Cisco, Microsoft, Google, AT&T, Telefonica, et al: the disruptive battle for value in communications

Technology: Products and Vendors’ Approaches

There are many vendors and products in the voice/telephony arena. Some started as pure voice products or solutions like Cisco Call Manager, while others such as Microsoft Office 365 started as an office productivity suite, to which voice and presence became a natural extension, and then later a central part of the core product functionality. We have included details on RCS, however RCS is not globally available, and is limited in its functionality compared to some of the other products listed here.

Unified Communications

Unified Communications (UC) is not a standard; there are many different interpretations, but there is a general consensus about what it means – the unification of voice, video, messaging, presence, conferencing, and collaboration into a simple integrated user experience.

UC is an important technology for enterprise customers, it brings mobility and agility to an organisation, improves communication and collaboration, adds a social element, and lowers costs by reducing the need for office space and multiple disparate communications systems each with their own management and control systems. UC can be delivered as a cloud service and has the acronym UCaaS. Leading providers are Microsoft, Google, and Cisco. Other players include IBM, 8X8, and a number of other smaller vendors, as well as telco equipment manufacturers such as Ericsson. We have covered some of the leading solutions in this report, and there are definite opportunities for telcos to collaborate with these vendors, adding integration with core services such as telephony and mobile data, as well as customer support and billing.

There are several elements for an enterprise to consider when developing a UC solution for it to be successful:

  • Fixed voice functions and needs (including PBX) and integration into a UC solution
  • Mobile voice – billing, call routing, integration with fixed and UC solutions
  • Desktop and mobile video calling
  • Collaboration tools (conferencing, video conferencing, desktop integration, desktop sharing etc.)
  • Desktop integration – how does the solution integrate with core productivity tools (Microsoft Office, Google Apps, OpenOffice etc?)
  • PC and mobile clients – can a mobile user participate in a video conference, share files
  • Instant messaging and social integration
  • How the user is able to interact with the system and how intuitive it is to use. This is sometimes called the user experience and is probably the most important aspect, as a good user experience promotes efficiency and end user satisfaction

From the user perspective, it would be desirable for the solution to include the basic elements shown in Figure 1.

Figure 1: Basic user needs from Unified Communications
Voice Messaging Tech Cover

Source: STL Partners

Historically, Enterprise communications has been an area where telcos have been a supplier to the enterprise – delivering voice end points (E.164 phone numbers and mobile devices), voice termination, and outgoing voice and data services.

Organisational voice communications (i.e. internal calling) has been an area of strength for companies like Cisco, Avaya, Nortel and others that have delivered on-premise solutions which offer sophisticated voice and video services. These have grown over the years to provide Instant Messaging (IM), desktop collaboration tools, and presence capabilities. PC clients often replace fixed phones, adding functionality, and can be used when out of the office. What these systems have lacked is deep integration with desktop office suites such as Microsoft Office, Google Apps, and Lotus Notes. Plug-ins or other tools can be used to integrate presence and voice, but the user experience is usually a compromise as different vendors are involved.

The big software vendors have also been active, with Microsoft and IBM adding video and telephony features, and Google building telephony and conferencing into its growing portfolio. Microsoft also acquired Skype and has delivered on its promise to integrate Skype with Lync. Meanwhile, Google has made a number of acquisitions in the video and voice arena like ON2, Global IP Solutions, and Grand Central. The technology from ON2 allows video to be compressed and sent over an Internet connection. Google is pushing the products from ON2 to be integrated into one of the next major disruptors – WebRTC.

Microsoft began including voice capability with its release of Office Communications Server (OCS) in 2007. An OCS user could send instant messages, make a voice call, or place a video call to another OCS user or group of users. Presence was directly integrated with Outlook and a separate product – Office Live Meeting – was used to collaborate. Although OCS included some Private Branch eXchange (PBX) features, few enterprises regarded it as having enough features or capability to replace existing systems from the likes of Cisco. With Office 365, Microsoft stepped up the game, adding a new user interface, enhanced telephony features, integrated collaboration, and multiple methods of deployment using Microsoft’s cloud, on premise, and service provider deployments.

