Ranking UCaaS Suppliers

Although unified communications as a service (UCaaS) is a niche, it seems to be viewed as an increasingly important niche, as business customer revenues now are increasingly the foundation for tier-one service provider growth. But in a fragmented market, differentiation arguably matters.

As hard as it might be to differentiate clearly in the business unified communications space, suppliers always seek to identify niches and segments within which to operate.

According to Gartner analysts, differentiation often happens based on target buyer employee base. Sometimes it happens based on the other software environments used by the potential buyer (Cisco, Microsoft being key). Sometimes geography plays a big role. Sometimes the lead features are based on specialized features such as conferencing or mobility.

Gartner also ranks firms by completeness of vision and ability to execute. But it arguably is not easy to maintain differentiation in the business communications space; not when “challengers” include firms such as Microsoft, Google, AT&T and NTT Group.

Consider 8x8,  historically focused on small and mid-size accounts in the United States, but which now sells to enterprises with 1,000 to 5,000 employees globally.

source: Gartner

AT&T prefers accounts with at least 40 percent of users in North America. BroadSoft sells mostly through partners, including telcos. BT prefers multinational enterprises with more than 5,000 endpoints.

Fuze sells primarily in the United States and Europe to firms in the 500 to 5,000 employees range, with roughly half of revenue coming from accounts of at least 1,000 employees.

Google also has entered the business communications market, typically requiring partnerships with voice platforms, and arguably remains largely a conferencing product.

Microsoft arguably does best with  Microsoft 365 customers.

Masergy focuses on organizations between 100 and 2,500 employees. Mitel focuses on mid-size accounts of perhaps 250 employees.

NTT Group arguably operates in the widest range of segments, especially when Cisco and Microsoft cloud UC stacks are important to customers. NTT can support customers ranging from 100 employees to more than 50,000 employees.

Orange is stronger internationally, outside the United States, and arguably with customers using Cisco infrastructure more than Microsoft.

RingCentral focuses on mobile-centric small and mid-sized organizations up to 5,000 employees.

Star2Star focuses on organizations with 50 and 2,500 employees seeking lower-cost OTT connectivity.

Verizon is Csco-based for multinationals with more than 1,000 employees, and typically prefers accounts where 40 percent or more of their sites U.S.-based. Verizon’s SMB platform is based on BroadSoft.

Vonage historically has targeted the small and mid-sized organization market, not large enterprise, and for that reason seems not to be covered by Gartner at the moment.

West is primarily U.S. based and focuses on Cisco implementations for organizations between 500 and 5,000.

Will Telcos Finally Reverse Internet Access Market Share Gap?

U.S. telco--especially the former and present rural providers--have not fared well in the internet access market share battle against cable TV for some years. In fact, it has been nearly two decades since telcos had more internet access market share than did cable TV operators.

Some think the trend is nearly irreversible, with telcos collectively unable to maintain present market share in internet access.

To be sure, some might argue that telcos have deliberately traded profit margins for market share . Others might note that, at least since 2012, not even that strategy has worked.

source: UBS

But one always has to be alert for changes. And it already is clear that markets could be changing, in part because telco upgrades are no longer constrained to “fiber to home” upgrades, and some important providers (AT&T. Verizon) might be able to upgrade their networks much faster than has been possible in the past.

At the same time, in part because mobile access itself is claiming share in a fixed internet access market that might already have peaked, demand could shift in a mobile and wireless direction that would reduce the share of internet access served by cabled networks.

Since it is AT&T and Verizon that are the likely biggest beneficiaries of that shift, there clearly is potential for internet access market share to shift in a way we have not seen for several decades.

Perhaps for such reasons, Moffett Nathanson researchers now have reduced their predictions for cable TV market share in internet access, from 55 percent share to about 51 percent.

That would be a huge shift, reversing almost two decades of cable TV dominance in internet access.

CenturyLink Earnings Now Driven by Business Segment

Even before consolidating of Level 3 financials, CenturyLink’s third-quarter earnings report shows why the company, going forward, is likely to be driven by its business customer segment, not the consumer fixed line business.

Also, though its legacy is as rural telco--similar in heritage to Windstream and Frontier Communications--CenturyLink now is different. It has global operations and primarily earns its revenue from business customers, not consumers, though it has a big consumer markets presence.

CenturyLink’s big miss on revenue and earnings was driven by underperformance in its enterprise segment--not the consumer business. Overall, revenues dropped eight percent.

Keep in mind that CenturyLink earns 75 percent of its revenue from business customers. Enterprise revenue was down 11.2 percent, while consumer segment revenues were off 5.8 percent.

There were, to be sure, some one-time items. Enterprise revenue dropped because CenturyLink sold its data center asset sale. Taking out the impact of the asset disposition, enterprise revenue actually grew four percent (strategic services) to 5.5 percent (bandwidth services).

Consumer segment revenues declined primarily due to voice revenues and lower video revenues due to the restructuring of a satellite video contract.

Neither enterprise nor consumer segments declines are helpful, but the enterprise segment is key for CenturyLink, as it represents 75 percent of total revenue.

“CenturyLink's results for the quarter were below our expectations due primarily to lower-than-anticipated growth in enterprise revenues, said Glen Post, CenturyLink CEO.

