Voice – Still Relevant

A landline telephone

A landline telephone (Photo credit: Wikipedia)

At the beginning of this year the Center For Disease Control issued a report called Wireless Substitution: Early Release of Estimates From the National Health Survey, January – June 2012. The summary of that report is attached here as Wireless Substitution 2012.

The CDC asks over 20,000 households each year a number of questions associated with health issues, and starting a few years ago they started asking about basic telephone coverage. In 2012 they expanded the telephony questions to include questions about landline and cellphone usage.

The results of the study are statistically reliable. They worked hard to get the sample they use to look like America as a whole and the results are 95% accurate, plus or minus 5%. This means that if they asked everybody in the country these same questions, the results would be within 5% of the results of the survey, which is very accurate for a survey.

Some of what they found was very interesting. The most interesting statistic to me is that 65% of all households still have a landline telephone. As late as 2000 the industry had about a 98% penetration of households. As the chart on the first page of the report shows (showing wireless-only households), landline subscribers dropped slowly until about 2005 and have dropped at a steady pace since then due to migration to cell phone usage.

I have heard for years from experts who have declared the voice business dead. Many new telecom ventures are launching without a voice offering, because they believe it is irrelevant. The most visible of these is Google in Kansas City, who offers only data and cable TV. But I look at a product that is still in 65% of households as something that is still very attractive from the carrier perspective. Cable TV only has a nationwide penetration of just over 75% and even after all of the years of decline, voice is still not that far behind cable.

Voice is a very profitable business. If Google wanted to offer voice in Kansas City they would need to buy a softswitch, which might cost $1 million for a market that large. And they would have to interconnect with the existing PSTN. They would have to cover some one-time costs for each customer like number portability. After covering those costs everything else is profit. Voice can be auto-provisioned so that it doesn’t take any people to activate it. And it can be sold in a very simple package so that there are not a lot of options. Voice doesn’t need to be a complicated product.

From a business plan perspective, not offering voice is leaving a lot of low-hanging fruit on the table. For Google in Kansas City, the breakeven on paying for the voice investment could be measured in terms of a handful of months. After that it would add significantly to the margin per customer and to bottom line.

I have a hard time understanding why Google or anybody would not offer voice. With residential customers it is low-hanging fruit. And voice is still mandatory to get many business customers. Businesses bore the brunt of the competitive CLEC push a decade ago and many of them were burned by having one vendor for voice and another for data. When something went wrong both vendors would point at each other rather than fix the problem. And so a lot of businesses insist on buying all of their telecom products from a single vendor. Further, most businesses care more about reliability for voice than they do price. Voice is the lifeline of many businesses and they want it to be served by a capable vendor on a reliable network.

When Google approaches a business and wants them to buy a 1 Gigabit data pipe they are basically telling that business to keep their voice on copper or relegate it to somebody selling VoIP on the Internet. There are many companies selling VoIP this way and the quality of the connections vary widely. There are good products sold this way, but also some really sketchy stuff, so a business has to be very wary. Most businesses are just not willing to take a chance buying voice from a vendor they don’t know and who doesn’t have people in their market. They have been down that path before.

Most of my clients still offer voice services and all of them do pretty well doing so. My clients who sell to business customers report that voice is still the way to get into the door. Many of these clients are now selling IP Centrex, but that is still a voice product.

And so I look at Google and other providers who have elected to not sell voice and just scratch my head. Are they afraid of being regulated? In most states regulation of competitive voice providers is very light. Do they think voice is just obsolete and not worth the effort? This survey and all of my clients who sell voice demonstrate that this is just not the case. Voice is still very relevant and still very profitable.