Saturday, August 13, 2011

Will U.S. Service Providers Ever "Outsource" Voice?

Much has happened in the voice business over the last decade, since the advent of IP communications and VoIP. But much has not happened. Some might have thought a whole new industry might arise. Instead, VoIP and IP communications arguably are more aptly seen as the latest evolution of voice services. In other words, it isn't so clear that VoIP has created a new business, so much as changed the existing business.

Still, you have to wonder whether the current trajectory of domestic voice operations does not point to some eventual change of wider scope. As fixed-line service provider voice revenues continue to decline, is there some logical point where it makes sense to outsource the entire voice operation?

One might argue that market share shifts have been the single biggest impact IP telephony has caused in developed markets, as the voice market has contracted. To be sure, mobility might be the bigger driver of change, as for most consumers in developed markets, voice increasingly means "mobile" voice. Also, with the notable exception of cable operators, at least in the U.S. market, incremental revenue gains from providing IP telephony are hard to find.

The point is that it is hard to argue that VoIP has grown service provider revenues in aggregate. 

Vonage has reported record high net income of $22 million in its second quarter of 2011. In the grand scheme of things, that isn't a lot of revenue. Vonage Reports Record Net Income

Much-larger Skype has produced little net profit since 2003. Last year the company posted revenue of $860 million and $264 million in operating profits, but still had a loss of $7 million. Read more here.. Again, the amount of traffic Skype represents is prodigious. But the revenue contribution still remains fairly small.

And it can be argued that voice continues to decline as an important revenue generator for tier-one providers.

During its second quarter of 2011, Verizon Communications reported that wireline voice revenues dropped to 14 percent of total revenue, down from 21 percent in the second quarter of 2009. See more here..

In its second quarter 2011 report, AT&T noted that wireline voice represented 20 percent of total revenue, compared to 23 percent for the second quarter of 2010. See more here.

One has to wonder how much longer it will make sense for many tier-one providers to spend much time on their voice operations. In the international calling business, there already is talk of outsourcing the entire function. Whether that soon will make sense for domestic voice is questionable.

But, at some point, even the largest U.S. fixed-line providers might have to think about the expense of providing voice services. Are there potential new wholesale opportunities? Might there be clear financial benefits to outsourcing domestic and international voice operations in some way? Those aren't "live" questions yet, in the U.S. domestic market. At some point, they might make more sense, though.

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