Jeff's Advice for RBOCs and PTTs: Become Broadband Parasites

June 2, 2003 - by:Jeff Pulver

On a VoIP panel discussion at the recently completed Ninth Annual Goldman Sachs Telecom Summit in Santa Barbara, CA, I outlined a strategy for the RBOCs/PTTs to play and win in the Voice over Broadband space and in effect regain their competitive edge in providing local phone service.

To some, the concept of a communications Application Service Provider (ASP) breaks the known rules of engagement and has the potential to redefine the communications industry as it was once known.

For those of you who know me, you may recall that I'm a believer of what I call "Lennon/McCartneyism" which was largely influenced from the lyrics from the song "The End" from Beatles Abby Road Album - "...and in the end the love you take is equal to the love you make." From those words I envision a Greenfield opportunity of embracing a balanced broadband empowered world where end user empowerment exists and where people can just pay for access (dumb pipes) and have the freedom of choosing who/what and where their service providers come from. A corollary that in this model, non-traditional service providers will show up and start offering "services." This is happening today as represented by the overnight success of companies like Vonage and this is one of the trends that may in fact help save the communications industry.

In this Greenfield opportunity, the advent of end-to-end IP provides the virtual mulch. From this mulch, the opportunity exists to grow plants, trees, weeds and more. Fertilizer needs to be provided, the seedlings need to be nurtured and my hope is that we can help control the "weed" population without much (if any) regulation. My hope is that this become a world made available by deregulation rather than new regulation.

With all of this said, my number one rule for those who wish to compete in the Voice over Broadband space is: "Embrace the Technology and Act as a Good Parasite."

"Embrace and Act as a Good Parasite", yes this is what I'm saying.

It wasn't that long ago that a common assumption was that local phone service would always be delivered by the incumbent operator. In the US this was the RBOCs and outside of the US it was the local PTTs

What almost everyone seemed to miss was the fact that while most telecom executives were in the board room making assumptions about running a wireline telephone business, the business of the wireless industry happened and we are at point in time today where 40% of all telephone calls in the US originate or terminate on a cell phone and where this trend may in fact be accelerating. This in turn, plus the emergence of availability of broadband empowerment of consumers has had a noticeable impact in the top line revenue of 2nd line phone service in the US with the RBOCs and the PTTs around the world. There are a growing number of consumers who today rely on their cell phone as their primary phone and don't pay to have any connectivity to/from their respective incumbent operator. Residential 2nd line (and 3rd, 4th, etc.) service has been replaced by the purchase of either DSL or Cable Modem service and/or the increased use of wireless/cellular phone service in the home.

In a parallel time frame, since 1997, the VoIP industry was incubating it's core technologies and the QoS on the public internet was getting better to the point that by early 2002, consumers were for the first time offered the choice of replacing their secondary phone service from companies like Vonage.

From one perspective, revenue prospects for Voice over broadband services look to be on the rise and revenue from traditional phone services look to be on the decline.

So what can be done to fix all of this if you are an incumbent operator?

Put artificial barriers to entry in place to try to slow down the competition? Maybe that works, but eventually it doesn't. A better approach is to embrace the technology head on and leverage it to your favor.

My strategy for the ILECs and the PTTs of 2003 is as follows:

Embrace VoIP and launch a consumer 2nd line phone service inside your territory as a pure parasite play and deliver the service over broadband - both Cable and DSL and play the same game as the other voice over broadband service providers. You don't need to pay for the roll out of the cable plant, or to play for the access for your prospective customers to benefit from. As a pure parasite you gain access without the cost.

Plus people still have a "trust" relationship with you so even if they don't opt-in for your primary phone service, you do make a compelling reason to be the secondary phone service in the home. Did I mention that you also know where everybody lives and you can quickly identify the customers who have left you and can focus on creating enough awareness so that you can gain new customers faster than the startup competition which has to spend significant dollars on branding and marketing.

So start out by offering 2nd line phone service in the territory that you still offered primary phone service and then, if you want to keep the relationship, start rolling out "Purple" applications which enable your new customers with the ability to do more things with communications, things which they could never do before without IP based communications. (Eventually this means that new applications will be rolled out that may in fact be "sticky" enough for you to attract net new customers.)

As far as I can tell, this strategy turns out to be a win/win all the way around for most of the players and would completely validate the ongoing work of the emerging new order of voice over broadband players.

When successful, roll out the services on a national / international basis. The international LD arms of these operating companies can then go local outside of their national territory and help bring communications to a new generation of people.

Just a thought on how everybody can win in this new broadband enabled world.