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January 2007
Volume 10 / Number 1

State of the Communications Market

By Richard Tehrani, Publisher, Internet Telephony


The communications market is growing in virtually every direction and I am getting asked more and more by investors and others in the market where I see things going. The answer is... there is no single direction.

I toyed with the idea of making predictions in this issue for what 2007 will bring, but instead realized that it’s important to bring my readers up to date on the “state of the union” in communications. I couldn’t help giving a prediction here and there, but consider this more of an overview document of where we are and where you need to be. There are so many areas and subsets of the market that it is worth delving into some of them and getting our hands dirty to see where the excitement is now and will continue to be in the upcoming year.

Regardless of what you do for a living, it is important to understand how your segment of the market fits holistically into the picture. For this reason, I consider this to be one of the more important documents I have written in some time.

Voice Peering. The voice/VoIP peering market continues to be exciting and more and more service providers are jumping on the bandwagon to interconnect their services with other service providers. Universities are beginning to understand this growing trend as well, and I expect enterprise customers and call centers to be big adopters in the near future.

Net Neutrality. This one is getting interesting. As of this writing, Commissioner McDowell has recused himself from voting and, as such, there is deadlock at the FCC. This could mean deadlock for eight months or so, when McDowell is allowed to vote. More likely, AT&T (quote - news - alert) may have to make serious net neutrality concessions to get the merger approved.

SMB. This is the single acronym I hear about most from service providers. Many VoIP providers have decided the consumer VoIP market is too difficult to compete in and leave it to Vonage (quote - news - alert) and others to lose money chasing this segment, while they go after the small business, where there is less competition. Spending in this space continues.

Seven-Year Itch. This is a big year for replacement of various telecom products bought in 2000 based on Y2K fears. Many vendors see major increases in RFPs coming down the pike.

Hosting. All systems go when it comes to hosting. I have been a bit skeptical of the potential for this market, but based on conversations with many in the industry, hosting will continue to grow across many product lines, from communications to CRM. Part of the reason for the growth is that companies want to focus on their core competencies and aren’t keen on hiring more people if there is a simple alternative.

Security/Network Monitoring. This will continue to be a major growth area in communications and beyond. WiFi, firewalls, and secure IP voice transmission are all areas on which companies need to focus going forward.

Conferencing/Collaboration. The trend is clear. Communications will evolve and a typical phone call will be able to instantly become a full-fledged collaboration session with conferencing. Single-button collaboration sessions with screen sharing will be commonplace in the next few years.

Skype. While Skype (news - alert) has increased the speed at which phone calls have depreciated in cost, the company recently introduced a paid Skype Out plan to the U.S. and Canada. This used to be free. In addition, the company is rolling out other pricing increases in Europe. I see this as positive for the IP communications market.

But Skype should be looked at as an opportunity by all. Companies need to start purchasing Skype-compatible solutions from the likes of PIKA Technologies (news - alert) ( and SKY-click (news - alert) ( The reason? We need to communicate in the manner with which our customers are comfortable.

FCC. The FCC has the power to change the communications landscape on a moment’s notice. Tough 911 laws, short deadlines, and who knows what’s next? It seems, however, that the FCC will be gentle with the VoIP market for the next year or so. Net neutrality seems to be the biggest issue to be resolved.

Google. The company has had lackluster success with its VoIP entry, but don’t count it out. Google still has ways of integrating click-to-call and other technologies in ways other voice companies cannot. Google will make a great phone company if it chooses to get in to the business seriously.

Imagine having phone calls coming to you screened against Google (quote - news - alert) for a number of things. For example, when your phone rings, Google does a search and returns the results in real time. You could get a few separate search tabs. One tab could be a better business bureau search of the phone number/company name; another can be a search of the phone number/company name with the word “fraud” appended to it. You get the idea. You could identify potentially fraudulent callers before picking up the phone. You would immediately know many details about a caller — far more than simple Caller ID can provide.

Analytics. A wireless service provider in England noticed many of its customers were dialing an 800 number just before switching service to another carrier, and called the unlisted number to find it was a competitor. The carrier realized that the competitor was calling its own former customers 11 months after they had cancelled — presumably one month before their current contract expired — offering them a sweetheart deal to switch back. Customers were calling the 800 number customers in response to messages left by the competitive wireless carrier.

The initial wireless carrier countered with a sweetheart deal of its own, and also called 10 months into the contract to ensure the customer was happy and planned on continuing service.

Later on, another wireless carrier launched what seemed like a money-losing deal win market share. The initial provider decided to counter with an even better deal, but waited to see what the analytics said. As it turns out, few customers called the 800 number from the new competitor. As such, the initial provider decided not to counter with a similar money-losing offer (read more at

Sell Data. What is the value of your data as a service provider? Imagine you are a cable company. There are two pizzerias in a city you service — one gets 25 calls a day and the other gets 5. What is this data worth to the two pizzeria owners? Wouldn’t it make sense to try to sell the less popular pizzeria an ad on your cable network and then track the results?

