Money Hard to Find in SMB Voice

By Peter Radizeski, RAD-INFO

VoIP has taken quite a few hits in the press lately. Vonage and patent fights. SunRocket closing. The E-911 issue. The viability of the pure play VoIP provider is in question. Not just from a net neutrality standpoint either. More from a financial model.

Most people looking to move to VoIP are doing it to save money. With the onslaught of FCC regulations and the accompanying fees and taxes (like USF, E-911, and Tele-Relay), the cost of providing VoIP is nearing the price of POTS.

SMB clients want unlimited long-distance. Two things stand in the way: reality and the agent commission. Agents make some decent money off per minute long-distance that SMB’s currently use. To move these clients to an unlimited plan would result in huge monthly losses.

On the other side of the coin is reality. Probably half of small businesses do less than 500 long-distance minutes. Most of this segment does a large portion of their business locally. The other half wants to cut their bills because of heavy long-distance usage. Well, as SunRocket (and to a smaller extent

Vonage) found out, unlimited has costs. VoIP Providers pay for origination and termination minutes. This means that all usage costs money. (Even if some of the usage is a local PRI or trunk port.) Even when using ENUM, there is still a cost for termination if the call ever touches the PSTN.

Much of the hype surrounds unlimited. Skype, instant messaging, and Web-based calling plans are approaching zero, but usually it is on-net to on-net. Calls to the PSTN, even for Skype and MSN have real costs. These need to be paid for. We live in a telecom world where the RBOC is the local, long-distance, Internet and cellular player. Verizon with MCI and UUNET. AT&T with SBC, BellSouth, and Cingular. Sprint and Qwest are the other players and to a lesser extend Global Crossing and Level 3. (SMB’s do not usually buy direct from GX or L3.) So there is market pressure on origination and termination as well as LD costs.

Under that price pressure cooker, how do you pay a sales team or agents?

That leads me to the question: How does a company – any company – sell, service and make money on voice in the SMB space. POTS is easy – to install and sell. But VoIP is more challenging as it involves installation and change.

There isn’t anything uniform about the VoIP space. The CPE – as SunRocket and Norvergence clients discovered – is not interoperable with other service providers. Pricing, feature sets, protocols, installations, quality of service and financial stability of the provider vary greatly in VoIP.

With the recent move by Intelliverse to reorganize its channel, agents that I have talked to wonder if or when VoIP will be ready for primetime. In my own experience, many carriers that lay claim to VoIP cannot deliver. Problems occur with port availability, latency and technology.

Even big names in VoIP in 2000 and 2001 like Primus and Net2phone have faltered. So many have been vaporware. And each one mess creates additional hurdles in the space.

Another jagged edge is the wholesale, white-label, retail divisions.

Everyone wants to be in wholesale because it is easier – no end-user, no expensive sales and marketing to the SMB segment. The white-label space means that the agent can become the branding rebiller. Usually the billing piece is the hurdle, since parsing CDR’s to a user friendly bill is an ambitious undertaking. And the Retail VoIP Providers don’t usually have enough margin to pay agents. (Or pay agents enough.)

The agent is probably going to end up being the installer and the single point-of-contact for technical and billing issues. Can he do that for a one-time spiff of $40 or $50 dollars or 10 percent of a $100 bill?

What’s the agent to do? How do you keep the SMB base happy while making money and providing reliable, consistent service.

Peter Radizeski is president of


. He can be reached at


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