BT Disses VOIP Upstarts...

BT Group plc (NYSE: BTY; London: BTA) management, gathered together to present the operator's latest financial results, laughed off the threat of competitive VOIP service providers.

The potential for upstarts to launch VOIP services is growing, as the U.K.'s broadband population continues to swell. BT is currently experiencing significant demand for its DSL services, handling 45,000 orders per week compared with 30,000 a week six months ago. The U.K. incumbent has 1.93 million wholesale DSL lines active (of which nearly half are used by BT's own retail division) and expects to top 2 million before the end of February. Despite the massive uptake, this "capital intensive" business is still losing money, with a payback period of about three years, says BT CEO Ben Verwaayen.

Add the growing DSL population to the U.K.'s 1.5 million (and growing) cable broadband customers, and you have a market that's ripe for the launch of voice-over-broadband services. And BT knows that. It launched a VOIP service late last year targeted specifically at cable broadband customers (see BT Gets Aggressive With VOIP).

But is BT worried about an influx of new voice competitors? It says not. Although U.S. player Vonage Holdings Corp. has vowed to launch a service in the U.K. in the first half of this year, BT Retail chief Pierre Danon dismissed the threat of such VOIP upstarts, saying they'd struggle to deliver a service that would compete with the price of existing traditional services.

"It's not a surprise that nothing has been launched yet, mes amis," says the insouciant Frenchman. "There are some free VOIP services out there, like Skype, but the voice services from companies such as Vonage run over multiple networks that involve interconnection charges. That pushes up their costs and tariffs. I've looked at Vonage's prices in the U.S., and they're not much different from the voice packages we offer. We decided to launch our VOIP service to the cable customers because they are paying much higher prices for their voice calls."

Having dealt dismissively with the VOIP brigade, the BT team turned its attentions to costs. Verwaayen says BT's ongoing cost-cutting plan will see it save about £1 billion (US$1.9 billion) in operational expenditure in the coming three years.

The doughty Dutchman, who appeared sans clogs, set the target as he presented BT's third-quarter results (see BT Q3 Revenues Down, Profit Up). Opex cuts made during the past few years helped the operator to record a slight increase in pre-tax profits, to £526 million ($995 million), compared with £521 million ($985 million) during the same period last year, despite a 3 percent drop in revenues to £4.58 billion ($8.66 billion), compared with £4.70 billion ($8.89 billion) a year earlier. The carrier also managed to reduce its debt by a third, from a year ago, to £8.8 billion ($16.6 billion).

The operator noted an ongoing fall in revenues from traditional services -- third-quarter revenues from U.K. voice services was £2.24 billion ($4.24 billion), down 9 percent from £2.46 billion ($4.65 billion) a year earlier -- but boasted of revenue increases from what it calls "new wave" services, namely broadband, ICT services, global services, and mobility (public wireless LAN and mobile resale). These lines of business now account for 18 percent of all revenues.

The company's figures were roughly in line with analyst estimates, and BT's share price fell by a smidgen, 1.25 pence, to 176.5 pence on the London Stock Exchange.

BT's presentation came as fellow European incumbent France Telecom SA (NYSE: FTE) finalized its 2003 results (see France Telecom Posts Annual Results). It also managed to slash its debt, to €44.2 billion ($56.6 billion) from €68 billion ($87 billion) a year earlier.

The French carrier recorded total revenues of €46.1 billion ($59 billion) for 2003, compared with €46.6 billion ($59.7 billion) in 2002, and cheered everyone up with a net profit of €3.2 billion ($4.1 billion) against a whopping loss of €20.7 billion ($26.5 billion) the year before.

— Ray Le Maistre, International Editor, Boardwatch

jim_smith 12/5/2012 | 2:27:37 AM
re: BT Disses VOIP Upstarts... Service providers are taking the Skype threat seriously. It has got visibility in the top management.

BT might have dissed VOIP upstarts like Vonage, it is laughing a nervous laugh when it thinks of Skype...
rs50terra 12/5/2012 | 2:27:26 AM
re: BT Disses VOIP Upstarts... It has the sweet sound of whistling in the dark!
The problem with VOIP is customer acceptance beyond the small community of techies. This requires a company like VONAGE that makes money of the service and not something like Skypes that makes the money on advertisement.
The problem with Vonage is that it can flourish in a market where it can acquire customers using cable modems. In a DSL centric market, where the customer has DSL service from the telco, the danger Vonage poses is to long distance SPs only.
I wonder if somebody could post a different point of view.
stephenpcooke 12/5/2012 | 2:27:03 AM
re: BT Disses VOIP Upstarts... This is a difficult one to call. The VOIP market has always had a very difficult sell with the incumbents because it causes negative revenues on what was previously the cash-cow of the telecom business: long distance charges. The adoption of VOIP en-masse will be delayed as long as those incumbents can delay it which means: as long as they are not terribly threatened by competition.

Techies like to think that, as long as it is almost free, everyone will adopt it. This is actually not true. People, individually, have a threshold for telecom-related expense vs. perceived bother. Most only see that they would be replacing one bill with another that might be a bit less per month but it requires the hassle of getting a new phone or having to keep my PC turned on to make quick phone calls.

The incumbent carriers have a huge advantage in this area because most people care more about the number of the bills that they have to pay than a slight difference in the total amount of all bills. What will happen when the incumbents really start to feel the pressure is that they will bundle the startups out of business because they have the last mile infrastructure in place.

Europe is a different fish because of the widespread adoption of wireless services. VOIP over wireless works but you aren't gaining that much because you still have to have the phone and the wireless network to plug into to use it.

The incumbents see that they have made enormous investments in infrastructure over the lifetime of their companies and have successfully leveraged that against all comers so far. In the case of BT, they own most of the households in the UK with landline and/or wireless services. Either way they are getting monthly bills from each subscriber, independent of the traffic-type.

The bottom line is that carriers with big networks, wired and wireless, will win one way or another eventually because the others don't own the networks that they use from end-to-end.
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