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Barbarians at the Gate, Awaiting Vonage Demise
27 Sep, 2007
If there were odds in Vegas for Vonage’s long term survival, they wouldn’t be looking good right now. Just after losing a patent infringement case to Sprint to the tune of $67 million (plus a 5% royalty of future profits), Vonage also lost parts of their appeal on a similar Verizon patent dispute. The news pushed after hours trading on their stock to less than a dollar per share yesterday. It’s not looking good for Vonage shareholders. Like life in general, business is about perspective. The perspective of Vonage supporters is that of an upstart that was willing to take on an entrenched monopoly industry, only to be attacked (and maybe killed) by the status quo. Telecom status quo supporters say Vonage is a “parasite,” who rode their facilities unfairly, and apparently, illegally, and now deserve what’s coming to them. Time will tell whether Vonage will survive, but I’m sure there is feverish strategizing taking place on how to leverage a Vonage demise. Who stands to win?
Let’s assume for a second that Vonage does not make it. Unlike the SunRocket demise, there doesn’t appear to be another stand alone VoIP provider with enough credibility to absorb a flood of Vonage subscribers. The irony in this, is to some extent, Vonage played this role after the SunRocket episode. But now, Vonage subscribers really won’t have another VoIP only company to turn to. In a Vonage demise scenario, VoIP subsbcribers will probably be quite leery of signing up with yet another VoIP only provider anyway. That would suggest that either cablecos or telcos have the best chance at Vonage’s two million plus subscribers. An argument can be made that cable may have the lead, since many Vonage customers abandoned the local telephone company and may not feel comfortable returning. Cable would be wise to come up with a “welcome Vonage customer” campaign, seizing on the advantages of being an alternative to the local phone company. But before cable gets too excited, they should recognize that many Vonage customers never left the local phone company, and use Vonage as a second line (“teen” lines as an example). Telcos will therefore have a golden opportunity to “win” those customers back with their own second line VoIP option. AT&T’s VoIP product is branded CallVantage, while Verizon’s is branded VoiceWing. This Vonage scenario may be a boon for those less recognized VoIP brands. Of course, all of this may be moot, should a suitor just come in and buy Vonage’s subs outright. I haven’t, nor am I qualified to, done any valuation analysis, but Vonage as a company appears to be getting cheaper by the day. Pretty soon, those two million subs may be cheap enough to buy outright, robbing us of the spectator view for a feeding frenzy on “serviceless” Vonage subscribers.
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Should Telephone Service be Free?
12 Oct, 2008
Comcast announced a new promotion last week that offers 12 months of free basic cable service for new customers who also sign up for an additional service. Customers who don’t want an additional service can get Comcast’s basic service of about 20 -30 channels for $10/month. The promotion is tied to the digital TV transition of February 2009 and entices potential customers to avoid the transition “hassle” by getting “free” cable service. “The simple fact is that basic cable is the easiest path through the digital transition and now consumers can get it for free,” said Derek Harrar, General Manager and Senior Vice President, Video Services for Comcast in a company statement. This move is similar to strategies pursued by other video service providers, who are hoping to leverage the digital TV transition for new subscriber additions.
But is this strategy a leading indicator for the future? Should basic core services like basic cable and basic telephone service be offered for free, used as a “carrot” to entice customers to buy “more important” services like broadband? Maybe a very basic phone service, with no LD, access to landline 911, and maybe outgoing service only (to avoid telemarketers) should be a free component of a bundled offering. Such a wireline service may appeal to a customer who previously cut the cord for wireless only, but also needs broadband. There is a growing portion of the population who find the value of traditional wireline phone service elsewhere – either through wireless or broadband/IP services. But, if they could get the security of landline 911, and an extra dial tone in their home as a free value add for subscribing to broadband (or video from a telco’s perspective), maybe a telco’s bundled offering may look more attractive than a comparable cable offering. I realize this idea is not appealing to the hundreds of ILECs who are a part of the current access/settlement system (in fact, it couldn’t work in the context of today’s regulatory structure), but I wonder whether it’s inevitable. In this possible future scenario, the current settlement system adapts to broadband as the underlying service, as opposed to voice.
This scenario cuts both ways. From a cable company’s perspective, a growing portion of the population is turning to the Internet as a source for their video content, and no longer see value in paying for a broad package of video as a part of a traditional subscription pay-TV service. But, if they could receive basic TV (which includes local broadcast affiliates) as a free value add for buying broadband, maybe the cable bundle is more attractive. In a true IP/broadband world, very basic phone and video service is relatively easy to deliver, and has little impact on bandwidth and network performance. Maybe the digital transition is opening the door to a future where free basic services are a regular component of a bundled offering. Thoughts?