Will telcos and MSOs lose SMEs to upstart hosted service providers?

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Jim O'Neil

Telcos and cable providers increasingly are turning to products and services aimed at the enterprise and small businesses to help shore up revenues. As well they should. After all, research shows there are more than three million small and medium businesses within the reach of two-way capable cable systems, Insight Research reports.

Telephone service providers have seen wireline revenues erode as residential customers have switched to wireless phones and VoIP. Cable service providers have struggled with customer losses and shrinking margins for video services.

Both have turned to products like VoIP and unified communications services that not only stop the flow of red ink but also grow their businesses. Verizon (NYSE: VZ), for example, is one of the largest providers of unified communications solutions in the world. At last week's Enterprise Connect it rolled out a new bridge aimed at growing its videoconferencing business.

Comcast (Nasdaq: CMCSA), with its massive deployment of VoIP, is now ranked as the third-largest telephone service provider in the United States. It, too, made a big deal of a new play at Enterprise Connect. Its cloud-based voice and unified communications solution reflects the industry's push toward more commercial growth as residential growth slows.

But, a new report from Insight says both industries could be seeing trouble down the road. They'd be in line to lose a large portion of their small business customers as a new crop of hosted service providers arrives on the scene offering PBX-like voice services at lower reoccurring costs and with minimal site equipment expense.

The report, "VoIP and the SME: CableCos, Telcos, and the Rise of Hosted Service Models, 2011-2016," said that upstarts like 8x8, Aptela, Fonality, and Nextiva increasingly are able to target the small business market since the advent of VoIP PBX business telephone technology and the nearly universal availability of broadband services.

Those companies, Insight said, provide virtual PBX/VoIP services with enhanced features into the lower end of the business segment, which is a competitive hot bed. And, they're able to be more competitive in terms of functionality, productivity and pricing than the service bundles being provided by either the telcos or the MSOs.

The market is sizeable, with more than 40 million lines in the small business segment of the market now up for grabs, Insight said.

"We are not talking about chump change," said Robert Rosenberg, Insight Research president. "Our study suggests that thus far, small businesses haven't quite latched on to this new technology so the revenue today is only in the range of one-half billion dollars, but by 2015 hosted services will be nearly a $1.2 billion market and the adoption rate of the hosted services by small businesses will accelerate."

The big question is, of course, can telecom and cable providers step up to the plate with solutions that are as nimble? Can they deliver the customer service their smaller competitors promise?

Insight says the sweet spot for hosted VoIP sits with businesses that have fewer than 100 employees. And, the company says, revenue from the segment should grow from $513 million in 2011 to nearly $1.2 billion in 2015.

That's a market worth fighting for.--Jim