Financial Times: Google’s Wake-Up Call

An editorial in today’s Financial Times:

What should you do when Google parks its tanks on your lawn? The temptation is to panic. Having rapidly established itself as the world’s largest search engine, the group has breezily upturned industries as diverse as academic publishing and map-making. Now it is the turn of telecoms.
Google’s decision to establish an online voice calling service, Google Talk, is a vivid illustration of a young technology coming of age. A decade after the first commercial Voice over Internet Protocol services launched, Voip’s growing popularity is beginning to threaten traditional carriers.
The promise of free, or dramatically discounted, calls via personal computers attracted an estimated 3m people in the US to internet telephone services last year. IDC, an IT and telecoms consultancy, predicts that will rise to 27m by 2009. An estimated two thirds of large US businesses are using Voip for all or some of their telecoms needs.
Google is entering a crowded field, but some early leaders are emerging. Vonage, which charges $24.99 (£13.89) a month for unlimited calls, has signed up 700,000 people in three years. Skype, which has grown through word of mouth, has signed up 2m paying customers before its second birthday.
As an OECD report published yesterday spelled out, the march of internet telephony threatens traditional, fixed-line revenues, particularly for lucrative international calls, where online upstarts can offer the steepest discounts. Revenues from fixed-line voice traffic account for 70 to 90 per cent of the typical incumbent’s total income, and are already under pressure.
Mobile operators are similarly vulnerable, as Skype and others develop dedicated WiFi phones.
The industry has begun to respond. AT&T has declared its intention to be the market leader in Voip services, BT group is offering cheap international calls through BTCommunicator, and Comcast is plugging the “triple-play” attractions of voice, video and data services over its cable network.
Yet some still seem reluctant to promote Voip, for fear of eroding their traditional businesses. They have comforted themselves with the thought that Voip will encourage wider adoption of broadband services. But broadband prices are already under pressure.
Early problems with Voip’s reliability have largely been sorted out, but Google, Vonage and Skype do not yet have services that will appeal to everyone. Google Talk, for example, will only allow calls between PCs. This is unlikely to be the case for long.
Traditional providers can respond by offering higher value services, such as voicemail and call forwarding, and by bundling voice and broadband services. The future of the industry may yet be an integrated one. But incumbents must face the need to cannibalise old revenue streams, which means cutting costs further. It is time for them to walk the talk.

Posted by on August 25th, 2005 at 10:26 am


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