 

  • Technology: Products and Vendors’ Approaches
  • Unified Communications
  • Microsoft Office 365 – building on enterprise software strengths
  • Skype – the popular international behemoth
  • Cisco – the incumbent enterprise giant
  • Google – everything browser-based
  • WebRTC – a major disruptive opportunity
  • Rich Communication Service (RCS) – too little too late?
  • Broadsoft – neat web integration
  • Twilio – integrate voice and SMS into applications
  • Tropo – telephony integration technology leader
  • Voxeo – a pathfinder in integration
  • Hypervoice –make voice a native web object
  • Calltrunk – makes calls searchable
  • Operator Voice and Messaging Services
  • Section Summary
  • Telco Case Studies
  • Vodafone – 360, One Net and RED
  • Telefonica – Digital, Tu Me, Tu Go, BlueVia, Free Wi-Fi
  • AT&T – VoIP, UC, Tropo, Watson
  • Section Summary
  • STL Partners and the Telco 2.0™ Initiative

 

  • Figure 1: Basic user needs from Unified Communications
  • Figure 2: Microsoft Lync 2013 client
  • Figure 3: Microsoft Lync telephony integration options
  • Figure 4: International Telephone and Skype Traffic 2005-2012
  • Figure 5: The Skype effect on international traffic
  • Figure 6: Voice call charging in USA
  • Figure 7: Google Voice call charging in USA
  • Figure 8: Google Voice call charging in Europe
  • Figure 9: Google outbound call rates
  • Figure 10: Calliflower beta support for WebRTC
  • Figure 11: Active individual user base for WebRTC, millions
  • Figure 12: Battery life compared for different services
  • Figure 13: Vodafone One Net Express call routing
  • Figure 14: Vodafone One Net Business Call routing
  • Figure 15: Enterprise is a significant part of Vodafone group revenue
  • Figure 16: Vodafone Red Bundles
  • Figure 17: Telefonica: Market Positioning Map, Q4 2012
  • Figure 18: US market in transition towards greater competition
  • Figure 19: Voice ARPU at AT&T, fixed and mobile
  • Figure 20: Industry Value is Concentrated at the Interfaces
  • Figure 21: Telco 2.0™ ‘two-sided’ telecoms business model

The Future Value of Voice and Messaging

Background – ‘Voice and Messaging 2.0’

This is the latest report in our analysis of developments and strategies in the field of voice and messaging services over the past seven years. In 2007/8 we predicted the current decline in telco provided services in Voice & Messaging 2.0 “What to learn from – and how to compete with – Internet Communications Services”, further articulated strategic options in Dealing with the ‘Disruptors’: Google, Apple, Facebook, Microsoft/Skype and Amazon in 2011, and more recently published initial forecasts in European Mobile: The Future’s not Bright, it’s Brutal. We have also looked in depth at enterprise communications opportunities, for example in Enterprise Voice 2.0: Ecosystem, Species and Strategies, and trends in consumer behaviour, for example in The Digital Generation: Introducing the Participation Imperative Framework.  For more on these reports and all of our other research on this subject please see here.

The New Report


This report provides an independent and holistic view of voice and messaging market, looking in detail at trends, drivers and detailed forecasts, the latest developments, and the opportunities for all players involved. The analysis will save valuable time, effort and money by providing more realistic forecasts of future potential, and a fast-track to developing and / or benchmarking a leading-edge strategy and approach in digital communications. It contains

  • Our independent, external market-level forecasts of voice and messaging in 9 selected markets (US, Canada, France, Germany, Spain, UK, Italy, Singapore, Taiwan).
  • Best practice and leading-edge strategies in the design and delivery of new voice and messaging services (leading to higher customer satisfaction and lower churn).
  • The factors that will drive best and worst case performance.
  • The intentions, strategies, strengths and weaknesses of formerly adjacent players now taking an active role in the V&M market (e.g. Microsoft)
  • Case studies of Enterprise Voice applications including Twilio and Unified Communications solutions such as Microsoft Office 365
  • Case studies of Telco OTT Consumer Voice and Messaging services such as like Telefonica’s TuGo
  • Lessons from case studies of leading-edge new voice and messaging applications globally such as Whatsapp, KakaoTalk and other so-called ‘Over The Top’ (OTT) Players


It comprises a 18 page executive summary, 260 pages and 163 figures – full details below. Prices on application – please email contact@telco2.net or call +44 (0) 207 247 5003.

