Transformational Event for VoX, Mobile VoIP?

Foolhardy as it might sound, some contestants in the communications business – generally the best-capitalized and largest – are going to emerge from any possible industry downturn stronger than they went in, while others are going to disappear. But massive industry stress, should it occur, sometimes allows upstarts to surge. Think about Google, pre-crash and post-crash. Add eBay, Amazon.com or Yahoo. All emerged from the crash of the Internet bubble in strategically different positions than they held going into the crash. VoX Communications, a VoIP wholesaler, thinks it might be one of the upstarts to benefit, but in this case not so much from liquidity protection as possibly-explosive new distribution. What VoX says is that has a contract to supply wholesale VoIP services to privately-held Unified Technologies Group, with a renewable "take-or-pay" obligation for at least 50,000 lines in the first year of service. While that's good, you might say, why is it transformative? "Our commitment to VoX is a fraction of the number of wholesale lines we expect to deliver," says Ben Piilani, UTGI CEO. "With over 100 distributors already committed to over 500,000 lines in the first year, we could easily exceed one million lines in year one, and we are targeting five million lines by the end of the second year." For a company such as VoX, what the 50,000 take-or-pay minimum commitment means is that it will earn as much revenue in a month as it now does in a year. For a smaller company, an order of magnitude increase in revenue from a single customer would be a big enough deal. So imagine the impact of a possible two to three orders of magnitude (100 to 1,000 times) shift in revenue. Some readers will be skeptical. Consumer VoIP is a really-tough business. So here's the twist. VoX can provide IP telephone services over a cell phone network. "We have a signed agreement that allows our IP telephone service to transmit over a GSM network, which is the most popular standard for mobile phones around the world," the company says in its filings with the Securities and Exchange Commission. "We believe one of the most expensive telephone calls a cell phone user can make today is a call to an international destination," VoX says. So there's the twist. VoX might be a VoIP wholesaler, but it is going to become—by default if not by design—a significant provider of mobile VoIP, with a likely emphasis on the use of mobile VoIP for significant international traffic, which represents more revenue per minute of use. Put simply, here's the potential: VoX says it is "the first to provide VoIP-enabled service to mobile phone customers across the United States on a tier one cellular carrier network." Specifically, and without naming the carrier, VoX says it "will provide its high-quality digital voice service to UTGI's customer base over one of the top-tier mobile networks in the U.S." The top four providers include Verizon and Sprint, running CDMA networks, and AT&T and T-Mobile, running GSM networks. We can eliminate Verizon and Sprint. So UTGI has a carriage deal of some sort—mobile virtual network operator, perhaps—with either T-Mobile or AT&T. We can assume neither carrier would be too happy having its name linked to any such mobile VoIP retail effort, which is why nobody will be talking about the actual carrier involved. Here's why: voice revenues are the mainstay of the entire global mobile business. About 80 percent of all mobile service provider revenue comes from voice. As fast as "data" revenues are growing, VoIP has the clear potential to destroy mobile voice margin, or sales volume, or both. In essence, VoIP poses the same threat to the legacy wireless business model as it does to the legacy wireline business model. As outlined by Mark Richards, VoX Communications CIO and founder, the service will not require use of conventional "voice" bandwidth, and will operate exclusively in the "data channel." From the point of view of the wholesale mobile carrier, the distribution deal essentially looks like a partner selling retail data card or dongle service; a mobile data network, you might say. You can make your own guesses as to the identity of the mobile carrier. Simple logic would suggest, however, that the greatest incentive lies with the smallest of the four U.S. mobile providers, which has the most to gain, and which is significantly behind the larger three providers in market share. Even so, you might argue, mobile is a tough business. So here's an angle. Think of the UTGI service as a mobile long distance product. "For a flat monthly subscription rate from UTGI, mobile VoIP users can call anywhere in the world," says Ron Harden, executive vice president sales and marketing at VoX. And here's the other twist: the way the service will operate, it will not make a difference which country a user calls from. A call to Western Europe from the United States, or a call from France to the United States will cost exactly the same. UTGI will launch two plans initially, one for domestic calling within the United States, Canada and Puerto Rico, and the other to include a large bundle of international minutes at no charge, Richards says. And make no mistake: global calling is likely going to be the draw here. Richards projects that "per-line wholesale revenue for VoX should exceed $40 per line when the projected domestic and international usage, and ancillary charges, are taken in total."  None of the partners yet have said anything about handsets. But one can assume it will be a smart phone of some sort, as it will operate exclusively on the data channel, and will have to handle some processing chores. Depending on the range of services UTGI thinks it might want to add later, some choices would have to be made about whether to run on EDGE, 3G, or both networks. If the mobile provider is AT&T, the handset operating system will more likely be Windows Mobile. If it is T-Mobile, one might expect either Windows or perhaps even Android or Linux. None of those choices likely will appeal to potential users all that much. And as much as a flat-rate domestic U.S. plan in the range of $80, perhaps, might appeal to some users, the real draw, in our estimation, is the user who needs to call, or travel to, Europe or other destinations where 3G networks are prevalent. And that, ultimately, is what might be important here: VoX might become the first mobile VoIP provider with major distribution on a quality-assured network (not running "over the top"), with a big global roaming capability. Transformational? Indeed. IP

v