Incumbent VoIP Executives Don’t Fear Cable Entry

Short-term, cable providers have a pipe into the home and the advantage of selling VoIP as a “value-added service,” acknowledged David Epstein, pres. of BroadVoice. “Longer term, we have customers using software from all kinds of end points, from all ends of the world. That’s because we [view] this service as not being tied to the access.” Epstein said this approach could pay dividends as independent providers start to offer phones that can be used both on landlines and through Wi-Fi connections.

Ravi Sakaria, pres. of VoicePulse, sees a market large enough to share. “There are 41 million people who have broadband in the U.S.,” he said. “Let’s say we have less than 1 million customers. There are still 40 million we can go after this year. Next year, there will be 70 million, and that’s domestically… We haven’t even begun to scratch the surface that we have.” Sakaria noted that cable is more geographically focused while VoIP independents are national or international in scope.

“From a consumer point of view we've done a lot of research and it’s absolutely clear that mobility is absolutely one of the key trends in where we are going,” added Katherine Bagin, an AT&T vp. “VoIP is a complement to mobility. Indirectly, it ties your cellphone capabilities with your home capabilities.” With VoIP a customer no longer has to provide multiple contact numbers: “You could give out one number and it will find you anywhere. You could tie your cellphone to your home phone.”

Pulver.com CEO Jeffrey Pulver warned VoIP providers must avoid competing just on price, a battle they're unlikely to win against the big incumbent providers. The features on handsets offered by VoIP providers have been “interesting but not terribly innovative,” Pulver said. He added: “I'm worried by this. If everyone competes on price, at the end of the day it becomes a zero-sum game and the company with the deepest pockets wins.”

Pulver said VoIP independents could learn a lot from how wireless has competed for customers. “All the Verizon ads that advertise ‘can you hear me, can you hear me’ for our industry is a great thing,” he said. “VoIP in its worse shape is much better than cellular, especially in the New York City area.”

Regulatory issues also figured prominently at the summit, which comes against the backdrop of Minn. becoming Tues. the 2nd state after Cal. to legally challenge the FCC’s Nov. decision that it and not the states should have primary jurisdiction over VoIP. In late Dec. the Cal. PUC filed an appeal in the 9th U.S. Appeals Court. The Minn. appeal is in the 8th Circuit.

Intercarrier compensation (IC) reform, often couched as a telephone debate, is critical for VoIP providers, said Robert Pepper, FCC policy development chief. Asked whether the Commission will have the courage to take on the contentious topic and make real changes, he noted that just this week an IC notice of further rulemaking started circulating on the 8th floor, with a vote due as early as the Feb. agenda meeting (CD Jan 4 p1).

The notice will send out for comment a number of key industry proposals for changing the IC regime and is by many accounts likely to be one of the 2 or 3 most significant telecom issues before the FCC over the next year.

“The system is broken. The existing system is hemorrhaging,” he said. “There’s enormous pressure to fix it…. It’s going to be difficult. There’s no doubt about it.” Pepper added: “The Commissioners this week are considering the first stages of reform. This is moving and I'm optimistic that we will see reform.”

Pepper said on more general VoIP regulation he has advised the FCC to clearly separate social issues like 911 from economic regulation. “Where’s the market power?” he asked. “Why do you need to regulate this stuff?”

The VoIP summit at the beginning of CES shows the changing nature of the electronics industry, Pepper said. VoIP “changes the fundamental underlying economics of what we have come to regard as the telephone industry,” Pepper said. “Is it a technology? Is it the next stage of competition? Is it a driver of broadband?… Is it a new phone company? Is it your old phone company? Is it something completely different? It’s actually all of the above, and that’s why it’s important to consumers.”

Pepper observed that incumbent phone companies are changing their view of VoIP. “For incumbent local telephone companies in the short term, VoIP is threatening because it threatens underlying traditional mechanisms for money,” he said. “Going forward for the incumbent companies it’s all about new products and services and a way to retain customers. Every single one of the major big incumbent companies, especially the 2 biggest, Verizon and SBC, are aggressively moving into VoIP, and it’s the future of their business.”