BellSouth Faces a VOIP Choice

VOIP provider 8x8 Inc. (Nasdaq: EGHT) could be in danger of losing its most high-profile customer after AT&T Inc. (NYSE: T) merges with BellSouth Corp. (NYSE: BLS). (See BellSouth Launches Residential VOIP.)

Three months ago, BellSouth began selling a re-branded version of 8x8’s Packet8 VOIP service. On the day the agreement was announced, 8x8 shares jumped 43 percent on the news. (See 8x8 Raises $15M.)

But AT&T has a residential VOIP product of its own, AT&T CallVantage, which could eventually threaten 8x8’s reseller relationship. As AT&T and BellSouth integrate, AT&T is expected to extend many of its vendor and strategy choices into the BellSouth network.

CallVantage may be part of a triple-play bundle offered to AT&T customers, including those in BellSouth country.

BellSouth spokesman Todd Smith tells Light Reading the decision has not been made on 8x8's fate. "I can't predict the future on what's going to happen," he says. "We're still continuing business as usual, and that's part of our offering." 8x8 won't disclose the terms of its agreement with BellSouth, but a recent SEC filing points out that 8x8’s distribution agreements generally “do not require minimum purchases or restrict development or distribution of competitive products.”

CEO Bryan Martin says in an email to Light Reading that the AT&T/BellSouth merger will not affect 8x8's business. Martin says the contract is "long-term" and includes clauses to guarantee that his company will profit.

Martin says his company's videophone functionality may keep it in the game at AT&T, as CallVantage is currently audio-only. (See 8X8 Adds Features, Router.)

But 8x8 wouldn't say how many BellSouth customers had taken its videophone service so far. In fact, 8x8 declined to release any numbers portraying the performance of its BellSouth agreement. The company says that, across all its customer base, about 10 percent of its customers use the videophone service.

8x8's Packet8 videophone service costs $20. Subscribers who sign up for a two-year voice and videophone contract can buy two branded, standalone videophones for about $400, according to the company’s Website.

8x8 shares were off $0.04 (2.40%) to $1.63 in late afternoon trading on Thursday. The company's share price has been as low as $1.03 and as high as $3.39 during the last 52 weeks.

At the end of 2005, 8x8 had about 113,000 VOIP lines in service, most of which were residential, while 15 percent were for enterprise customers. (See Insider Sees VOIP Battle Royal.)

— Mark Sullivan, Reporter, Light Reading

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fgoldstein 12/5/2012 | 4:02:40 AM
re: BellSouth Faces a VOIP Choice I don't think it's quite accurate to suggest that BellSouth has any choice in the matter. SBC (faux-ATT) makes the choice. It's as simple as that.

While some companies, when acquiring others, pool management talent, SBC's record is clear. When they acquire a company, the executive floor is cleared out that day. The CEO might (as in Ackerman's case) get some kind of temporary job, as part of the golden parachute, but the old management team is simply fired. It doesn't matter how good they are. Ask Dick Notabaert what happened when Ameritech was bought. Quite a few lower-level managers are also dumped.

So Big Ed will decide. (As if his future decision weren't already obvious.)
Mark Sullivan 12/5/2012 | 4:02:39 AM
re: BellSouth Faces a VOIP Choice 8X8 has a mildly funny primer on videophone etiquette here:

Mark Sullivan 12/5/2012 | 4:02:39 AM
re: BellSouth Faces a VOIP Choice Yes, I'd have to agree that Big Ed will eventually make the call, not BellSouth. We were trying to point out that 8X8's videophone technology might be the hook it needs to keep the relationship going. Has the time come for videophoning? Do consumers want it?
scammed 12/5/2012 | 4:02:38 AM
re: BellSouth Faces a VOIP Choice Not really so sure what all the huffing and puffing about 8x8 "losing" it's "business" in the first place is.

Shareholders of 8x8 have been trying to get information out of the company in terms of the detail of this arragement for some time. They wouldn't talk. But, BellSouth did.

Here's what the response from BellSouth was a few weeks back:

BellSouth began offering a 3rd party VOIP product in Dec 2005 from 8x8. This product is being used as an interim solution and is primarily used to save customers who prefer the VOIP technology.  Therefore, it is not being promoted heavily.  BellSouth's longer term commercial VOIP solution is a BLS hosted product scheduled to be launched in 2007.  Our primary use for this product will be for customers demanding a VOIP product and to use to follow some business customers out of region.  In the long run, BellSouth will migrate more and more customers to IP to realize cost savings.

