Numbers don't add up for Telcos

Opinion This week Verizon, the local New England telephone company, reported lower revenues and of lower associated profits. The cause was the flight of their customers from conventional telephone lines and long distance calls.

Verizon’s stock fell, as did other regional US telephone companies on the news and I think this wrong number is the first of many for a particularly nasty set of monopolies.

Verizon’s problem is systemic – profitable long distance calls and phone lines have gone to mobile ‘phone companies and cable TV companies. The US mobile phone market is now price driven, with each competitor increasing the free long distance minutes at what seems like almost weekly intervals.

Apparently now it’s hard to find any young and single mobile phone-equipped person with a conventional long distant telephone company calling plan; these folks just use their free minutes. In fact with the depressed economy, a lot of folks are giving up conventional “wired” phones, and managing nicely with their mobiles, which they now can’t do without.

Cable TV companies are aggressively connecting their customers to high-speed Internet services, which increasingly include low cost telephone services. Fax, virtually eclipsed by email-based imaged transmission, is now just another cheap Internet service for a dwindling user base. Dial-up Internet services and the second phone line to accommodate it, are fading memories in the 30 million US homes already using broadband.

Even small rural towns in America which have been left behind by both cable and telephone companies, are having City Hall construct public WiFi networks; recognizing that connection to the Internet is vital infrastructure.

And alternatives are popping up in the UK – my pal Alan who lives in the village of Bottisham near Cambridge has just connected to a private Wi-Fi network.

Worse news yet for the phone companies is on its way. A new set of technologies called PLC (Power Line Communications) means that electricity companies, just like the TV cable companies, will shortly enter the broadband market, providing broadband services to homes and businesses. Mobile wireless data services, so much the focus of G3 technology, are agoing to increasingly available through public Wi-Fi, which more and more, is being given away for free by coffee shops and other small businesses as customer enticements. It’s a free for all.

As if things could get no worse, in recent months a new, fully Internet (VoIP) based phone company has emerged in the US called Vonage. These folks sell their service to homes and businesses that already have broadband connections. Vonage provides a small Cisco VoIP device that you attach to your broadband router and home phone wiring system; after that you get access to rock-bottom telephone call prices. (I signed up a few months ago and have effectively halved my phone bill.) But price is only half the story.

With Vonage you can chose the area code of your telephone number, and for very little money you can have multiple Vonage numbers, each in different area codes of you choice. This means “local” presence; people in with the same area code effectively call you wherever you are located, at local call charges to them, no charge to you. Better still, all the usual add-on services, like call waiting, call forwarding, voice mail etc. come bundled in deal, as does rock bottom international call rates and free long distance minutes.

Better yet, voice mail calls are emailed to you, and all the phone administration, including bill payment, is done over the Internet. But, as they say, that’s not all. You can take your Cisco device with you wherever you go in the world and by just plugging the device into a broadband connection, your at your home number, able to make and receive calls at Vonage prices. I’ve even heard of businesses and individuals buying the service and using it to access the USA network from Europe.

This whole deal reminds me of some work I did for a UK advertising company years ago. I got to have lunch with the MD and Creative Director, who had just done market research for a cigarette lighter company on who their competition was. Was it Ronson, the low-end player? Or Dupont or Dunhill, the high-end players? Turns out that it actually was Parker Pen. The company learned that they were in the gift market.

My take is that telephone companies still think that other phone companies are their competition, and that the rules and givens of phone company competition will work in their favor. But actually they are actually in connection. And with increasingly wrong numbers. ®

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About Cormac O'Reilly: Late sixties IT industry entrant with early developer gigs in London at Abbey National, Unilever & BOC. Senior IT oil field trash in the eighties and nineties; Schlumberger (Houston TX) and Shell (The Hague). Board IT big-wig at Costain (London) before CIO/CTO at Digital and Wang Global/ Getronics (Boston). Non-exec director at two flame-out dot.coms; now spending ill gotten gains and being provocative in Newburyport, MA