Google Gives Telcos a Wakeup Call
If landline erosion weren't bad enough for telcos, it may be getting worse .
Google (Nasdaq: GOOG)'s new PC-based VoIP calling service went live this week, letting users make phone calls from within the Gmail interface, for free until the end of the year. International call costs will vary depending on the country, but start at 2 cents.
Google has always been a player in the voice market, with its semi-successful Google Talk and Google Voice products, and the acquisition of Global IP Solutions . But, to date, users could only call PC-to-PC. Google says the new PC-to-phone service will be useful in "areas with bad reception," but its appeal could stretch further into the home. (See Google Ups the Ante on VoIP, HD Voice .)
This move makes Google Voice potentially an even bigger threat to telcos than Skype Ltd. , according to Heavy Reading contributing analyst Robert Poe. While Skype hurt the telcos by undercutting their international rates, it still charged for outbound calls to domestic numbers, something Google is offering for free at launch.
"Since it also apparently allows answering of incoming calls to Google Voice numbers, it makes it possible for users to abandon their landlines altogether, and get their phone service for free," Poe said in an email interview. Of course, it does require users to have their computers on to make and receive calls, so average households may not want to use it exclusively, he adds.
Incidentally, Skype now stands to lose the most, although Forrester Research Inc. analyst Charles Golvin says the impact has been overblown. The market leader, which is also prepping for an IPO, makes its money from outbound domestic calls and from providing inbound numbers. But the cost savings it enabled over landline were sizable, versus the pennies Google is promising to save, Golvin says. (See Skype Dials Into a Public Future .)
Socializing voice calls
Regardless of how much of an impact Google's new service has, it should serve as a wakeup call to the telcos. Initial VoIP services mirrored landline telephony, but it is quickly beginning to seem that landline services should mirror VoIP -- in business model, integration, and social features -- to be effective. As telcos move away from the public-switched telephone network to all-IP networks, this could become easier to do. (See VoIP Still Threatens Legacy Carriers.)
The blurring of lines among data, video, and voice is something that VoIP startups like C2Call are banking on. The company recently raised $2 million in VC funding and today passed the 1 million users milestone. The company's simple browser-based VoIP service, FriendCaller, lets users make a free call via a link in an email, IM, social network, blog, or Website. It also has iPhone and Android apps, whereby it has gotten most of its new customers.
C2Call founder Martin Feuerhahn says that, while the global telecom market is huge, PC-based VoIP is currently used by only a small percentage of Internet households, but the services are infiltrating all parts of the online experience. For example, FriendCaller connects callers within social networks or to advertisers through click-to-call. Google's new service, which combines Gmail with social networking and calling and, most likely, advertisements, is a big step in this direction as well. (See Google's Listening .)
Telcos have explored this idea of unified communications (UC) in the past, but they have not been as aggressive. Verizon Communications Inc. (NYSE: VZ) launched iobi, a UC suite connecting the PC, laptop, and home phone, back in 2005, but the service -- which required both Verizon landline and mobile service -- never took hold. Likewise, AT&T Inc. (NYSE: T) has a unique opportunity to leverage its IP-based U-Verse for UC, but again the potential impact is limited to its small subscriber base.
"If the carriers haven’t realized that one of their businesses is about connecting people with each other, and increasingly those people don’t care about the individual method -- they just want to communicate with the people they care about, love, do business with, whatever -- then their head is in the sand," Golvin says.
— Sarah Reedy, Senior Reporter, Light Reading Mobile