Margin, Churn Improvement at 8x8

Revenues from Packet8 Virtual Office hosted business phone service now contribute 48 percent of total 8x8 revenues, up one percent from the previous quarter. Virtual Office revenue grew eight percent over the prior quarter. That's important given 8x8's intention to focus on business customers, even as it fills out its revenue with consumer customers.

In the consumer segment, revenue was flat, and declined by three percent year over year. So the consumer business appears stable.

During the December quarter, 8x8 gross margins were 65 percent, an improvement 8x8 attributes to improved scale. Overall service margins rose to 70 percent. Packet8 Virtual Office service margins increased to an all time high of 83 percent, an impressive figure rivaling the sort of return an efficient provider gets from far-simpler T1 services.

Packet 8 Mobile VoIP Trial Program Launched

8x8, provider of Packet8 voice and video services, has launched a no-obligation, no-fee trial program that lets customers of any U.S. based wireless carrier experience the dialing simplicity and call quality of the Packet8 MobileTalk mobile VoIP international calling service at no charge.

Wireless customers can download the MobileTalk application onto their mobile device and use the service at no charge until a total of $2.00 in per minute fees is reached. Packet8 MobileTalk service offers rates of $.02 to $.05 per minute for most locations in Europe and Asia.

Users can dial calls directly and natively from their mobile handset, contact list or speed dial directory without the additional keystrokes required by calling card and other reduced rate international calling services. Once the destination number is dialed or selected, the Packet8 MobileTalk software application identifies the international prefix being called and redirects the call to a local Packet8 network access number.

Over 450 Windows, Palm, RIM and Symbian-based mobile phone models, including the entire family of Blackberry phones running version 4.0 of the operating system and above and 25 Nokia models running the Symbian OS, are supported by the Packet8 MobileTalk service.

The plan requires a one-time $9.99 activation fee for the service and a monthly fee of $9.99 for non-Packet 8 subscribers.

Mobile VoIP is growing, no doubt, as shown by this Sound Track Partners forecast.

Skype, Logitech Partner for Video Calling

In 1970, AT&T introduced "Picturephone" service in Pittsburgh. It flopped. In fact, the average person wouldn't normally think to turn to a telephone or cable company to buy or use video-enabled communications. Instead, one might think of WebEx, Cisco, Packet8 or Skype. And options on the mass market front just got better.

Skype and Logitech have partnered to create a High Quality Video experience using Skype 3.6 for Windows and Logitech QuickCam software, version 11.5.

The new capability provides VGA-quality video calls (640-by-480-pixels) at up to 30 frames per second over connections of 384 kbps connection or higher, when using a
High Quality Video-certified Logitech webcam and a PC with a dual-core processor.

Obviously, both end points need the set-up to ensure the best experience. This is a potential experience changer, as it should allow full-screen images with decent quality.

Skype 3.6 for Windows is expected to be available in early November in 28 languages. The Logitech QuickCam software version 11.5 is expected to be available at the same time.

The Logitech QuickCam Pro 9000 and Logitech QuickCam Pro for Notebooks webcams are now available for a suggested retail price of $99.99 in the U.S. and EUR 99.99 in Europe.

The Logitech QuickCam Orbit AF is available now in the U.S. market and Europe for $129.99 and EUR 129.99, respectively.

NetZero Shuts Down VoIP Service

NetZero Voice, the VoIP-over dial-up service sold by NetZero, is being shut down by Dec. 15. Customers who want to migrate to the Packet8 service can do so for $19.95 a month.

Since 2005, NetZero had gotten only had about 12,000 subscribers, it appears. Former NetZero customers might be a mixed blessing for 8x8, though, which now focuses on VoIP services for small businesses. One has to believe most of the NetZero customers are consumers with a high value orientation, possibly similar in profile to the high-churning value customers EarthLink has to contend with.

So not only are the potential new customers outside the desired customer segment 8x8 is chasing, they probably are high churn customers as well. Time will tell.

Fred Pitts Back in Service with TeleBlend

It took 10 days, but TeleBlend customer Fred Pitts FINALLY is back in service.
"My first try to call home this morning continued with the "fast busy" signal; by midmorning, however, it was working," Pitts says. "So, while disappointed to have been without incoming service for such a length of time, I am thankful today that I am back up. I hope everyone else will be back in service soon as well."

A gracious comment, I'd say. At least some disgruntled SunRocket customers who picked TeleBlend as a replacement say they have churned to other providers such as Packet8 and Vonage.

A harrowing experience, to be sure. Perhaps it is only fair to note, though, that of the 60,000 transitioned customers, nearly all made the flash cut without much apparent disruption. Call it 99 percent. But one percent of 60,000 is still 600 customers, and it will be scant comfort to know that (hypothetically) 54,000 customers had no real issues.

That's the devil with mass market services, though, isn't it? Getting 99 percent of things right still generates thousands of trouble tickets (I'm not suggesting TeleBlend had issues with as many as one percent of its accounts, by the way. Just making the point that a very small failure rate in a mass market application or service can result in huge trouble ticket queues.)

Skype apparently still is having a major outage itself today, and as older posts today note, at&t and Cisco have had issues this month as well. S*** happens even to companies as large and sophisticated as Cisco and at&t.

Voice Quality is Getting Worse: What Would You Expect?

Those of use who grew up with one phone company got spoiled by the reliability and quality of its communications network (despite "customer service" so bad it became an oxymoron)," says technology journalist Mark Stephens, whose pen name is Robert X. Cringely. "Those of us trying to save a few bucks by piggy-backing voice services on the Internet are starting to get what we've paid for."