Would an airline be interested in how many calls your customers make to them versus the competition? How about how many of your broadband subscribers visit each Web site? There is hidden gold in your database. Once you have a legal look at what is fair game to sell, go out and have a field day (more at

Advertising. The world has gone crazy — advertising crazy. Companies like Google are raking in the dollars with searchbased ads. But service providers, too, have communities, and know more about their customers than most portals like Yahoo! Even so, these providers have yet to leverage the billions in advertising revenue. This should be a year when service providers try to find ways, through IMS and other means, to tie complex customer analytics with retail sales of advertising. Today’s service providers are in the best position to provide advertisers with the mass customization needed for supertargeted ads worth premium prices.

DECT. DECT is a popular wireless telephony standard in Europe and will take the U.S. by storm this year. There is no way around this fact. The cost for DECT equipment is a small fraction of WiFi telephony and enough critical mass of new products exists in my opinion so that we will see dozens of new products based on this standard coming to the U.S. in 2007.

Personalization. On the Web, personalization is all the rage from MyESPN to MyTMCnet. People want to personalize their information. That is their desire. That is what they are getting used to. How will service providers cash in on this trend? The first thing they must do is ensure that their services are easily customizable and sticky to reduce churn. Once customers embrace this concept, service providers will know more than ever about their customers and can find new ways to monetize this information.

Web 2.0. Leading-edge interfaces aren’t just for Web companies. As a service provider, make sure you understand AJAX, mashups, and community building. You aren’t in a different industry than the Internet. If you aren’t careful you will find yourself steamrolled by it.

WiFi Telephony. Yes, DECT is all the rage, but WiFi telephony will not show any signs of slowing down either, as WiFi is becoming ubiquitous and costs for WiFi telephony devices have nowhere to go but down.

FMC. Fixed/Mobile Convergence is the future of communications. There is no doubt about it. Enterprise users want to be able to seamlessly communicate, regardless of whether it is on a corporate PBX or a wireless network. Solutions from service providers and equipment manufacturers will both be popular.

IMS/Open Networks. Many see IMS as a walled garden approach, but for developers who can deliver the content customers want, this approach makes sense, as it makes it less risky to develop applications to an installed base with limited options. Expect to see more IMS development in 2007 and a killer app hopefully in the next 18-24 months.

Entertainment. Ten years ago, did anyone know the ring tone market would be a multibillion dollar gift to telecom? Probably not, and now that we have seen the massive potential of ring tones, the question providers need to ask is, how else can they leverage the world of entertainment to generate more revenue?

Wireless Backhaul. This is a market we don’t hear much about, but it is poised for tremendous growth. Many vendors in this space tell me their business is doing very well and demand continues to be strong.

Quintuple Play. Triple play is so six months ago. Nowadays, you need wireless and other services, such as security/firewalls, etc. The more bundled services, the more sticky you are, and the lower the churn. Service providers: ready, set, grow.

WiMAX. This technology is making slow and steady progress and could have dramatic impact on the face of broadband competition.

SIP. SIP is becoming more and more popular and virtually all communications equipment providers have SIP compatibility built in or are planning a rollout soon. The challenge is that the standard does not work perfectly as of yet, and seamless interop, while improving, is not here yet. It is up to you to demand that your vendors give you this feature.

SIP Trunking. Most IP PBXs still don’t connect via IP and, as such, SIP trunking is a huge growth area, as it allows companies to connect IP PBXs directly to the IP cloud allowing increased cost savings and in some cases better quality calls than the PSTN.

Cable Companies. Now more than ever, these companies are poised to damage the telcos and become more and more dominant in telecom. These companies already have TV, broadband, and phone service, while the phone companies are playing catch-up. Wireless is the ace up the sleeve of the telcos and this is one reason they may not get thrashed by the cable companies. It will be interesting to see how the cable companies’ ongoing relationship with Sprint works out and how WiMAX will change the competitive telecom environment between cablecos and telcos.

IPTV. Many people are saying IPTV is not needed, as all TV can be viewed over the Internet. While this may be true to some degree, most consumers aren’t yet ready for the compromises of Internet television downloaded or streamed from sites like iTunes. Instead, expect IPTV to be a big play for a number of years to come. Still, it remains to be seen what value IPTV service providers bring to the table. They have to be worried about the day when all content providers come up with a less expensive distribution method.

MVNO. This model hasn’t been very successful for many of the players who decided to enter the space such as Disney and ESPN. The jury is out on this one but I would imagine there is room for a few niche MVNO players, if they can figure out a business model that makes sense and will get consumers and/or businesses to part with more money than they currently pay a wireless provider.

Hosted Call Center. The companies in this space and the hosted CRM market continue to make progress by way of increased sales, and customers are more and more comfortable with the latest generation of services.

Ringback Tones. If ring tones can generate billions, perhaps ringback tones can generate hundreds of millions. These tones replace the ringing sound played to callers and can be customized by the caller. Recently, I became aware of someone who has applied for a patent on messages delivered at the tail end of the conversation.

