The beginning of the end for analogue lines

How accelerating VoIP usage is forcing the pace of change and engulfing old analogue lines

Businesses that rent landlines off BT and still make analogue calls on those lines, may have noticed that their prices have gone up recently. This should have come as no surprise – BT will have informed you of the changes some time ago.

Although the increase was small, businesses may well have asked themselves why it was necessary? After all, the cables and the infrastructure has been there for some time now and BT is the dominant player in the UK telephony market. It is also the leading player in the broadband market, both for consumer and business, so overall it would appear to be doing rather well.

Competitive environment

Indeed, it is broadly accepted that BT is performing well in what is a very tough environment. In pretty much every area of the market, BT is being compelled to make further investment while fighting off fierce competition. In broadband for example, it is pumping billions into the roll-out of high speed fibre broadband across the UK, while competitors are pushing Ofcom to impose more restrictions on the company and – in their eyes – give them a better chance of attracting new broadband subscribers.

In the area of calls and lines however, the situation is a little different. Here BT is fighting against competition that is introducing hosted and cloud-based VoIP services as a replacement for the analogue telephony. BT has to walk a fine line here. On the one hand it knows that, eventually, everyone will switch over to using IP-based services. On the other, it is making good money out of its calls and lines business, which has held up remarkably well over the past few years.

Changing perceptions

Part of the reason that BT’s traditional old cash cow has continued to yield is that customers have been reluctant to make the switch to VoIP. In the early days of VoIP, this was as much to do with a lack of confidence as much as anything else. But the perception that more bandwidth was needed to support IP-based voice was also factor. While this was largely a misconception, the arrival of faster broadband in the UK – for which BT must take quite a lot of the credit – has swept this concern aside.

This has opened the floodgates on VoIP. Over the past year, suppliers have seen three-figure increases in the number of users and a growing number of businesses are now switching all their voice services to host or cloud-based VoIP. This is not happening overnight, but it is rapidly accelerating. As a result, BT’s projected revenues from calls, and to a less degree, line rentals, will be starting to decline, putting pressure on the pricing model.

Transitioning to VoIP

But BT can’t just hike its prices because the competitive landscape is becoming more challenging. Its rivals would soon be banging on Ofcom’s door again. BT however, may feel it has to start increasing its charges for landlines and calls as this area of its revenues declines. Paradoxically, that will shake a few more customers out of their inertia and add a little bit of extra momentum to the transition towards VoIP, which will mean a further erosion of the calls and lines business.

For BT, the fine line between balancing the books and driving customers to adopt more digital services is getting finer. These latest price rises presage the end of the calls and lines era and the beginning of one in which hosted VoIP will become ubiquitous.

 

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