Benefits of the Report to Telcos, Technology Companies and Partners, and Investors


For a telco, this strategy report:

  • Describes and analyses the strategies that can make the difference between best and worst case performance, worth $80bn (or +/-20% revenues) in the 9 markets we analysed.
  • Externally benchmarks internal revenue forecasts for voice and messaging, leading to more realistic assumptions, targets, decisions, and better alignment of internal (e.g. board) and external (e.g. shareholder) expectations, and thereby potentially saving money and improving contributions.
  • Can help improve decisions on voice and messaging services investments, and provides valuable insight into the design of effective and attractive new services.
  • Enables more informed decisions on partner vs competitor status of non-traditional players in the V&M space with new business models, and thereby produce better / more sustainable future strategies.
  • Evaluates the attractiveness of developing and/or providing partner Unified Communication services in the Enterprise market, and ‘Telco OTT’ services for consumers.
  • Shows how to create a valuable and realistic new role for Voice and Messaging services in its portfolio, and thereby optimise its returns on assets and capabilities


For other players including technology and Internet companies, and telco technology vendors

  • The report provides independent market insight on how telcos and other players will be seeking to optimise $ multi-billion revenues from voice and messaging, including new revenue streams in some areas.
  • As a potential partner, the report will provide a fast-track to guide product and business development decisions to meet the needs of telcos (and others).
  • As a potential competitor, the report will save time and improve the quality of competitor insight by giving strategic insights into the objectives and strategies that telcos will be pursuing.


For investors, it will:

  • Improve investment decisions and strategies returning shareholder value by improving the quality of insight on forecasts and the outlook for telcos and other technology players active in voice and messaging.
  • Save vital time and effort by accelerating decision making and investment decisions.
  • Help them better understand and evaluate the needs, goals and key strategies of key telcos and their partners / competitors


The Future Value of Voice: Report Content Summary

  • Executive Summary. (18 pages outlining the opportunity and key strategic options)
  • Introduction. Disruption and transformation, voice vs. telephony, and scope.
  • The Transition in User Behaviour. Global psychological, social, pricing and segment drivers, and the changing needs of consumer and enterprise markets.
  • What now makes a winning Value Proposition? The fall of telephony, the value of time vs telephony, presence, Online Service Provider (OSP) competition, operators’ responses, free telco offerings, re-imaging customer service, voice developers, the changing telephony business model.
  • Market Trends and other Forecast Drivers. Model and forecast methodology and assumptions, general observations and drivers, ‘Peak Telephony/SMS’, fragmentation, macro-economic issues, competitive and regulatory pressures, handset subsidies.
  • Country-by-Country Analysis. Overview of national markets. Forecast and analysis of: UK, Germany, France, Italy, Spain, Taiwan, Singapore, Canada, US, other markets, summary and conclusions.
  • Technology: Products and Vendors’ Approaches. Unified Comminications. Microsoft Office 365, Skype, Cisco, Google, WebRTC, Rich Communications Service (RCS), Broadsoft, Twilio, Tropo, Voxeo, Hypervoice, Calltrunk, Operator voice and messaging services, summary and conclusions.
  • Telco Case Studies. Vodafone 360, One Net and RED, Telefonica Digital, Tu Me, Tu Go, Bluvia and AT&T.
  • Summary and Conclusions. Consumer, enterprise, technology and Telco OTT.

Strategy 2.0: Lessons from Vodafone’s success in European SMB Communications

Summary:  Vodafone have been quietly stealing a march in the European SMB communications market with a well executed strategy centred on its OneNet cloud-based product. We look at how, including comparisons with BT, Telenor, and others. (May 2012, Executive Briefing Service)

Vodafone Voice Analysis May 2012

  Read in Full (Members only)  Buy a single user license online  To Subscribe click here

Below is an extract from this 24 page Telco 2.0 Report that can be downloaded in full in PDF format by members of the Telco 2.0 Executive Briefing service here. Non-members can subscribe here, buy a Single User license for this report online here for £795 (+VAT for UK buyers), or for multi-user licenses or other enquiries, please email contact@telco2.net / call +44 (0) 207 247 5003.

We’ll also be discussing our findings at the London (12-13 June) New Digital Economics Brainstorm where we’ll be joined by Bob Brace, Vodafone’s Head of Cloud and Unified Comms, in the Cloud 2.0 stream.

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Introduction – Challenges and Opportunities in Voice and Unified Communications

Although voice minutes of use are still rising slowly worldwide, it is increasingly the case that the predictions of falling revenues from traditional services are becoming a reality, and sooner than expected. A combination of regulatory pressures, price competition between operators, and disruptive competition from new entrants is crushing margins. 

