Ma Bell's wake-up call: Deals among Net calling firms may sap big telcos' revenue
First, Google bought startup Gizmo5. Now, as TechCrunch reports, there is a bidding war ongoing for JahJah, a Skype-like service that offered low-cost calling to tens of millions of users of Yahoo's (YHOO) instant messenger service. Numbers thrown around for the deal are a whopping $200 million to $400 million, a significant sum in the current environment.
In the background hangs the dispute between Google (GOOG) and iPhone partners Apple (AAPL) and AT&T (T). The partners have thus far blocked Google from putting its Google Voice application on Apple's wildly popular smartphone. And waiting in the wings is Ribbit, an upstart provider of VoIP services that was purchased by telecom giant British Telecom in July 2008 for $105 million. Ribbit already integrates its virtual calling platform into customer-relationship management software company Salesforce.com (CRM).
The flurry of deals around VoIP are a clear indication of buy-in by big players to the model that AT&T, Verizon (VZ) and other incumbent land-line and wireless carriers find abhorrent. Namely, that they are getting pushed closer and closer to being dis-intermediated from the voice calling business and are rapidly being pushed towards the status of dumb data-pipe provider.
Why is this so bad for Ma Bell and her cohorts? Because they still make huge money off of voice calls and wireless voice calls, in particular. The vast majority of their money, in fact. AT&T wireless, which has the fastest growing wireless data business in the U.S. thanks to the iPhone, still received only one-third of its quarterly revenues from data services in the third quarter of 2009. And wireless data sales comprised only one-sixth of total revenues, roughly.
The new clutch of VoIP applications makes it simple to bypass the old-style calling services (one number, one device or one point-of-service) of the biggies and let users place calls from the same number from their cell phone, from the office or from their laptop. In the case of Skype, GoogleVoice and Jahjah, users could place the majority of their calls free of charge piggybacking on whatever type of fast data connection they have.
This is a serious threat to AT&T and others who feel that if they lose control over how customers can place call on their networks, they will lose control of the revenue stream. They are partly right. They will still be able to charge for fast connections required to make VoIP applications work.
But they will likely lose control of other lucrative businesses in the process. AT&T recorded revenues of over $1 billion in the third quarter for directory services, an offering that any with TellMe or Google Directory Assistance on their cell phone speed dial will tell you is totally unnecessary.
AT&T and the other big carriers may not have much choice in the matter. Under the new head of the Federal Communications Commission, Julius Genachowski, open access to data pipes is a key mandate and concern. So the incumbent carriers are walking very cautiously.
Further, the proliferation of VoIP innovation for laptops and PC-based software will likely drive customer expectations for the same on their cell phones. Skype's service allows people to call free between Skype users, to have their own number of in-coming calls and to call outside numbers if they want.
Google is likely to start integrating Google Voice with its Google Chat service and to also use Gizmo5 to add in the capability for Google Chat users to call regular telephone numbers and to receive calls (they can already make and receive SMS messages).
The upshot of all this? Ma Bell may be giving you data, but it's a Wild West for actually connecting calls and controlling the user interface. And if history is any guide, he who controls the user interface controls the relationship and, ultimately, the money. This is playing out between Google and Apple in the smartphone space. Expect the same dynamic to become more prevalent up and down the telecom landscape.
Alex Salkever is Senior Writer at AOL Daily Finance covering technology and greentech. Follow him on twitter @alexsalkever, read his articles, or email him at firstname.lastname@example.org.