Thursday, May 12, 2005

VOIP: The Party's Over

Is the Internet telephony service provider market ripe for consolidation? If you read an insightful story by Light Reading's Mark Sullivan, it seems like a no-brainer. Sullivan estimates there are about 400 VOIP SPs in North America. Using data from Infonetics, he calculates ARPU at close to $20 a month. After substracting the revenue of the big boys - Vonage, Cox, Cablevision, and Time-Warner- Sullivan figures the remaining players each had about $70,000 in annual sales. This suggests many of them will disappear as their money evaporates and attracting new capital becomes increasingly difficult due to concerns about competition. At the end of the day, most of the market will be dominated by large, well-financed players such as the cablecos. This explains why Vonage raised another $200 million recently to make sure it can keep up with the pack.
It would wrong, however, to suggest the rest of the VOIP SPs will disappear. I would not be surprised to see dozens of small players thrive by focusing on specific business, cultural, ethnic and special interest niches - much like many dial-up Internet access companies have been happily doing business for years amid the AOLs and EarthLinks of the world. Small, profitable VOIP SPs, which are happy to piggyback on other companies' broadband networks, will continue to exist because the barriers to entry are relatively low. If they target a specific audience with reasonable prices and good customer service, there is no reason why a well-run, low-cost VOIP SP can't find a nice niche. A perfect example of this marketing strategy is how long-distance calling card companies in Canada such as Goldline have done very well by focusing on the Chinese, East Indian, Caribbean and South American communities. If you think about it, VOIP could take the telephony industry back to its roots when there were dozens of local public telephone companies serviing small communities.
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2 Comments:

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