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Mind Share
September 2004

Marc Robins

It's Time to Start Competing on Value, Not Price


AT&T’s recent desperate move to eliminate the $1 billion marketing budget for their TDM-based consumer services highlights a situation that has certainly been no secret for some time: the business of providing wireline telecommunications services is under assault by a number of forces. On the left flank is the massive excess capacity created during the bubble years, on the right is the disruptive technology of IP communications, and coming from the front and rear are the wireless operators, the cable companies and their “triple-play” offerings, and new upstart broadband telephony providers. The resulting price war has been hammering carriers’ revenues and decimating profits, and we are perilously close to a situation where providing domestic voice services becomes a losing proposition.

If you think VoIP players are immune to the ravages of this war, you’d be wrong. VoIP service providers, in order to entice customers to churn from circuit-switched carriers, have been primarily competing on price, offering buckets of minutes and “all-you-can-eat” plans at discounts up to 50 percent lower than incumbents’ pricing. I’ve seen some all-inclusive plans from new entrants priced as low as $19.95 per month. How does an operator make money offering domestic service at this price point? Indeed, a number of VoIP providers I speak to on a regular basis tell me that the viability of their businesses hinge on building large call volumes to make up for the paltry fraction of a cent margins they struggle to maintain. If the volume isn’t there, neither are the profits.

So, if voice is headed towards the “loss leader” position, what will it be a loss leader of? During the boom, the answer from all fronts was “enhanced services” — and for a time, a number of highly innovative services from a host of startup companies put forth the promise of creating new revenue and profit centers for service providers, and new value for customers. Unfortunately, when the bubble burst, the deluge swept away practically every single one of these companies. Carriers cut CAPEX to the bone, and retreated to their core basic services.

A Trip Down Memory Lane
Slowly but surely, CAPEX is growing again, and carriers are introducing new VoIP services. The realization has finally set in that a complete embrace of IP-based technology is the only thing that will save them from a long, drawn-out death spiral. Now, the challenge is on once again to find new enhanced services that will help to redefine their businesses.

I thought I would take a short trip down memory lane, taking a look at a typical application that didn’t make it in the past, but might find new life in much the same way some e-commerce concepts have been resurrected. Now, as before, opportunity beckons with products and services that leverage the Internet and the Web to provide new value and functionality to traditional phone services.

Take for example a now defunct company that was called acallto. acallto fused the power of the Web with the PSTN and created a unique self-service communications platform that allowed users to personalize and control the way they communicated. acallto offered users distinct universal resource locators (URLs) instead of phone numbers, allowing them to launch phone calls from the Web, while keeping their personal telephone numbers private. For calls that were to take place immediately, the caller sent a secure URL to the callee, then entered his phone number into the acallto site, waited a few seconds for their land-line or mobile phone to ring and then picked up the call. Neither party had the other’s number.

This application impressed me, since it had great potential for a number of uses, such as a writer working from the home or road who didn’t want to give out his phone number to contacts; clients of a dating service that wanted to invite prospective dates to call them on the phone, while keeping their number private; individuals that wanted to manage how people contacted them; or to allow casual chat room or auction site acquaintances to call on the phone while retaining the ability to disable repeat calls.

Marc Robins has been involved in the telecommunications industry as a researcher and analyst, author and publisher, and marketing executive and consultant for more than 23 years. Marc served for five years as vice president of publications and trade shows and group editorial director at TMC. Robins Consulting Group offers an array of professional services to the IP telephony industry. Contact RCG at 718-548-7245 or [email protected].

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