Figure 1: Skype Punishes Carriers on International Voice

Skype Punishes Carriers on International Voice

Source: TeleGeography

Most worryingly, the continued huge growth in volumes at Skype and the popularity of alternative messaging options like WhatsApp, BlackBerry Messenger, and Apple’s iMessenger show that the disruption is disproportionately affecting the most profitable segments of the traditional telecoms bundle – international and SMS respectively. 

Increasingly, small and medium-sized businesses (SMBs), another key line of business, are turning to the growing numbers of independent VoIP providers. And, more broadly, voice, messaging, and video conferencing features are being disaggregated and diversified, showing up in all kinds of software, hardware, and Web service contexts – exactly as we predicted in 2007.

Again as we predicted, voice is more and more being delivered as part of a broader communications product. In the enterprise, this typically manifests itself as a “unified communications” (unicomms or UC) application, integrating telephony, voicemail, e-mail, and often also instant messaging, presence-and-availability, teleconferencing, and collaboration tools. This can be delivered on-premises, for example by an Asterisk system or an integrated hardware appliance like the ones Cisco sells, as a Web service (like Huddle or Salesforce Chatter), as a hosted/cloud-based network service, or as a telecomms operator service (like IP-Centrex).

In this context, some operators are not just surviving but succeeding. There is not only crisis here, but also opportunity. Cisco forecasts that there is a world market for $20bn of hosted unified-comms services, making up about 40% of the total “managed” UC market. Vodafone expects a 25% CAGR over the next four years in both UC and cloud services for SMBs and enterprises, with a total European market of $15bn in 2015. As for the broader communications market, BT estimates that the total UK SMB communications market is worth some £29bn from 4.8 million customers.

Figure 2: Cisco estimates $20bn of hosted unified communications, $50bn “managed”

Cisco Estimates $20bn of Hosted Unified Communications
Source: Cisco Systems, STL Partners

The drivers are clear – SMB customers are keen to get rid of the costs of owning and managing local PBXes on the one hand, to enjoy the (perceived) low, low prices of VoIP, and also to upgrade their communications services from the early 1990s GSM feature set plus the late 1990s BlackBerry e-mail service to something more in keeping with the age of Google +, the Apple iPhone, and Skype. 

At the same time, operators are in search of new sources of revenue to replace the business and international voice and SMS cash cows. As always, they also need to find applications that sell-through their basic connectivity products. Hardware vendors are keen to extend their own businesses, which are challenged by the availability of open-source software and cloud-based services. And the software and Internet service players are trying, in their turn, to defend against the remorseless drift towards “free”.

In this note, we will discuss three European operators’ response to the challenge and the results, and we will also discuss how the vigorous Voice 2.0 disruptor ecosystem relates to the SMB core market. We will start with an example of success – Vodafone.

Figure 3: Why SMB & enterprise UC is a priority at Vodafone

Why SMB & Enterprise UC is a Priority at Vodafone
Source: Vodafone interim report

Vodafone: clear definitions and responsibilities pay off

In the UK, this space is dominated by two players, Vodafone and the ex-incumbent BT. Their results contrast dramatically. 

Vodafone is aggressively promoting a cloud-based UC package, OneNet, to its SMB customers in the six biggest European markets, and looking to roll it out across the wider Vodafone Group. 

Meet Vodafone OneNet: Unified Comms in the Cloud for SMBs

OneNet is a cloud-based unicomms product, which offers single numbers for both fixed and mobile telephony, advanced call management, multi-ring and hunt groups, and voicemail integrated with push e-mail across mobile devices, fixed phones, and VoIP softphones, with a single bill and central account management via a Web interface and a smartphone app. Vodafone also offer Office 365 from Microsoft as an extra cost option and later this year (2012) will offer integration between One Net and Microsoft Lync enabling “click to call from Microsoft applications and the ability to answer an incoming call to a mobile number in Lync.

OneNet Express is a lightweight version of the product for small businesses, offering virtual landline numbers and some call management features, as well as the account management service, for mobile lines only. Both versions of the product are delivered as pure network services, running in Vodafone’s core network.

A Note on the Accounts

Although Vodafone is increasingly keen to boast about its performance in the SMB and enterprise markets, it doesn’t yet provide a line-of-business analysis in its accounts. However, we’ve constructed a roughly comparable data series, based on the growth figures Vodafone does provide, its own statement that 31% of its European revenue is from business customers, and its geographical segment breakdowns. 

A caveat must be introduced in that Vodafone Global Enterprises (VGE), the large enterprise & government business roughly analogous to BT Global Services, is included in the Vodafone series while BTGS is broken out in the BT accounts. BT does not provide a breakdown of BTGS revenue detailed enough to create an identical BT series. However, as we will soon see, it is unlikely that Global Services have contributed enough growth to falsify the conclusion we are about to draw.

