Is Google Going to Capture Telephony?

Market Studies

1394 Market and Technology Study

Is Google Going to
Capture Telephony?

Published: March 2009

| Features | TOC | TOF

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This is the first of a major series of reports to be published by Information Gatekeepers on the subject of "Telco Business Transformation and the Next-generation Network." Many of the world’s telcos are now involved in redefining the way they do business, and the kind of network they need in their planned new environment. This series of reports will be a “how to” manual as well as a report on activities by the various major players and forecasts for the resulting next-generation network.

To begin a transformation project, one must consider the market facing the business. Therefore, this first report in the transformation series deals with the telecom market situation today. Later reports in this series will consider other aspects of the transformation process, including the planning environment, goals setting, the next-generation network, next-generation network technologies, and next-generation vendors.

Although this report will consider several important market impacts, the most current is the announcement by Google of Google Voice. For some years, this analyst, as well as others, has been watching Google for an entry into telecommunications. Most of their business is telecommunications based, so it is a natural fit. Our last report (in 2005) on the general telecom market situation, “Next Generation Network - Will the RBOCs get Googled Up?”, predicted the rise of a class of “super competitors” to the RBOCs, led by Google. That still is a good forecast, and it is beginning to happen with Google.

Google and the RBOCs

In 2007, Google purchased a small startup called Grand Central. Grand Central provided a service that allowed calls to follow a user to different phones, and visual voicemail. In early March 2009, Google announced that it had now rebranded the service to Google Voice and added a number of new features. Early reporting on the features included free calling within the United States, extremely cheap international calling, and many advanced call- and phone-management capabilities. Although not yet available to the general public (it is said that it will be in a few weeks), the threat is clear. Google is indicating that it will give away the entire voice business (at least within the United States) just to get an added advertising platform.

How do you compete with 'Free'?

Can the RBOCs and other telcos compete with “free”? What are the implications for the overall telecom business? In 2005, we issued a report, “The Next Generation Network - Will the RBOCs be Googled Up?”, suggesting in the section on competition that Google would become a “super competitor” and would attack the telcos’ market. It appears that is now happening, and this report provides extensive forecasts as to our view of the outcome of this attack and other market forces currently in play.

Report Features

This report will attempt to answer these questions, in the broader context of the overall competitive environment of U.S. telephony today. In addition to the “super competitors,” we feel that the following are the major issues in today’s competitive structure in telecommunications.

• Telcos become wireless, rather than wireline companies;
• The Advanced Access Architecture deployments being undertaken by the major RBOCs and many smaller telcos;
• Overbuilding by major telcos;
• The emergence of the “super competitors.”

This report will address each of these areas and provide forecasts as to IGI's expectations for each. Because of the overriding importance of the state of the U.S. (and world) economy, the report will begin with a review of IGI's forecasts for the nation’s economy as well as its impact on telephony. The report will then continue with a review of the current telecom market structure; with that background, we will then address each of the above listed issues.

This series of reports is being prepared by Clifford Holliday, a writer and analyst for IGI. His many previous projects have included the massive Lightwave Series of Reports, the recent ROADM Series of Reports, and the AAA Series of Reports. Mr. Holliday spent many years as the VP in charge of technology planning in the Business Development department of GTE. He was involved in or led at least seven different major “transformation” projects (including “PIP” — Performance Improvement Projects — Winning Connection I and II, WINS, and Technology Reorganization). His background and expertise in this area are the match of any practitioner today.

Table of Contents

Table of Contents

Table of Figures

The Lightwave Network Series of Reports

The Lightwave Network

The Lightwave Series of Reports

General Reports on the Network

General Market Reports

Specific Systems Reports


The Telco Business Transformation and Next Generation Network Series of Reports

Google and the RBOCs

How do you compete with “Free?”

This Report

General US Economic Forecast

General Economic Background

Telecom Economic Background

Possible Positives for Telecom in 2009

Telecommunications Economic Forecasts - 2009

The Face of Network Competition – Market Structure Today

RBOCs’ Multidimensional Competitive Struggle

Post-merger Competition

RBOC Purchase of IXCs

RBOCs vs. Cable Companies

Advanced Access Architecture Plans

AAA Deployment Forecast Summary




Forecast Size of Deployments

Forecast of Homes Passed

Penetration Rates

RBOCs Are Becoming Wireless Access Companies

RBOC Loss of Main Lines

It’s a Wireless Access Industry!

The Wireless Access Landscape

Forecast for Wireline to Wireless

The Super Competitors

Google Attacks – Google Voice

Forecast for Google Voice

Forecast for Google Voice


Overbuild – How?

Overbuild - Significance

A New Type of Competition

Summary of Overbuild Forecasts

Summary of Forecasts

General Economic Forecasts

Telecommunications Economic Forecasts - 2009

Advanced Access Architectures




Wireline to Wireless

Google Voice/Google Forecast




Table of Figures

Figure 1, Lightwave Network

Figure 2, Telecommunications Economic Forecasts

Figure 3: Summary of Competitive Position

Figure 4: Revised Competitive Structure Due to IXC Purchases

Figure 5: RBOCs Subsume IXCs and CLECs

Figure 6: RBOCs vs. Cable Companies

Figure 7, Telcos vs. Cable Companies – 2009

Figure 8: Forecast Homes Passed Cumulative
— All Technologies

Figure 9: Forecast Homes Passed Annually — By Company — All Technologies

Figure 10: FTTX vs. High-speed Accesses vs. US Households

Figure 11, Verizon Wireline vs. Data Revenues

Figure 12, Verizon Loss of Main Lines vs. Data Revenue

Figure 13, Wireless Competition

Figure 14, Forecast for Wireline to Wireless Migration

Figure 15, The Super Competitors

Figure 16, Google as a Serious Threat

Figure 17, Forecast for Google Voice

Figure 18, Verizon's NOOF Arrangement

Figure 19, Forecasted Overbuild Strategic Outcome