“We have a great Consumer business that's very important to us, but we are not a primarily consumer-focused company,” said Jeff Storey, CenturyLink COO. “Approximately 25 percent of our revenue comes from consumers. 75 percent of our revenue comes directly from enterprises or through the wholesale customers we support.”

In the third quarter, CenturyLink  came in at approximately $65 million below internal expectations for enterprise revenue,  primarily due to a miss of about $35 million in customer premises equipment revenue.

CenturyLink generated about $20 million less growth in high-bandwidth data services and

$10 million of lower legacy revenues, primarily lower long distance and private line revenues.

How Big is UCaaS Market, Really?

At 54 million seats, the worldwide addressable market for hosted PBX in 2018 is valued at $20 billion, Eastern Management Group estimates. Other estimates of global demand have been higher, in the past in the broad unified communications market, including numerous different products.

Some will question the actual “addressable market” sizing. Asia region actual sales are closer to $2 billion annually, according to Frost and Sullivan estimates. The U.S.market is in the range of $4 billion. Some claim the European market was in 2016 more than $10 billion.

source: CoMMfusion

source: CoMMfusion

The other problem is that such forecasts almost always include multiple product categories under the “unified communications” umbrella, including contact center, collaboration, premises PBX and hosted PBX, plus SIP trunking revenues and sometimes professional services as well.

Additionally, although unified communications as a service is a business product, some analysts looking at use of voice over IP more broadly also report relatively big numbers, as they include consumer voice revenue.

The point is that aggregating numerous product segments on a global basis often can lead to bigger numbers, even when the addressable market in any single country is fairly modest.

The point is that the hosted PBX market almost certainly is much smaller than many of the headline numbers would suggest.

In principle, if every business “voice” account is considered as the potential market, and if all unified communications features are assumed to be part of that “voice seat” market, and if we include professional services and the value of access services related to supplying voice,  it might be possible to develop a $30 billion figure for annual unified communications products and services revenue, in total.

Phone system revenues might be included in those figures as well, since, at least in principle, every business “seat” or “user” might be sold as a hosted PBX service, even if, in reality, that never has been the case.

It is one thing to say a potential or addressable market exists, when a new or substitute product is available. Whether that potential emerges in the form of actual sales is the issue. Up to this point, business hosted UC has vastly lagged premises switch implementations.

Scale accounts for much of the demand shaping: larger enterprises almost always find the cost of a premises solution to be better than that of a hosted solution. In essence, owning turns out to be cheaper than renting, at scale.

When Will Managed SD-WAN Service Be a Significant Revenue Driver?

From a service provider perspective, It is hard to say when managed SD-WAN services will hit an important inflection point, and drive revenue, where early SD-WAN revenue has been based on hardware purchases by enterprises that deployed themselves.

It is not hard to see the attraction SD-WAN holds for enterprise buyers. Where an MPLS connection can cost hundreds of dollars a month per Mbps per month per location, an SD-WAN can run over an internet connection costing as little as $7 a month, per Mbps.

Among the issues: increased need to connect branch locations, and an increased reliance on cloud-based apps that run over the internet.

source: PwC

source: Juniper Networks

Currently, there are more than 2,000 commercial SD-WAN paying customers, according to IDC.  More than 50,000 branches are deployed based on a single SD-WAN product.

Still, IDC has estimated that half of the estimated $130 million in sales during 2016 was booked by just two companies, both startups. Most of that revenue was likely generated by hardware sales, not recurring service provider revenue.

Gartner expects that by 2020, SD-WAN sales will be worth about $1.25 billion, representing a 15 percent compound annual growth rate.

At the same time, router sales are expected to drop by 23 percent, and branch office router sales by more than 60 percent by 2020, as 50 percent of all enterprise routers are replaced by SD-WAN.

source: Gartner, Network World

Why the Interest in Private LTE?

It might be intuitive why private 4G Long Term Evolution networks are expected to be deployed by enterprises. The answer has to do with the new roles of advanced mobile networks generally. Recall that the 5G standard does not address voice. Recall that the 4G standard did not address voice, initially, either.

That is not so unusual. Each generation of mobile networks has had a different key revenue model, in terms of incremental revenue growth. And what seems already clear is that the 5G era will be characterized by new revenue sources created by internet of things networks and sensors, not voice, texting or other app and web usage by human devices such as smartphones, tablets and PCs.

source: IHS Markit

And that shift explains the interest in private enterprise LTE networks, not campus versions of “mobile networks” that allow people to talk, text and use the internet. Enterprises will be deploying networks of sensors for all sorts of industrial reasons.

Another new angle is that lots of new unlicensed spectrum is going to be made available to support new 4G and 5G networks, public or private.

source: Qualcomm

Apply for New Innovation Awards by Dec. 1, 2017

People and companies in the network-centric information and communications industries have until Dec. 1, 2017 to submit their entries for the new Innovation Awards created by the PTC  to “recognize the individuals and companies that have transformed and continue to transform our industry and the markets we serve.”

The focus is "innovation," over a lifetime, affecting consumers and businesses, networks, creating the best applications and services, important regulatory innovations and quality of life for people across the Pacific region.

The winning recipients will be announced during the inaugural Innovation Awards Gala taking place on Tuesday, 23 January 2018.

There is no charge to apply, and Individuals or companies may enter as many categories as they wish, provided they meet the eligibility requirements outlined for each category.

Apply using the  online application system by Dec. 1, 2017.