Carrier VoIP Struggling To Reach Small Companies

Updated: April 30, 2009

Small businesses looking for innovative VoIP services from large phone companies had better not get their hopes up. A new Dell'Oro Group report shows that telco investment in IP telephony equipment is down significantly. And by the evidence, the trend is likely to continue. According to the report's author, traditional phone companies have little interest in further investment to upgrade their voice infrastructures.

The report found that global sales of IP phone gear to service providers fell 8 percent to $861 million in the second quarter of 2008 compared to a year earlier. The decline from Q1 of 2008 was steeper still at 10 percent. The providers in question include traditional telcos, cable VoIP companies and voice-over-broadband operators like Vonage. But the traditional phone companies accounted for the bulk of the sales, said Dell'Oro vice president Greg Collins, and such carriers don't have much reason for buying.

They could theoretically improve their margins if they did buy. VoIP "softswitches" are cheaper to purchase and operate than the giant traditional Class 5 phone switches the carriers used to use exclusively. But the telcos aren't buying traditional switches either, according to Collins. The reason: their voice business isn't growing, it's shrinking. Thanks to competition from cable and wireless providers, their total subscriber numbers are declining, as is their revenue per subscriber. Thus they can't justify expenditures on new VoIP switches, even if they're relative bargains. "All they're trying to do is save money and hope subscribers don't go to cable or wireless," Collins stated.

Although sales of VoIP equipment to cable companies are down as well, Collins said that's not an ongoing trend. Unlike the traditional telcos, cable providers see voice as a growth business, he explained, so the downturn in their buying is a result of cyclical spending patterns. Collins expects their IP telephony gear purchases to increase in the third quarter.

Overall, the environment Collins described represents bad news for smaller businesses looking for innovative IP-based voice services from big-name regional or national providers. Equipment cost aside, traditional phone companies have little interest in offering such services, since doing so would more likely cannibalize their remaining voice businesses than provide new revenues. Cable providers, on the other hand, are intensely interested in providing VoIP services to SMBs, but have a long way to go before they'll be able to pull it off on a large scale .

The good news is that there are plenty of innovative VoIP companies ready to help. They range from voice-over-broadband and SIP-trunking providers to vendors of IP PBXes that work with such SIP trunks. Though they typically aren't big-name providers with huge support organizations, the sophisticated services they offer at least aim to make the small businesses that use them seem bigger.

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