BT Gets Aggressive With VOIP
But the service, called Broadband Voice, won't be available to BT customers. Instead, the carrier is targeting the high-speed data access customers of its chief residential service rivals, the cable companies NTL Inc. (Nasdaq Europe: NTLI) and Telewest Communications Networks plc (Nasdaq: TWSTY). These two cable players combined have about 1.5 million broadband customers out of the U.K.'s total of 3 million (see UK Has 3M Broadband Users).
The way Broadband Voice works is reminiscent of the model used by Vonage Holdings Corp. in North America: Customers buy a box that sits between the phone and the broadband connection, and that box routes the voice calls over the Internet connection.
The difference between BT's service and Vonage's is that BT has a low monthly charge of £7.50 (about US$13), then a per-minute charge for peak, international, and calls to mobiles, while weekend and evening calls within the U.K. are free for the first hour. So, as usual for a BT service, working out what you might be spending is not as easy as it could be. With Vonage you can pay a monthly charge that includes all in-country calls at any time of the day.
And the reason for using Broadband Voice? The official line is that BT is trying to win back some of the telephony customers it has lost to its rivals. "This is an aggressive move from BT, and we're not preempting other services coming onto the market. We're coming under pressure from carrier preselection, and we're fighting to protect our market," says BT spokesman Mike Jarvis. "This will be all incremental revenue for us, as it's targeted at customers we don't currently have a relationship with."
Might this not harm the BT brand if the VOIP service is, well, crap? "Pierre Danon, the chief executive of BT Retail [the part of BT offering the service] has tried this for himself, and says the quality is perfect," says Jarvis. "We're very confident about the quality."
Perfect? Perhaps in the right setting, but BT is obviously expecting some gruff grumbling by stating the following in its press release: "The quality of the reception on the phone line may not match a normal landline and may vary depending on Internet traffic."
Analysts at telecom consultancy Ovum Ltd. believe there's every chance that BT's brand might be sullied. In a statement about the service, analysts Jan Dawson and Mark Main note the potential quality issue, and the fact that there are a number of services you cannot get with Broadband Voice, such as premium rate and calls to the emergency services.
BT, however, is being commended for its cleverness in launching the service without cannibalizing its own customer base. Not only that, analysts add that BT will gain invaluable lessons about VOIP in the process.
Naturally, the cable companies have hit back at BT's launch and, amazingly, have even managed to be slightly humorous by taking a swipe at BT's old publicity motto, "It's good to talk." NTL responded by saying: "So it’s good to talk… but not to 999 [the U.K. emergency number], the operator, ISPs, premium rate services and most international numbers! While we’re flattered at how seriously BT is taking the threat from cable, its new service is extremely limited and, as usual, it has cherry-picked figures across the cable sector to try and make its case."
Telewest's response was a bit more pedestrian, saying how great its service was, and that "Beyond BT’s hype, consumers will soon realize the limitations of this offering."
Behind the bravado, though, the cable companies will be fretting. Both have had a tough time financially. NTL came out of Chapter 11 protection earlier this year and is battling towards breakeven (see NTL Emerges From Chapter 11 and NTL Lowers Q3 Loss), while Telewest is currently undergoing a restructuring process due to be completed next spring.
Most industry analysts expect the companies to merge some time in 2004, a move that will save the firms hundreds of millions of dollars in costs and allow them to put up a united front against BT as broadband increasingly becomes the new services battleground. But until they get their finances and setups in order, they are vulnerable to such marketing assaults.
A few more things to note about the Broadband Voice launch. As the Ovum analysts point out, BT has opted for an Ethernet-based service, "which will be well-suited to cable modem users but not so well-suited to DSL broadband users," otherwise known as BT broadband customers.
The Ovum analysts add: "Regulation would have prevented BT from launching a service targeted exclusively at cable modem customers and held back from DSL customers. But by choosing a technology which is more common among cable users, BT cannot be accused of launching a discriminatory service, while at the same time ensuring that the majority of take-up will come from non-BT customers."
BT's Jarvis confirms this, but concedes that at some point BT will have to extend the service to all broadband users, including DSL customers. But there's no timescale for that.
Finally, although BT claims the timing of the service's launch is not "defensive" or "preemptive," it is maybe no coincidence that Vonage is set to launch its voice-over-broadband service in the U.K. in the first quarter of 2004. And Vonage has found the cable companies in the U.S. market to be useful and willing allies.
— Ray Le Maistre, International Editor, Boardwatch