BellSouth Investor Relations


So, someone please explain to me what the "long-term" agreement that the CEO of 8x8 is talking about? According to BellSouth, 8x8 is only an "interim" solution until Lucent gets installed into BellSouth's backbone.

In my opinion, the fact that BellSouth is getting bought out by AT&T is no big deal. In fact, it probably puts an end to "prolonging the agony" of waiting for BellSouth's revenues to show up on 8x8's income statements - which - they likely never would have amounted to much in the first place.

helden5022 12/5/2012 | 4:02:38 AM
re: BellSouth Faces a VOIP Choice Mark, what is LR's opinion on how this effects Sonus Networks, whose VOIP gear is what the CallVantage network is built off of?

Take the fact that the "new AT&T" appears to be planning on using Callvantage throughout its entire new network, comprising of not only the "old" AT&T, but the "old" SBC network, as well as now in the "old" BLS network. Wouldn't this seemingly be the equivalent of Sonus Networks being the VOIP provider for the entire new AT&T network.

This seems to essentially have Sonus as the VOIP provider for what will be the largest Tier1 in the U.S., and one of the largest in the world.

Wouldn't this be something worth noting as the positive impact on Sonus b/c of this could be much, much greater than the negative impact to 8x8?
DCITDave 12/5/2012 | 4:02:37 AM
re: BellSouth Faces a VOIP Choice so you're not bullish on 8x8?

scammed 12/5/2012 | 4:02:33 AM
re: BellSouth Faces a VOIP Choice Look at the technicals of the stock.

Look at the fundamentals of the company.

Look at the management team.

Put all those together, and, would you put money into their company???
Mark Sullivan 12/5/2012 | 4:02:32 AM
re: BellSouth Faces a VOIP Choice I would say it's a little less cut-and-dried than that. AT&T is talking about how important convergence and IMS will be in this coming-together of Cingular, BellSouth and AT&T. Lucent has been crowned as the IMS lead contractor by all three companies. And we still don't know what the implications of that fact will be for AT&T's VOIP infrastructure in the long term. I'd say that leaves some big question marks with regard to Sonus' future role.
ageffner 12/5/2012 | 4:02:28 AM
re: BellSouth Faces a VOIP Choice Mark,

You're right that it's not cut and dry. Some of this will depend on the T&C's hammered out int he agreement between Bell South & 8X8, whether being acquired immediately null and voids the requirements to use 8x8, or can persist, if for example, the residential voip segement is allowed to oeprate as is once Bell South is acquired.

As for the new AT&South company using a hosted solution - not even in the discussion here. That's sometme away, is dependant on many factors, and hosted VoIP (aka IP Centrex) will liekly be for business customers, not residential market.

If it were any other voIP company that Bellsouth had the agreement with, I think it would have been easier to just take it out, and use CallVantage. What 8x8 has going for it (irregardless of the legal terms of the deal), is they have two product which callvantage does not. Their Video service, and also their Virtual Office product for small businesses. The fact that 8x8's IP Telephony products also use far less bandwidth than callVantage may or may not really come into play (I don't think this will come down very much to which solution has what technical advantages over the other).

ageffner 12/5/2012 | 4:02:28 AM
re: BellSouth Faces a VOIP Choice You asked if it was "8X8's video technolgoy". Yes, it is. Just because the price is the same as their residential product, does not mean it's using the same technology. Residential service requires an audio codec. Video requires audio and video capable codecs, and more data being pushed across the wire. Not sure where you get that video calling is free.
8X8 has aggressively priced it's video calling plan, but if you look at the underlying technology behind it and their residential service, it's not the same.
Regarding any VoIP provider offering video service based on consumer demand, again, incorrect. Only a small handfull of VoIP providers in this space are able to offer video service, either because they lack the technology in their platform, or are concerned with barriers to market entry. In the article itself, it points out that 8X8 may not lose even if Callvantage is used, because Callvantage only supports VoIP service, not Video over IP. (yes, yes, acroynm would sitll be the same).


If there is a consumer demand, then any VoIP provider can be used to realize video service - by the consumers themselves, without involving the provider.
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