If you were among those lucky enough to sit through five hours of presentations last week during BCE Inc.'s annual analyst conference, the emphasis on selling Internet-based services to residential and business customers was crystal clear.
“On [Internet Protocol], this company will simply not be outflanked,” said Michael Sabia, BCE president and chief executive, in setting the tone for a series of presentations by Bell's senior business and technology executives.
Bell's strategic commitment to IP can be seen on a number of fronts. It has made a major investment in migrating its older networks to Internet-based technology, launched new services for residential and corporate customers, and purchased two system integrators in Ontario and Quebec to help meet the telecom and IP needs of small and medium-sized customers.
Bell's enthusiastic move to IP is a necessity because the Internet is revolutionalizing the telecom industry as it lets service providers easily reach customers over a high-speed network. While carriers such as Bell and Telus Corp. control the “pipe”, anyone can piggyback on it to offer services. Look at what Vonage Holdings Corp. is doing in the telephony space.
Bell can either jump on the IP bandwagon or it can watch rivals step into the breach and win market share. Bell can be given credit for recognizing the threat/ opportunity and attempting to transform itself while going through an extensive cost-cutting agenda.
The biggest issue facing Bell and other carriers is whether the “build it and they will come” approach to the Internet will work. Sure, they have made extensive investments in their networks but will customers actually buy value-added services — other than connectivity –from them? This is the big unknown because carriers have rarely been seen as innovators. Instead, they have provided connectivity services and thrived on the healthy margins they offer. The Internet has upset this happy arrangement because increased competition means lower prices and reduced margins.
This means carriers have to use connectivity as the starting point and sell new, high-margin services to their residential and high-speed customers. These must be more than plain-vanilla products. Real growth will come from developing innovative services that blend together connectivity with compelling voice, video and data applications.
Robert Lloyd, who heads up Cisco Systems Inc.'s operations in Europe, the Middle East and Africa, said there are three major IP trends taking place. These trends involve layers of “convergence,” he said, but not in the way the term was used in the late-1990s when it meant a combination of connectivity and content. According to Mr. Lloyd, the three elements of IP convergence consist of: -
Network convergence where carriers take a variety of networks to create a single IP network that helps them reduce operating and capital spending expenses; – Service convergence where the way customers access services — be it through high-speed wireless, Wi-Fi, DSL and fixed-metro ethernet connections — are consistent and seamless. -
Application convergence whether data, voice and video are blended together — a trend in which Mr. Lloyd contends carriers will be able to “take advantage of disruptive technologies such as VoIP, and turn them into revenue growth opportunities.”
Most carriers are working on network convergence because it is a straightforward and obvious target. Who wouldn't want to reduce costs at a time when competition is becoming more intense? For a chief executive and chief financial officer concerned about having a healthy balance, there is more comfort spending money if you can recover the investment quickly.
Application convergence seems to be more challenging because it will force carriers to change how they do business and how they deal with customers.
Mr. Lloyd said rather than structuring operations around networks, carriers must look at structuring operations around customer segments. This seems simple but it represents a huge cultural shift.
One of the larger obstacles facing carriers in the short term is they are not the most flexible or quick-acting entities. While they can talk the talk about new IP services, it is smaller companies such as Vonage and Salesforce.com that are actually selling them.
This means carriers must take a multi-prong approach to the market. Some services they can develop and offer themselves, while others will come from partners.
It is a whole new world and it's left to be seen if the carriers can adapt. What they have going for them are the networks and customers. It is a good foundation for the future but there are no guarantees of success in a fast-changing market.

Earlier this week, VOIP guru Jeff Pulver issued a list of 15 predictions for
2005. One of the most intriguing – at least from the perspective of a
business reporter – was Pulver's assertion there will be a resurgence in
VOIP IPOs while some VOIP start-ups will disappear due to a lack of
marketing funds, customer base and vision.
The IPO idea is intriguing because despite the hype surrounding VOIP, there
has not been a commensurate amount of excitement surrounding investment
opportunities. Once in a while, I get e-mails about little, publicy-traded
companies but it's more touting than sizzling. That said, as the Internet
telephony market starts to gather momentum, it's likely a number of the
leading players will start looking for money from capital markets.
Vonage remains the big fish with a market capitalization that could top
US$2-billion depending on the market's health and the company's ability to
maintain its momentum. If Vonage takes the plunge and its stock does well,
the IPO market could be flooded with VOIP opportunities.
For investors, it will be a case of caveat emptor. While there will be
viable companies seeking financing, you can also expect some dogs. Anyone
who took the lessons of the dot-com boom and bust to heart will do their
homework and maintain some sense of pragmatism before betting their life
savings on a “can't miss” VOIP investment opportunity.

There aren't that many large venture capital deals these days so it's newsworthy when a $30-million financing is unveiled for an unknown company. Barrett Explore Inc., which provides high-speed wireless Internet services, received the cash from New York-based Sandler Capital Management.
Woodstock, N.B.-based Barrettt said it will use the money to expand its access business in “unserved and underserved” markets across Canada – starting with suburban consumers in Toronto, Montreal, Edmonton, Ottawa and Vancouver.
The technology behind Barrett's roll-out will be provided by Motorola, which could pull in as much as US$53-million if Barrett reachs certain sales targets.
Barrett claims it's “Canada's largest and fastest growing broadband wireless service provider” but it didn't provide subscriber numbers. I wonder what the folks at TeraGo Networks think given they call themselves Canada's “leading broadband data communications provider” or AlternativeBroadband.com, which claims it is “Canada's only national fixed wireless internet service provider.”
From what I can tell, fixed broadband wireless consists of a very small niche in the market. With the carriers and cablecos ready to battle it out for the “triple play”, it is hard to see how or where wireless broadband will see its growth.

It looks like a case of good news/bad news at Research in Motion. The company, which makes the increasingly ubiquitious Blackberry wireless device, posted higher than expected fiscal third-quarter profits of $90.4-million, or 46 cents a share, compared with $70.4-million, or 36 cents, a year ago. Revenue more than doubled to $365.9-million (the mid-range of expectations) while the number of Blackberry users jumped by 387,000 to 2.04 million.
The negative news is RIM offered guidance for the fourth-quarter that will see sales fail to meet analyst expectations even though profits will exceed forecasts. I suspect the sales forecast may have to do with the lower price of the new 7100 device, which is aimed at mainstream consumers rather than CEOs, CTOs and senior VPs.
It has been a month of uncertainty for RIM, which lost or won an IP infringement dispute against NTP Inc. depending on how you interpret the decision. Until the legal process is completed or a settlement is reached, there will be a black cloud hanging over RIM.

It's difficult to get a handle on Skype despite its apparent success. The privately-owned company, which was started by the same folks who created Kazaa, is moving deeper into the public telephony network after signing deals yesterday with Cable & Wireless and B3G Telecom. Skype says it now has more than 400,000 subscribers who have pre-paid to connect from its free VOIP service to the public telephony network.
One can't argue with Skype's popularity given its software has been downloaded 44 million times and it has 18.8 million registered users. However, I continue to question Skype's business model. The basic idea is Skype aims to migrate some of the people using its free VOIP service to premium services such as inter-connects to the public network. Frankly, I do not believe Skype will be able get enough people to consume enough paid services to create a large business or justify the venture capital it has attracted.
This take is not an indictment on the quality of Skype's service, which works well, but Skype appears to be more about cool technology than a viable business. The biggest difference between Skype and other popular free services such as Google is a compelling business model. And with the dot-com boom a distant memory, Skype does not seem to be a hot M&A play either.

Oh the lengths Vonage will go for new customers. Vonage and Oakville, Ont.-based Galaxy Broadband, which provides satellite-based Internet access to consumers and businesses, have signed a deal to offer VOIP service to remote locations in Canada such as logging camps, oil rigs, and hunting and fishing lodges.
Not sure the size of this market but it is worth noting remote communities receive little attention from the high-speed access providers given there is still fertile room for growth in highly-populated urban centres. That said, I would think people who live in remote locations would be happy to pay a premium for Internet services – although you do have to wonder why anyone at a fishing or hunting lodge would want to call civilization.
To emphasize the business opportunity, Vonage and Galaxy cited a fishing lodge in northern Manitoba, North Knife Lake Lodge, which has cut its long-distance phone bills by “hundreds of dollars” by switching to VOIP from satellite phones.
I wonder if Vonage's marketing-savvy CEO Jeff Citron is planning a trip to the Great White North with his trademark orange phone? Advice to Jeff: if you do it, bring a parka and leave the Armani at home.