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Telecom Meets Web 2.0 - Who Wins?

by: Andrew Schmitt June 27, 2007 | about stocks: CMCSA / GOOG / MSFT / T / VG / VZ / YHOO    
Andrew Schmitt

Andrew Schmitt

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Google (GOOG) appears to be buying GrandCentral, a company that merges VoIP and advanced calling features. They provide you with a single phone number and web/mobile interfaces to manage call redirection, voicemail, address books, etc. Think of it as VoIP on steroids and EPO, simultaneously. Click over to their Features page for a better description and familiarize yourself with how outdated a plain landline has become.

This acquisition is exceptionally interesting because it clearly shows Google recognizes the vulnerability of the Telcos' bread-and-butter voice and long distance business, and intends to capitalize on their failure to deliver incremental value.

(Note: ‘Telcos’ in the context of voice services applies to any provider of simple landline voice service, whether Cable [like Comcast (CMCSA)] or copper based Telco [like AT&T (T) or Verizon (VZ)]. I view the ‘war’ between Telco and Cableco as increasingly irrelevant, as both are fighting for a rapidly depreciating and irrelevant asset - POTS and long distance voice minutes (see "Capex Spend at Comcast: Party Like It's 1999").)

The greatest voice feature from the Telco establishment in the last 20 years was Caller ID. Your teenage daughter might argue that Call Waiting is more important, but then again she probably hasn’t used a landline since she became a teenager, preferring the vastly superior features of a mobile phone or IM client.

In the meantime, the Telcos have completely failed to implement any evolutionary or revolutionary improvements based on VoIP. Upstarts like Vonage (VG) have impaled themselves on the lance of the incumbents, while running up huge customer acquisition costs. You would be correct in saying that VoIP has been a consumer success and a commercial failure.

The big guys like Google, Yahoo (YHOO), and yes, even Microsoft (MSFT) don’t have the same problem. They have deep pockets and more relevant marketing platforms than the Telcos themselves - their email and instant messaging platforms. Voice is a natural extension of their business.

Their offerings up until today have focused on computer to computer connectivity and address the most cost sensitive and technically savvy customers of the telephony market. GrandCentral-type services are a big step up the value chain and offer much higher value than the home phone I pay $50 a month for. They are also dead simple to use.

I just do not see how this ends well for the Telcos, whose oxygen is derived from overcharging for landline service, a service that is vastly superior and cheaper when provided over VoIP. Telcos are great at innovating the pipes (digital switching, digital voice, SONET, DSL, FiOS) - they are awful at innovating with features. Just ask your teenage daughter.

Disclosure: The author owns no positions in the above-mentioned companies.

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This article has 1 comment:

  •  
    Jun 27 02:52 PM
    Simply put, VOIP is only as good as the network it travels over. Seidenburg understands this, which would be why they're in the process of installing the best network this country has ever seen. Hardwired or otherwise. I'm talking, of course, about Fios, their FTTP network. Expensive? Yes. King of the hill in
    the long run? No doubt.

    Disclosure: author is long VZ via their 401k company match.

    James Biringer
    Verizon FTTP fiber splicer
    Reply
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