How low can pricing go? Future predictions

Commodity voice prices, particularly in wholesale, have continued to decline. But how much further down can they go? I’m betting a lot further. A 10 minute phone call using today’s inexpensive retail rates might cost perhaps $0.20 ($0.02 a minute). However, in terms of Internet IP usage, the cost would only be $0.001.

This means a traditional telephone call today is still costing 200x more than what it would cost to send it over the Internet. Clearly there is continued room for prices to slide. However, one might argue that as a consumer is $0.02 a minute low enough. Time will ultimately answer that question.

Witness Intelliquent (NASDAQ:IQNT) is a little known company whose primary job has been to provide tandem voice services to various other service providers. Effectively they’re the modern equal to what we previously understand was a long distance provider (only Intelliquent only sells to other operators). Their selling message to the operator is that it’s cheaper to just let them handle the call than for the sending carrier to bother

Last quarter, Intelliquent handled over 33 billion minutes of voice traffic and their average revenue per minute was, get ready, $0.00158. Intelliquent is well on it’s way to achieving Internet telephony rates but unfortunately, they lost money last quarter and the stock got clobbered.

My predictions for the industry are as follows:

• Price per minute will continue to decline with no offset in increase in volume as minutes simple don’t happen or voice communications happen outside what known as the PSTN.
• The big will have to get bigger. You will need to run an astronomical amount of minutes in order to achieve economies of scale.
• How voice networks have been built will need to change, dramatically. Telephone networks were architected in a time now gone and the complexity of how they were built can’t be continued in light of the new revenue models. This will be a difficult transition for those rooted in the past.
• Operators may exit the commodity voice business and wholesale services from other provider who can achieve the needed price levels.
• Smarter operators will embrace this change and put a renewed focus on offering real voice solutions for which businesses and consumers are likely to have a continued willingness to pay.

It’s going to be an interested next few years and the emergence of new technologies, like WebRTC, will enlighten businesses and consumers to new capabilities and put increased pressure on traditional service providers to re-mold themselves to this opportunities.