SOHO: UCaaS Bonanza for Telcos?
Is hosted PBX revenue an antidote for plummeting service provider landlines?
More than 5,000 telephone companies around the world could have a lifeline for their evaporating landline businesses. It's UCaaS for the small office/home office (SOHO) customer, and telcos should seize the opportunity before it's too late, according to Eastern Management Group analysts.
Eastern Management Group recently completed a four-year study of the UCaaS market and published the research in a new report, "Worldwide Hosted PBX Market 2017-2022." With market data from more than 3,500 companies studied, we present some of our global SOHO research in this post.
Fixed telephone subscriptions are dropping in the developed and developing world. Plummeting is more like it. In the 52 developed countries (e.g., U.S. and France) landlines have been drying up an average of 2% annually in the last three years. Developing countries, of which there are 168, are also in bad shape, as landlines declined by 5% just in 2017.
Phone companies can't shrug off these losses. Fixed and operating costs borne by the carriers don't decline proportionately with landline cancellations. Many costs don't reduce at all. So, when subscriptions are canceled the phone company goes in the hole.
Who Is the Business Customer?
Most carrier business customers are quite small. In the U.S. more than 60% of firms have no more than four employees. That equates to 3.6 million establishments. Add another 1 million establishments to that, and the market for businesses with nine or fewer employees is 80% of the total market. The bulk of those with landlines may have one or two.
Looking at SOHO from a different angle, 52% of U.S. businesses are home-based. It's hard -- nearly impossible -- for telephone company competitors to profitably serve any of these micro customers with UCaaS or any landline service. Therefore, incumbent carriers get the SOHO business by default. But landlines are drying up.
Unsurprisingly, the phone companies' hosted PBX competitors seek out the green pastures of large SMBs -- those with say, 75 to 250 employees -- mid-market, and enterprise customers. Competitors' own UCaaS businesses are structured such that they can't flourish, much less survive, servicing to the SOHO market with a seat or two.
But the situation for telephone companies is different. As long as there are small customers, even one- or two-line SOHOs, incumbent telcos can make money. And they can make more money when selling UCaaS with just a couple of much-in-demand features. UCaaS revenue both offsets the landline erosion and enables new revenue-generating applications for phone companies. The bottom line is that telcos are fairly invincible at the low end of the market.
Why Is That?
Telco operating costs don't necessarily increase with a UCaaS offering. Incumbent carriers already have customers, sales departments, contact centers, data centers, OSS (operations), BSS (billing), last mile, and core networks. They may also be outfitted with softswitches and call control. This is a significant advantage over the competition.
The UCaaS competitor to a telco must build its business pretty much from scratch. That's millions of dollars of UCaaS startup investment and time. Even if they roll out CPaaS, competitors must sign up customers larger than one- and two-line SOHOs.
UCaaS is a toolbox of features to increase SOHO productivity. More than just a landline with a limited application, the UCaaS customer pays small amounts monthly for tools. The telco has hundreds of these UCaaS features for sale and millions of possible combinations of them.
Our research finds that 50% of businesses even with one to five employees will pay for productivity- improving UCaaS features.
What to Look for in UCaaS Tools for SOHO
Here's a sampling of 100s of features available in SOHO UCaaS options.
- Network connectivity
- Business continuity -- failover to PSTN
- Visual voicemail
- Web portal (user)
- Mobile integration
- Meet-me video conferencing
- Fixed-mobile convergence
Contact Center Features
- Call flow management tools
The benefits to the carrier are:
- Customer retention
- New services revenue
- SOHO landline erosion offset
- New customers as new businesses start up
Telephone companies will incur some one-time costs by selling UCaaS to the SOHO market. Most are for designing offers, setting prices, training, and writing business practices, all of which we see as sensible investments.