Dashboard Competition. This is an interesting premise. If all phone users will eventually use their computers as telephones, then what is the interface going to be? Some argue it is immaterial, but if there is no calling federation, perhaps the company with the most IM or voice users will win the desktop war. Will it be Skype? Microsoft? Yahoo!? AOL? Google? It remains to be seen.

Communities. Communities are all the rage on the Web, but what is happening in the world of telecom with respect to communities? Not much. Service providers have to find ways to ensure they are building viral and sticky communities their customers can’t get enough of. Hint: companies building viral communities are selling for hundreds of millions and, in some cases, over a billion dollars. Seems like a good market to get a piece of, right?

Mashups. A simple mashup definition is combining data from multiple data sources and interfaces to come up with new ways of looking at data. This is a hot area right now in the Web world, and Google Maps is a common interface for mashed up data. Start thinking about how you, as an enterprise or service provider, can leverage this concept to build a viral community targeted based on the mashup you have created.

Ecosystems. Skype has an ecosystem. Level 3 has one. So do Cantata, Asterisk, Dialogic, Intel, and many other companies. When you develop an ecosystem, you get others partnering in your success and you are able to grow much more quickly. Development and distribution partners turbocharge your growth. If there is a way for you to launch an ecosystem, start working on it.

Also don’t be afraid to hitch your wagon to a Dialogic, Asterisk, or Cantata — a company with huge ambition and one who will do its best to make sure you are successful.

Telepresence. Cisco and others believe this market will be worth billions. My take? Perhaps. Sure the technology is breathtaking, but so is an Italian sports car. In the end it is all about business value beyond the handful of ultra-rich early adopters. By the second quarter of 2008, we should have an idea of what is happening with telepresence.

Unified Communications. Is this the hottest term in the communications market in 2006? Perhaps. It seems like enterprises really resonate with this term and are looking to learn more. Microsoft and Cisco have really added a great deal of gravitas to the concept lately, but there still needs to be better education as to what this means and how it can help companies become more effective.

Open Source. This phenomenon will continue to change the telecom landscape and companies that sell phone systems are going to have to learn how to add value, above and beyond what the Asterisk/Pingtel community provides.

P2P. Expect to see more peer-to-peer telephony growth where communications systems mimic the way Skype works. Expect to see a computer vendor push P2P telephony in 2007, selling phones alongside laptops. As a business grows, you just add phones.

Stereo. One day all calls will happen in stereo. When? Who knows? The technology exists today but devices would need to support it and peering/federation arrangements would need to be in place to maintain calls in stereo from one person to another.

While we are at it, the technology exists today to allow conference call participants to be placed to the left and right of you on a call. This is important because your ear and brain have an easier time interpreting a voice on a busy conference call if it appears to emanate from a consistent 3D location.

In addition, the technology exists to allow for overtones to be added to voices so you can know which side a person is on as they start speaking. In other words, in an M&A situation, you can assign all the people from the acquiring team to a have a metallic voice or sound like Darth Vader, etc. Personally, I am waiting for the day I can transform a caller’s voice so it sounds like any of Sasha Baron Cohen’s characters.

CD Quality/Surround Sound. Since we are talking stereo, how about surround sound? Voice quality can be vastly better than it is today. Ironically, many Skype calls are better than the PSTN if both parties have the bandwidth. Expect to see much higher voice quality in VoIP calls as time goes on, Toolbars. Dashboards are cool, but perhaps toolbars are all you need for telephony in the future. Every equipment vendor and service provider can provide a toolbar. BroadSoft offers its service provider customers a customizable toolbar. Many people say if Vonage had a toolbar it would be the ultimate communications tool and extremely sticky. In the enterprise space, Vonexus may have been first with a toolbar and now the unified communications push means every company will eventually have one. This is a great trend for telecom users going forward.

Add Value. If I have to sum up this disparate hodgepodge of disjointed telecom acronyms and concepts, I would have to say the future of telecom is adding value. Resellers and MIS/telecom professionals have to add value to the user experience. It is no longer satisfactory to provide users with voice services. You need to explore collaboration, video, and myriad other technologies that interconnect with voice.

The State of our Industry is Strong. Communications seems to be the strongest I have ever seen it — since 2000. Virtually every company I speak with tells me 2007 will be a banner year for them. The one concern worth noting is the sheer volume of companies in some telecom sectors. There may need to be a bit of a shake-out, but this is a natural and healthy evolution. As long as companies can come up with new ways of targeting the increasing number of telecom niches, they will do very well. The concern is that, if you are the 5,000th service provider selling consumer VoIP in the U.S., you may want to reconsider your positioning. In the end, if telecom companies all find ways to listen to customers, respond quickly, and position themselves well — they will be in great shape.

I am anxiously awaiting the next 12 months and look forward to helping guide you through the new, tumultuous, and always exciting IP communications landscape.


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