The Promise of Digital Telephony

Over the last couple years, digital telephony services have grown from infancy to broad deployment throughout the United States. Vonage has passed the million-subscribers mark and gone public. Cable MSOs such as Comcast Corp., Cablevision and Time Warner have launched and aggressively promoted new voice services like “Digital Voice,” “Optimum Voice” and “Digital Phone.” Google, Skype and Yahoo! all have embedded voice calling services into their instant message offerings. Clearly, digital telephony is here to stay.

In any new market, there are always early adopters, but mass adoption requires a clear and strong consumer value proposition. To date, digital telephony has been marketed exclusively as cheaper telephony. There is no doubt that “cheap” is a strong attraction for consumers. For example, pure play VoIP providers are offering unlimited minutes with caller ID and voice mail for as little as $20 per month, while cable MSOs are providing similar service bundles at low prices as part of a bundling strategy.

Unfortunately, “cheap” is not a sustainable basis for product differentiation. Any competitor can choose to match or beat your price with no competitive weapon greater than a pencil. In addition, number portability encourages subscribers to keep switching as long as they can keep getting a lower price. In the end, everyone’s prices fall and everyone ends up losing money.

To succeed, digital telephony providers must evolve their thinking. The key to unlocking the true potential of digital telephony lies more in the “digital” than in the telephony. All digital telephony subscribers are, de facto, also broadband subscribers. The broadband pipe provides the potential to carry information and services, as well as voice, to the phone, which makes it a smarter communications device. This opens the door to new services that can provide a sustainable differentiation and can offset the rapid decline of revenue associated with home voice services. Now we can compete by making the phone smarter, not just cheaper.

So the natural question arises: What does it mean to make the phone smarter? Ideally, this type of intelligence proactively would bring to the phone the information and services that you need while you are using the phone. For example, you might need to know a telephone number or the current availability of someone you want to call or whether someone has been trying to reach you. This sounds so simple, but most of us don’t know any of these things when we pick up a cordless handset to make a call. Aren’t we all sick of grabbing our cell phone, looking up numbers and dialing it from our home phone?

In the world of digital telephony, ILECs, cable MSOs, VoIP providers and portal providers offer most of these services through the Web. Web-based phonebooks, for example, are widely available. Buddy lists allow us to see the availability of most of our key contacts. E-mail and voice mail often exist in the network along with personal call logs to alert us about who needs our attention. And local directory search allows us to find numbers for any local merchants or services we need. Locked in the PC, the value of the information inherently is limited. To be truly useful, these services should be available directly from cordless handsets anywhere in the home.

Sadly, the gap between the Internet and the cordless phone found in most homes is wide, and getting information from one to the other seems daunting. Soon, however, the next generation of home cordless phones from companies like IDT Corp., Thomson Corp., RTX Wireless Technology, VTech Holdings Ltd. and others will begin to close the breach. These phones combine ATA functionality into a traditional cordless phone base station and typically add color screens. Many have a broadband connection and a traditional analog network connection so they can work either with VoIP or analog services. These phones represent the next “connected device” for your home. As well as being cheap and reliable, they provide great coverage and now have the potential to do much more than just place calls. But on their own, they can’t yet leverage the Internet to provide information and services.

The final piece of the solution is the network-based infrastructure required to source, optimize and deliver these Internet-based services out to the cordless phone. At first, this need may not be obvious because we tend to think only of intelligent devices running sophisticated software that directly connect to the Internet. The cordless phone is quite different; it is an inexpensive, multi-user device optimized as a phone. The next level of performance, one that proactively delivers services optimized for each user, comes when the phone is paired with an extensible platform in the network. In this new paradigm, the system has the capability to “push” timely and personalized application and services to the handset on behalf of any family member.

The solution enables any carrier to evolve a subscriber’s home phones into an extensible application platform. With it, the carrier can extend its brand throughout the home, differentiate its service and generate additional revenue through additional value-added services.

As our view of the home phone evolves in this new way, the phone becomes both smarter and more profitable. It is smarter for the user as it now provides you phone numbers, presence information, call logs and a visual view into voice and e-mail queues. It also is more profitable for the carrier as it provides new revenue opportunities through enhanced “consumer-pay” services, such as ringtones, wallpaper, gaming, messaging and commerce, and “third-party pay” services, such as push (CPM) advertising and pull (local search) advertising.

The emergence of digital telephony has brought intense competition to home voice services. Because of this, carriers face daunting challenges trying to retain voice subscribers and maintain their profitability. Whether trying to hold onto existing subscribers or attract new ones, “smart telephony” gives any carrier an opportunity to add uniqueness and value to its core voice offering.

Dave Weinstein is co-founder and vice president of marketing and business development at Casabi Inc. He can be reached at dweinstein@casabi.com.

Casabi Inc. www.casabi.com

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