Transformational?

Peter : On Rad's Radar?
Peter
| Peter Radizeski of RAD-INFO, Inc. talking telecom, Cloud, VoIP, CLEC, and The Channel.

Transformational?

I'm watching two conversational threads right now. One about Google Wave, which as Andy Abramson writes:

I'll refer to Wave as transformational, as its not revolutionary, but moves work flow from asymmetrical to both symmetrical and asymmetrical universes simultaneously, changing how you work both in real time and offline time.

Google has built a "communications" object that is full of capabilities that creates hybrid communications that are going to be a blend of games, email, IM, blogging, wikis, and a lot more.

I haven't seen the Wave demo (see a review here), but the reactions have been nothing short of WOW, even more than when Google Voice launched. Google Voice probably made a few ITSP's cry, because it delivers features that they don't, but surprisingly people want. The me-too mentality of telco has slipped into the VoIP World. Except for a few mash-ups, VoIP has remained ho-hum to me for the last two years. The only surprising thing was how few VoIP Providers could get it right and deliver reliable service. And how few could attract more than 10,000 lines.

That takes us to the second thread about the Zer01 mobile service, which is VOX VoIP over the GSM data network of its partners (AT&T and T-Mobile). It is an unlimited plan for $70. No voice calls go out the GSM network, all tunnel back to go out VOX's network via a VPN, which should be taxing on the GSM system. Why? Because cellular calls are moved from tower to tower as you travel, but a VPN call would need to stay at the original tower or drop - then tunnel to each new tower.  This may not be taxing if most calls are off the one tower and don't move, which is possible. And if many UTGI customers are not dense in any area.

The UTGI contract with VOX calls for "a renewable "take-or-pay" obligation for at least 50,000 lines in the first year of service". (IP Business)  "Ben Piilani, UTGI CEO, stated, "With over 100 distributors already committed to over 500,000 lines in the first year, we could easily exceed one million lines in year one, and we are targeting five million lines by the end of the second year."

I question that number because Nextel's Boost is offered Unlimited for $50, all the big guys have Unlimited for $100 - data and voice. Virgin Mobile USA is adopting a $50 plan as well. Two drivers seem to be Price and Handsets. Nice handsets like Blackberries and iPhones come with a $100+ monthly price tag, but you can get service for $50 per month with a lesser phone.

I'll tell you where I see the problem: it's pitched on price ($70 unlimited) and there are cheaper plans. It's pitched as cheap International calling, where there are numerous competitors - i2, Skype, Fring, TruPhone, etc. And how big is the market to call International from your cell phone?

One thing UTGI probably doesn't understand is that having an ILEC as a vendor means your largest competitor is also your vendor. And he doesn't play nice. Most MVNO companies including marketing giants like Disney/ESPN have closed because competing against a cellco is difficult. (Wait until UTGI sees the billing error machine at work!)

MetroPCS has 6M lines. It took them a long time to get there. MetroPCS "ARPU fell from USD 42.51 to USD 40.40", significantly lower than $70. It's churn rate is 5%. I would love to know its Customer Acquisition cost and its Advertising budget.

You can get details of the UTGI/VOX Zer01 plan here. (Pervasip's SEC filing on it is here.) My skepticism comes from: can VOX's proprietary system and its company (which laid most folks off recently) scale to accommodate the UTGI plan IF UTGI can actually sell that many lines, which seems doubtful under the current flat market of cellular that is seeing higher churn, lower ARPU, higher customer acquisition costs, higher handset subsidy rates - it's a zero sum game of take-away. 

Finally, while Google's Voice and Wave services are Wow-ing people, UTGI isn't doing anything magical to the consumer experience. It's another arbitrage game. What's the reason a consumer would care how the call is carried? Consumers care about the handset and what they can do with it - text, take pictures, surf the web, and lately the apps.


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