I recently had a chance to interview Jeff Ahlquist, who serves as Vice President of Corporate Development and Strategy at Covad. As you no doubt know, the company has become a big player in VoIP and has done a good job branding itself these past years. I wanted to delve into the company more and learn how they are doing. I was wondering how the VoIP market is treating them.
Here is my very candid interview.
What is the biggest barrier to your success?
Jeff thinks the biggest barrier is market education and the validation of VoIP as a technology ready for prime time. He believes demand generation is another barrier.
From here, our conversation turned to pure hosted VoIP providers. Covad doesn’t want to be considered a pure hosted VoIP provider; they understand there is more to the market than just hosted solutions and not every company wants to go this route.
This is why the company has focused on a portfolio of options consisting of traditional hosted services as well as a product called PBXi that is similar to the offering from Cbeyond Communications, which also plugs into an existing PBX.
I asked about the competitive landscape, to which Jeff replied that they have their own network and are well positioned in the market.
What about 911 support?
Regarding to E-911 compliance, Covad has two types of customers: those who get their broadband service from Covad (“managed circuits”) and those who get it from another provider (“unmanaged circuits”). Covad is at 100% compliance with its managed customers while not yet being quite there on the unmanaged side. Covad is working diligently on the issue and will be providing full 911 functionality to nearly 99.5% of its stations in Q1.
What is your pricing?
The price boils down to three parts for a hosted solution. First, there is access (for SDSL, T1, etc.). Second, there is the equipment, which us supplied by a dealer/VAR. Finally, we have the monthly service fee per seat/all your long distance and features, which ranges from $30 to $50, depending on the total number of seats.
Will prices in the hosting market go lower over time?
Jeff feels the price will compete well with PBXs. He tells me the up front costs are lower for their hosted solution. He also feels the price is lower on an ongoing basis. For example, he mentions you don’t need a technician for moves or adds or deletes when you use a hosted provider.
What about the cost of service for truly large enterprises?
Ahlquist says they don’t do many extremely large installs. Their sweet spot is 20-150 seats. (Jeff gets points for honesty, for rarely does anyone tell me they don’t do something.)
How do you compete with on premise equipment?
There are many interesting ways Covad attacks this issue. Covad can complement on-premise equipment with PBXi service or offer a hybrid of on-premise and hosted solutions. Covad can also add phones that are hosted and even add a dashboard for voicemail.
How is your reseller market?
There are approximately 400 dealers selling Covad’s service. These dealers can also sell the PBXi product with hardware.
What is the reason resellers would rather sell a service instead of a PBX?
It boils down to customer need, primarily. That said, there are compensation differences, as resellers get a recurring fee for service and also get to sell equipment along with the service. In the end, Covad takes on the brunt of operating costs of ongoing service.
Is pure hosted better than hybrid?
This depends on the deployment. There is room for anything, based on customer need. With a hosted solution, upgrades are easy and customers aren’t locked in. You can’t easily upgrade a PBX, Jeff points out. A PBX is a piece of hardware. Covad upgrades service all the time, providing a constant service refresh, which is cheaper and provides a considerably lower TCO.
How is your solution better than Centrex?
Centrex was static and used centralized equipment. It was not a software platform. With IP, you can easily integrate apps into service, according to Ahlquist. Telephony itself becomes an IP application. You take all the value of IP applications and apply it to communications.
Then Jeff pointed out the ease of distribution and consistency. With Centrex, you were limited to the LEC in your region. When you moved to a different area, the service changed. A solution like Covad’s does not have these drawbacks and stays consistent internationally as well.
What about competition from other ‘hosters’?
There is a lot of competition out there, but this validates the category, according to Jeff. It doesn’t take a lot to become a hosted provider. He is concerned that some players may taint the industry by providing inferior service. “This can hurt the VoIP reputation,” he concluded.
What is the feedback from customers?
It has been good. The customers have been direct and poignant. In addition, Covad has done some custom voice work, which companies love, says Jeff. Other customers are ecstatic that their VoIP service came back within 48 hours after the Florida hurricanes, the LECs were down for weeks.
Will hosting gain share? When?
It is, in fact, gaining share. Analysts are pushing out expectations a bit. Some businesses are waiting to see how it plays out but, as ILECs get into game, it will validate the space. Jeff feels 2006 will be good year, which will be one year behind analysts’ predictions
Do enterprise customers need education on the hosted market?
Who should be educators?
”You guys,” meaning TMC, INTERNET TELEPHONY, and analysts. Market awareness must be built through advertising. The LECS won’t push hard to validate VoIP, since they have a core TDM network. Jeff added that equipment providers also may not push the market in the hosted direction — but they do sell phones to hosted providers. He feels that Covad and others are the ones that need to drive market forward.
Are you concerned about a Skype-like hosted model?
This will cost money to produce, but if it is offered as a loss leader, yes, there is potential danger. Jeff went on to say that VCs won’t give money to acquire customers at a loss. He thinks this model is easier to pull off in the consumer market than business.
Covad has been a major marketer in making businesses aware of VoIP and has been a great educator of the market. With a number of products and services in its portfolio, the company is in a position to be a supplier to all but the largest of enterprises. As a carrier providing voice and broadband, the company is in a great position to not only provide VoIP, but to provide it at guaranteed service levels.
In my view, the company’s decision to sell a hosted solution as well as one that allows companies to work with a standard PBX is very smart. In the end, companies will go hosted when they are ready. Covad is well positioned to supply customers’ VoIP needs, regardless of who or what they are.
Rich Tehrani is President and Editor in Chief at TMC.
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