Summary
The independent telcos, such as Windstream and Frontier, view hosted PBX and VoIP as having the most lucrative entry potential into the business market. In serving so many rural and small-town areas, their percentage of revenue from consumers has been noticeably high. Although the technology can be created pretty easily, service providers generally do not want to sell their own proprietary solutions themselves because they will get crushed in the development costs.
Analysis
With the high SG&A costs on hosted PBX, there is not enough money available to pay for all of the connection costs and to fund R&D. That is why the telcos are offering someone else’s technology, such as from Natural Convergence, in order for the business to be profitable.
The great promise of hosted PBX services in the independent telco space to bring in new business customers will mean the sale of more soft switches because of the increasing need for an element to interact with the servers. With a business customer, there is a larger menu of options available. So, the inherent effort in the provisioning of business services is much higher and a there will be greater requirements for a second infrastructure.
The transition from digital central offices to soft switches in the overall industry will be a gradual one partially because the older ones are fully depreciated. Most of the upgrades on the TDM switches are free today. In addition, with the residential lines being lost, there is a lot of reuse on line cards and so new purchases on parts can be kept down to a minimum.
For more information on this topic, please see the latest issue in our Independent Telco Tactics Monthly, “Hosted PBX Services Critical to IOCs.” The report can be purchased directly from GLG.
Samuel Greenholtz consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
