Web mail. When the migration began from dial-up to broadband, they kept many of their customers by providing a competitive broadband access product, wrapping it together with a higher level of media rich content.

There is another clear parallel. These Internet Service Providers (ISPs) generally acquired early adopters as customers, and did not lose them to other broadband providers such as their cable company or incumbent phone company. Why not? Because they offered their customers more than just a good price. The successful ISPs maintained their customers with higher pricing in many cases because of their strategy to give their customers high-demand content, features, and services. They also “touched” their customers constantly with direct marketing programs. They understood that if they didn’t touch their customer, the competition would.

So, as history has demonstrated, if you want to build a long-term, successful Internet Telephony Service Provider (ITSP) business, you need to take a forward-thinking approach to building your products, what types of customers you want to acquire, and most importantly, what you are going to do to keep them. The VoIP world offers many more product options than traditional circuit switched telephony, but they too have issues. Here are some of the top issues that I see facing ITSPs as they begin their VoIP services rollout:

• Expanding product capabilities by bypassing the Central Office limitations.
• Avoiding price wars through high-demand features and promotions.
• Competing with the incumbents.
• Retention from ILECs’ win-back programs.

Expanding product capabilities by bypassing the Central Office limitations
Traditional circuit switched voice service providers such as Competitive Local Exchange Carriers (CLECs) and Incumbent Local Exchange Carriers (ILECs) have always been limited to offering service based on Central Office (CO) locations and capabilities. VoIP removes those limitations by bypassing the CO for features and routing functions. As long as the customer has a broadband connection to the Internet, they can be serviced with feature servers located on IP networks from virtually anywhere. These capabilities all but end the age-old model of dependency on the local CO for servicing customers.

Avoiding price wars through high-demand features and promotions
The parallels discussed earlier hit home about the need to differentiate your offering by not focusing on price alone. Of course, that’s easier said than done. One thing is certain: the VoIP industry will feel the affects of competition. This will put pricing pressures on ITSPs over the next 12–18 months. Successful ITSPs will find themselves offering a wide range of features and services that will include IP-PBX services and unified messaging. They are also going to need to differentiate with other marketing and promotional campaigns that may include rewards — loyalty programs, and friends and family incentives.

Competing with the incumbents
Several years ago, competing with an ILEC was not that great of a challenge. They were very slow to react to competition and even slower at providing new products at competitive prices. Those days are over, but there is plenty of room in the market for forward-thinking ITSPs. Luckily, the ILECs are faced with maintaining their legacy networks while also trying to introduce new packet switched VoIP products. Additionally, the recent consolidation of AT&T into SBC Communications and MCI into Qwest or Verizon will slow those two ILECs down a bit due to the integration headaches that will face them. Although both are moving their VoIP offerings forward, there is time to beat them to market as long as the ITSP has a compelling, well-thought-out offering.

Retention from ILECs win-back programs
If you are a CLEC competing with an ILEC, then you certainly have had to deal with their “win-back” incentives. Some of the ILECs have gotten really good at their win-back strategy. And yes, in the circuit switched arena it is hard to beat them when they offer up to $200 per line to switch back. ITSPs can package their product to minimize the ILEC win-back affects. Here are a couple of ideas:

1) If your VoIP offering is targeting primary line service, you may want to offer instruction to your new customer on how they can use their existing house wiring so their Analog Telephone Adapter (ATA) device will provide VoIP service from all existing wall outlets. That is of interest to most end-users and by doing this, the customer physically disconnects themselves from the ILEC’s network, making reconnecting an issue for the ILEC. In many cases, once the customer disconnects their house from the network, the ILEC may not see them as a serviceable customer.

2) Develop a customer rewards campaign that is tied to certain benchmark dates. An example of this would be rewards for staying with you for the first 90 days, when you are most vulnerable to the win-back attempt.
In summary, ITSPs have a tremendous opportunity to gain a nice market share. They need to be careful in their product marketing approach and be certain that they build a long-term strategy that addresses these issues and the many others that will certainly arise over time.

Good luck to all of you. I hope that you’ve found this five-part Survival Guide series informative. IT

Shawn Lewis is the CEO of Volo Communications, a wholesale provider of advanced voice and data services and applications including broadband VoIP service. Mr. Lewis also wrote the first two patents for softswitch and media gateway technologies. For more information, please visit www.volocommunications.com.