In the six OneNet markets (Germany, Italy, Spain, the UK, the Czech Republic, and Portugal) through 2011, revenue growth averaged 4.8%, and it is worth noting that there is substantial momentum. Q1 saw sequential growth of 2.4%, Q2 4.85%, and Q3 7.38%. In the market and economic context, this is a spectacular performance.

Figure 4: Vodafone Is Doing Far Better In The UK

Vodafone is Doing Far Better in the UK
Source: STL Partners, Vodafone, BT

In the last 7 quarters, Vodafone’s revenue from UK business customers grew in 6 of them. It beat BT in every one of the quarters we looked at. Not only is it growing quite quickly, while BT’s is shrinking dramatically, it is almost three times as big in absolute terms (although some of this will be down to the differences in segment allocation). 

In Europe more broadly, the same picture is visible even more strongly, with the SMB segment growing at 5-8%% in major markets like Germany and Italy, and accounting for most of the growth in final ARPU. Although Vodafone’s south European interests are in the firing line of the economic crisis, this line of business has been remarkably robust. In the last three months of 2011, service revenue in Italy shrank almost 5 per cent – but revenue from SMBs and enterprises rose 1.9%. At the same time, service revenue in Germany grew 0.3%, but the OneNet target markets grew 5%. In Q2, service revenue in Italy was down 4.1%, but enterprise was up 5.8%, and OneNet itself was growing at 70% annually. In Germany, at the other end of the European economic spectrum, enterprise was up 6.6% year on year compared with total service revenue at 1.2%.

Figure 5: OneNet Markets Doing Rather Nicely, Thanks

OneNet Markets Doing Rather Nicely, Thanks
Source: Vodafone interim results presentation, November 2011

To read the note in full, including the following additional analysis…

  • BT: Incumbent or Innovator?
  • BT Voice: Volumes Shrinking…
  • Two other European operator plays
  • Telenor: The Same Factors, the Same Success?
  • So, How Did Vodafone Do It?
  • Compare and Contrast: Vodafone 360
  • The Disruptors: Twilio, Tropo, and friends
  • The Future: beyond hunt groups
  • Conclusions & Recommendations
  • 1: Service design
  • 2: Organisational focus
  • 3: Channels to market
  • 4: Cloud and software power
  • The Telco 2.0™ Initiative

…and the following figures…

  • Figure 1: Skype Punishes Carriers on International Voice
  • Figure 2: Cisco estimates $20bn of hosted unified communications, $50bn “managed”
  • Figure 3: Why SMB & enterprise UC is a priority at Vodafone
  • Figure 4: Vodafone Is Doing Far Better In The UK
  • Figure 5: OneNet Markets Doing Rather Nicely, Thanks
  • Figure 6: Enterprise & SMB Outgrowing Vodafone Group Revenues in last two quarters
  • Figure 7: BT Group strategic priorities
  • Figure 8: BT Organisational Structure – an SMB might touch all of these
  • Figure 9: BT Global Services revenues year-on-year
  • Figure 10: BT losing call volume in the UK…
  • Figure 11: A simple proposition
  • Figure 12: Enterprise revenue in Turkey growing 33% sequentially
  • Figure 13: Cisco’s view of SMB, Developer, and Enterprise Requirements

Members of the Telco 2.0 Executive Briefing Subscription Service can download the full 24 page report in PDF format hereNon-Members, please subscribe here, buy a Single User license for this report online here for £795 (+VAT for UK buyers), or for multi-user licenses or other enquiries, please email contact@telco2.net / call +44 (0) 207 247 5003.

Technologies and industry terms referenced: SMBs, strategy, voice, unified communications, channel marketing, partners, business model, Vodafone, BT, Telenor, Twilio, Tropo, VOIP.

 

Voice 2.0: Strategic Threats and Opportunities

Voice & Messaging 2.0: Strategic Threats and Opportunities,
Presentation by Phil Laidler, Director, Consulting, STL Partners.
Which of the disruptors – Apple, Facebook, Google, Skype – is the
biggest menace? Presented at EMEA Brainstorm, November 2011.
Strategic options for telcos - resisting the disruptors in voice

Download presentation here.

Links here for more on New Digital Economics brainstorms and Voice 2.0 research, or call +44 (0) 207 247 5003.

Example slide from the presentation: