Making money in the process

Information Week and EE Times have reported that "Consumer broadband service providers more than doubled their revenue during last year, from an annual rate of about $3.3 billion worldwide in early 2004 to $6.9 billion by the end of December 2004."

This is indeed good news, and it points to a strong uptake in the IP-based service area. What in fact is happening is that prices for the services are coming down, but this has caused consumers and small businesses to take more of the services. While the prices have come down somewhat, the number of lines being sold has increased dramatically, and the net result is a very healthy growth level overall in the industry.

There is no real surprise here. We have felt for a long time that the IP based services would continue to outstrip growth in most other telecoms services. The reasons are vaired, but the growth is certainly spurred by the increasing reliablility of these services, plus increasing richness of features provided. From the customer's point of view, especially that of a small business, a cost-benefit comparison shows the VoIP choice almost a "no-brainer". You can start with an average of $40 per telephone line every month even before making your first call. Compare this with from less than $20 to a maximum of just under $30 for VoIP, where even the most basic services provide all the goodies you have to spend extra for from your local Telco.

So, a final question: How do you share in these profits? Or, stated a different way, what does this mean to a potential investor? We like some of the plays out there today, especially Packet8 (aka: 8X8, Symbol: EGHT), who we haven't covered too much in this forum, but their foray into video may yet just pay off. Their stock is at an almost all-time low, but it appears that things are beginning to turn their way. They still have some problems - mostly, in our view, a need to re-do their website to give users much better access to more features - but, the basics are certainly there, their voice service quality is good, and the video play could be their ace in the hole. It will be fun to watch!

Notes: In the interest of full disclosure, we do hold some 8X8 stock in our portfolio.