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Financial Impacts of VoIP
CITI Workshop
James Allen
Confidential
Agenda
Addressable market for VoIP
Baseline case
Impact of VoIP
Conclusion
Introduction
Confidential
We examine three sources of VoIP service provision
Broadband VoIP service
Vonage, AT&T CallVantage
Cable telephony
As announced by all major MSOs
Bell Offerings
Defense or Offense
Confidential
In the baseline case, Bell local lines are falling…
We would anticipate the fall in Bell local lines to slow through 2008
We forecast ARPU to fall by 2% per year to $38.52 by 2008
Source: UBS Investment Research and Analysys Consulting
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Local Lines Revenues
Confidential
… while Bell long distance lines continue to increase
We project the pace of growth of long distance lines to slow
We assume ARPU falls 4% per year until 2008 to $17.51 per month
By 2008 we project long distance penetration to be 57% of local lines
Source: UBS Investment Research and Analysys Consulting
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Long Distance Lines Revenues
Confidential
Broadband determines the addressable market for residential VoIP…
We assume 1.2% annual increase in households over this period
Broadband penetration is assumed to be 60% by 2008, up from 23% at the end of 2003
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US Households Broadband Households
Source: U.S. Statistical Abstract, FCC, and Analysys Research
Confidential
… but is less likely to be a limiting factor for small businesses
We assume less than 1% annual increase in small businesses over this period
Broadband penetration is assumed to be 81% by 2008, up from 67% at the end of 2003 0.0
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Small BusinessesSmall Businesses with Broadband Access
Source: U.S.Statistical Abstract, Company Reports, Analysys Research
Confidential
We forecast over 11 million residential VoIP lines by 2008
This assumes the following VoIP penetration by 2008
20% of cable modem households
10% of xDSL households
15% of households with other broadband access
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xDSL Cable Modem Other
Source: Analysys Consulting
Confidential
…and 4 million small business VoIP lines by 2008
This assumes a penetration of 23% of small businesses by 2008
Each small business has on average just over 4 lines
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ions
of L
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xDSL Cable Modem Other
Source: Analysys Consulting
Confidential
Bell revenues fall 12% from baseline case by 2008
VoIP provider revenues approach $5 billion by 2008 with a 4% yearly drop in ARPU
Bells lose $8 billion in revenue from both local and long distance services
If VoIP users have 10% higher ARPU than average, Bell revenues would fall a further 10% by 2008 -10
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$ Bi
llions
VoIP Provider RevenuesChange in RBOC Revenues
Source: Analysys Consulting
Confidential
Possible defensive strategies of Bells
Across the board reduction in rates
Cut in local and long distance rates leading to a 5% fall in ARPU
Would lower Bell Revenues another $2.3 billion by 2008
Would need to win back over 4 million lines from VoIP providers for this to break even (31% of all VoIP lines)
Offering of own VoIP package to compete with other providers
Every customer retained is a win-back of roughly $30-40 per month
But every Bell customer who switches to Bell VoIP is a loss of up to $20 per month
Source: Analysys Consulting
Confidential
Potential Bell Offensive Strategy
Replace network with all IP network
Means of offering VoIP to existing customer without necessarily eroding ARPU but with cost savings
Use new IP network to offer new services
Triple play or other value-added services
Confidential
What will be the shape of revenues in the coming years?
Revenue
Time
Cost phase: VoIP drives down costs, which increases downward pressure on prices and revenues
Service phase: VoIP enables new services, which increase revenues
Confidential
James [email protected]
Analysys Consulting Limited24 Castle St, Cambridge
CB3 0AJwww.analysys.com
Michael [email protected]
Analysys Consulting Limited1725 I Street, NWWashington, DC
www.analysysconsulting.com
