Bundle Up

By Khali Henderson

Posted: 2/2003

Bundle Up
Wholesalers White-label Local, Long-distance
VoIP for Consumers, SOHOs

By Khali Henderson

LAST FALL, TWO COMPANIES ROLLED OUT
wholesale digital telephony services targeting RBOCs, cable operators and ISPs.
Using their respective proprietary technologies, Vonage DigitalVoice and WebTel
Wireless Inc. offer partners the ability to sell voice over IP (VoIP) telephone
service to their existing customer base using their own high-speed access lines.
By the end of 2002, both reported wins.

In October 2002, Vonage introduced a
two-tier wholesale program for resellers to private label Vonage services —
White Label and Wholesale. The Vonage White Label offers Vonage telephony
services, billing and customer care as a complete package. Vonage’s Wholesale
product allows potential partners to use their existing billing systems and
customer care staff to support the services, as part of a bundled service
offering or as a standalone telephone service. These plans are in addition to
existing programs for commissioned agents and affiliates.

Vonage enables VoIP service through
any high-speed Internet connection and through most networking environments,
using a standard telephone.

To deliver the service, Vonage has
developed a three-layer architecture. The network infrastructure layer is
composed of physical equipment, such as routers and gateways, and the ingress
and egress facilities that form Vonage’s underlying data transport capabilities.
Last-mile networks are under the purview of Vonage’s distribution partners. In
the voice-enabling layer, Vonage has integrated core SIP-based VoIP components,
such as call routing and security, to enable voice communications and provide
advanced features and applications. The service management layer is based on
Vonage’s proprietary technology and provides advanced service configuration,
provisioning, account management/billing and customer support functions. A Cisco
ATA-186 device, provided with the service, sits between the phone and the cable
modem or DSL connection to enable the service.

Vonage offers two retail home phone
calling plans, including a basic plan for $25.99 per month for unlimited local
and regional calling, plus 500 minutes of long-distance calling. A premium plan
goes for $39.99 per month for unlimited nationwide calling. It also offers two
plans for small businesses, including a basic plan for $39.99 per month for
1,500 minutes of nationwide calling and a premium plan for $69.99 per month for
unlimited nationwide calling.

Service requires a one-time
activation fee of $29.99. Included in both plans is the hardware (a Cisco
ATA-186 device) to enable plug-and-play dial tone, caller ID, call waiting,
caller ID block, personalized voice mail, call forwarding, area code selection,
Web-based account management, voice mail retrieval and real-time
inbound/outbound calling activity. International calling also is available at
reduced rates.

Service is available in 36 cities,
114 area codes and 814 rate centers. Twenty-one additional cities are planned to
come on line by the end of first quarter.

Michael Centrella, director of
channel sales, says about 39 companies have come aboard as agents earning
monthly recurring commissions. Commissions vary based on volume commitment,
which is a minimum of $50,000 per month, or approximately 125 accounts. Agents
are primarily VARs and Web portal operators, although the company also is
targeting network service providers and local ISPs as affiliates.

Phil Giordano, director of wholesale
for Vonage, says the wholesale programs require larger commitments and the
pricing is based on both volume and the division of responsibilities, such as
order processing, billing and customer care. Because the Vonage platform is
modular, partners can employ components in conjunction with their technology and
operational infrastructure to create a unique product offering. Margins for
resellers range from 30 percent to 40 percent for those that offer the service
packaged the same way as Vonage (not bundled with other offers), Giordano says.

Centrella says the company now has
eight wholesalers and three white-label partners, including an ongoing trial
with an unnamed Bell company. Among the other wholesalers are e-tailer
Amazon.com, and an unnamed major retailer and a national ISP.

Vonage has competition in the
channel from WebTel Wireless, which launched its iBox Internet telephony access
device in the middle of September 2002.

WebTel, a 6-year-old
facilities-based Internet telephony service provider, operates primarily as a
carrier’s carrier, enabling broadband service providers — ISPs, wireless
broadband operators and cablecos — to offer voice services using the WebTel
VoIP network. Unlike Vonage, WebTel’s OEM device and network is H.323 and SIP
compatible.

The company is seeking resellers for
revenue-sharing agreements for its all-you-can-eat local and long-distance
calling package. The package is priced at less than $40 per month for
residential and less than $50 per month for business customers.

The revenue split is determined by
the division of responsibility for customer service and billing, but will
probably be around $7 or $8. Services are privately branded for the reseller
with the tagline, "powered by WebTel."

David Fuchs of the Rockwood Group,
the company’s backer, says that iBox is "not only a window into increased
revenue, but it accelerates the penetration of broadband because of the
additional value that voice brings." He says there also is a retention
component that comes from bundling services.

Fuchs says a reseller can be in the
voice business in a few months and that the flat-rate billing is particularly
suited to broadband providers not accustomed to billing on a usage basis.

WebTel president Aaron Haskal says
that while the service is ideal for smaller broadband service providers seeking
to offer telephony to existing Internet customers, it also represents an
opportunity for them to get into new markets where there is no telephony
service. "Where there is no telephone company, Internet access is a luxury,
but telephony is a necessity," he says, noting that this is common in less
populated areas. Calls are transported on-net in Arizona, California and
Washington and handed off to other carriers for termination off-net.

WebTel already has two resellers —
wireless broadband provider CommSpeed in northern Arizona and wireless ISP Next
Level Solutions in Phoenix — and it is talking to a variety of cable operators
and DSL providers. The agreement with Next Level Solutions, which also provides
wireless networking, came out of a distribution agreement for the iBox hardware
inked in 2002 with Talley Communications, distributor of infrastructure
solutions to systems integrators and wireless carriers. Bob Heup, Talley’s
director of broadband, says the company plans to target the iBox to more systems
integrators like Next Level, which serves schools, municipalities and
enterprises. Talley makes margin on the iBox, which retails for less than $200,
and introduces the integrator to the relationship with WebTel. Integrators can
then private label the service or sell WebTel’s branded service as a
commissioned agent. White-label integrators also have an opportunity to mark up
the sale of the iBox to the end user, say Haskal, but the unit is partially
subsidized under the WebTel-branded offer.

While WebTel offers commissioned
agent and referral programs for WebTel branded service, retail distribution is
not the company’s priority, Haskal explains. Niles Radio, which is also in
northern Arizona, is an agent for the service.

Aberdeen Group senior analyst Dana
Tardelli says the home office is a "sweet spot" for these services.
However "getting to that market is pretty tough," he says. "It is
just so diverse. You don’t just pick up a phone book" and find out who is
working out of their home.

It is unlikely the service would
completely replace the main telephone line, he adds, because they cannot support
911. Vonage is working on a solution to make emergency service available by
early second quarter, says Centrella. WebTel’s Haskal says iBox also will be
911-ready later this year.

Nevertheless, the service is gaining
traction. Vonage reports the 5 millionth call was completed across its network
on Christmas Day, just 20 days since reaching the 4 million-call milestone.
Vonage terminates nearly 75,000 calls per day.

–Additional reporting by Josh
Long.