Skype itself now is experiencing an outage that might take 12 to 24 hours to fix (Aug. 16).

There's a larger trend at work here, and it happens in virtually all formerly highly-regulated businesses when deregulation and new technology hit. Remember when airlines were highly regulated, and could not compete on the basis of price? How did they compete? Amenities and other non-price differentiators. Of course, prices were high and not that many people flew.

Deregulation hits and all of a sudden price becomes a key competitive weapon. Of course, when people start paying lots less, something has to give. Like amenities. But more people fly now.

So here's the problem communications service provider executives face: they can't afford to run "gold plated networks" for the same reason airlines cannot. Obsessive concern about voice quality and service availability are one thing in a highly regulated environment. Such concern is quite something else in a highly competitive marketplace where customers in fact choose to pay money for service that is quite a bit less intensive than it once was.

In a nutshell, the business problem is that operators cannot afford to maintain the same obsessive levels of quality when customers demonstrably don't care. Mobile communications is the best example. Everybody uses mobile service. And everybody knows it simply is not as reliable as wired phone service. Nor is the audio quality as good. But it's a wild success, anyway.

If people will not pay you to maintain a higher quality of service, can you afford to do it? That's the problem the global communications business faces. People are voting with their pocketbooks: buying services with lesser quality on some metrics because the overal utility of mobility is so high.

In other cases, such as over the top VoIP, they are voting with their wallets to buy cheaper services with less reliable service.

Get used to it. In virtually every deregulated, formerly monopolistic industry, overall quality will drop. Of course, there's another trend as well. New, higher cost alternatives will develop. Because some people need high quality enough to pay for it.

IP communications are very valuable. They are very useful. But they are not as robust as the old public switched network, if only because of things like latency. The services can be made more rugged, of course. It just costs money.

Where Have SunRocket Customers Gone?

TeleBlend, the new provider formed to serve former SunRocket customers, says it has 60,000. CEO Bill Fogg says TeleBlend added 3,000 the week of Aug. 6 and 1,000 on Thursday, Aug. 9. Vonage says it has gotten about 20,000 and Packet8 says it also has gotten about 20,000, according to Huw Rees, 8x8 VP. That accounts for about half the former SunRocket base. And there may be significant movement this week and next. As it turns out, nearly all former SunRocket customers have quietly continued to get service that has been paid for by TeleBlend. So as service has gone completely and finally dark on Aug. 5, people who might have done nothing because they were still able to use their SunRocket service will have to do something else, for real.

SunRocket to Packet8 Transition: Why it is so Easy

Most former SunRocket customers who have moved to Packet8 service have had their new service up and running within three days, says Huw Rees, 8x8 VP. So why is the Packet8 service faring better than TeleBlend, in terms of transition ease?

Serendipity, at least in part. Global Crossing and Level 3 Communications were the primary SunRocket transport providers, and Packet8 works with both of them as well. So when a former SunRocket customer wants to switch to Packet8 service, pretty much all it takes is the letter of authorization, about 24 to 48 hours to get the account re-pointed to Packet8 and away from SunRocket, and time to ship out a new analog terminal adapter.

That's not to minimize the face that 8x8 has had quite some years to get its back office and warehouse operations into place. It's just that having common transport providers in common with SunRocket has made the logistical process of "porting" accounts easier.

Ooma, PhoneGnome

Ooma hopes it can make a business in the independent VoIP space without slugging it out with incumbents, cable companies, Vonage, Packet8 and others. Ooma uses peer-to-peer technology, it reminds me of nothing so much as PhoneGnome. A user can rely on broadband and Ooma, "cutting the cord," or can keep legacy POTS and integrate Ooma with a traditional landline (the easiest way to keep 911 service). All calls within the U.S. market are free, and off-network calls are billed at Skype-like rates.

Like PhoneGnome, the revenue model is "selling boxes," not recurring revenues from services. Ooma is betting that a $400 purchase of a base hub that functions like an analog terminal adapter will appeal more than a VoIP service account. Additional Ooma adapters can be bought to add service to other analog phones on other standard wall jacks.

Perhaps the longest-lasting impact, irrespective of what happens with Ooma, is the P2P approach it uses to create a network. As with all P2P networks, each end user's client becomes a node on the network to help terminate traffic. I don't know what technology platform Ooma uses. It seems logical that Session Initiation Protocol is not what Ooma is doing on the P2P side of its platform, but it seems SIP has to be there someplace for interface to the public network at some level. But David Beckemeyer seems best placed to noodle on that.

Alec Saunders (Iotum)asks an interesting question, however. Ooma says it will try to use member POTS access to essentially avoid paying termination charges. Presumably that means invoking user phone numbers in some way. If caller ID information cannot be spoofed from the POTS phone, but only from the trunk side of the network, does that mean a user's caller ID gets delivered even when it is just a transit node between a calling party and the called party? Details are scanty at this point so I'm not sure anybody outside Oomba knows the answer.

Or maybe there isn't even a problem. Presumably Ooma would try to "terminate" a call at a local Ooma "node" and then use the Ooma P2P to retransmit the bits using the public Internet to the terminating Ooma node with no need to deliver calling number ID information.

One wonders how much longer it will be until even Tier One service providers start to take a closer look at integrating P2P in some significant way with the existing public networks, especially as those networks are upgraded for IP Multimedia Subsystem and there's more broadband in the access network.

Not P2P as an "over the top" end user application. P2P as a part of the architecture of a managed network that simply uses multiple techniques to reach deeper into the environment sitting on the other side of the traditional "network termination" point. Making customers part of the network is starting to look like good business sense.