Thursday, March 20, 2008

VoIP Costs

On an ISP listserv we have been discussing the viability of a $12.99 white label consumer VoIP service.

From what I have seen using all VoIP and no PRI, you are looking at $8 per user for DID and O/T for a consumer using about 300 total minutes per month. Vonage's numbers back that up: Average monthly direct cost of telephony services per line $7.11. Remember, that is the basic cost of telecom service, which does not include hardware lease, collocation, bandwidth, labor, admin expenses. USF, 911, and TRA fees are extra.

Using TDM for local, that cost increases to about $14 depending on what the PRI costs.(PRI runs $500 divided by 23 lines divided by 4:1).

Vonage's Average monthly telephony services revenue per line is $27.42 --- and they lose money. So how could it white label for $12.99?

Another cost is the "marketing cost of acquiring one new subscriber line was $223, down from $306 a year ago". [source] I think the acquisition cost is closer to $300. In addition, there is an ATA and shipping (about $25 and $8).

The other metric that is costly is churn. Vonage is at 3%.

Packet8's "Average monthly churn for all services for the quarter approximated 3.8%, excluding subscribers that cancelled within the first 30 days of service. This is a reduction from the 3.9% and 4.6% churn we experienced in the September and June quarters." [source]

8x8 does not really break down the consumer numbers. But they do focus on the Business Customer numbers.

8x8 has product margins of 15% -- which is about the same as CLEC resale POTS lines. And those guys are not profitable either.

"Revenues from our Packet8 Virtual Office business services contributed to 48% of our total revenues." Packet8 has many more consumer lines than business lines.

  • Business customer ARPU was $239.
  • The cost to acquire a new business customer increased to $1,168.
  • "Cost of sales, which includes all network expenses, headcount to manage our network, depreciation on our networking equipment and stock compensation for the employees who manage our network, was $40 per business customer per month."
  • "In the December quarter, customer service and billing expenses were approximately $46 per company per month.

Business VoIP is profitable, but I do not believe there is any viable way to offer VoIP for $12.99 in my opinion.

Remember that Vonage has 2.5M subs, so their costs are spread out. They had investor money and IPO money to pay for equipment and network build out. And none of the numbers reflect the patent penalties. Does the white label company own any patents? Or will they be subject to litigation like Vonage and the MSO's?

Check carefully any VoIP Provider that you choose. There only so much info you can get - and finding out if they are viable or smoke-n-mirrors is very challenging. Yet, the cheapest provider is likely not the most viable.


Unknown said...
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Unknown said...


Your post got me thinking – as consumers, we always look for ways to lessen the cost of services that we patronize. Your point about cheap VOIP services is thought-provoking, though. So do you have any suggestions as to what cost can be considered a viable threshold when choosing a VOIP provider?


Peter Radizeski said...

I think it can be offered profitably to consumers who are not heavy users for $29.95 plus taxes and fees (like USF, Telecom Relay, 911) plus an activation cost to cover the $70 to port your number and $35 to cover ATA plus shipping.