VoIP is shinning but the service providers are waning. This is the latest trend, which has come into being in the VoIP market. The MyVoIPProvider report has led us to believe it so strongly.
In the last 15 months, nearly 85 service providers have left the market owing to heavy loss. However, VoIP market is still growing. So the question comes, is VoIP a profitable business?
I came across a Moshe Maier post in the Flatplanetphone where the writer argues that VoIP is a great business if the service providers stop customers churns. In fact, Moshe has referred Jon Arnold’s comparative analysis on Q3 results of Vonage and Telio.
Let’s summarize the Vonage’s third quarter result. The company spends near about $6.86 per line on direct costs and $29.79 on subsidy of ATA. The Average Revenue per User (ARPU) is standing at $26.33. Their yearly income is $315.96 while overall cost of production including the ATA subsidy is $112.11. Thus, the gross profit is $203.85. This is possible when you keep hold of your customers or acquire new customers. Now consider Vonage. The service provider spends $1m everyday on advertising, but faces a 2.6% monthly churn. Here lies the problem.
Thus, the VoIP service providers must take steps to bring down customers churns to make the business profitable.
