communications. The Omdia report outlines five telco cloud business models for service providers to consider, but singled out a “sell-through” model as most applicable to core communications. Under that model, service providers resell a cloud provider’s services through either passive or integrated sell-through approaches. In addition to offloading platform responsibilities, benefits include ease of implementation and opportunities to differentiate offerings.

In the passive sell-through approach, service providers resell cloud vendors’ own branded product suites – RingCentral, Cisco Webex, Microsoft Teams – via licenses and bundle them with related network and communications services and support. While features and functionality are essentially at parity, potential disadvantages include loss of brand equity, licensing complexity, channel conflict, reduced pricing flexibility, and lower margins. Those vendor platforms also do not offer a full range of traditional telco services, including residential services, POTs line replacement, SIP Trunking, and various more complex solutions making consolidation is impossible.

Under the integrated sell-through approach, service providers have more opportunity to differentiate packaging and feature sets, influence feature development, and integrate the services with other offers for a seamless customer experience. They can fully integrate the vendors’ platforms into their own service and support bundles, retain brand equity and control pricing.

“In almost all our discussions with service providers…the most voiced catalyst to move to a vendor cloud model for core communications was realizing the benefits of a single platform in terms of integration, support, and skills resourcing,” Omdia analysts said in their report.

The SMB Opportunity

Service providers adopting a single cloud platform for delivering core communications can easily extend those services with flexible pricing to a vastly underserved market segment – the nation’s more than 33 million small and medium-sized businesses (SMBs).

SMBs – companies with fewer than 500 employees – account for 99.9 percent of all U.S. companies, and they still largely rely on the traditional telephone to conduct business.

While Omdia expects the number of public switched telephone network (PSTN) subscribers to decline at a compounded annual rate of 14.5 percent from 2022 to 2028, there still are tens of millions of residential and business wire-line connections in service across the United States. The Federal Communications Commission put the number at 95 million – a combination of plain old telephone service and VoIP connections – as of June 2022, the latest figure available. Fifty-five million of those were business lines.

“We believe PSTN voice will linger on for years due to regulatory requirements and the need for providers to deliver some type of telephony,” the Omdia report stated. “Despite advances in technology and growth in the adoption of mobile communications, there is still a substantial base of customers that rely on fixed-line telephony services, including legacy PSTN services.”

SMBs, whose biggest challenges are managing costs and finding and retaining customers, stand to benefit from enterprise-level analytics tools currently out of reach. Service providers can fill that void with an easy-to-use cloud communications platform that allows SMBs to use AI and other advanced data analytics tools to derive operational and customer insights from their phone calls. Service providers can bolster their offerings with features including authentication, speech recognition for transcription, and virtual assistants for scheduling and managing meetings. As they increasingly turn to mobile phones, SMBs also require native dialer capabilities that provide a single identity between their fixed and mobile devices.

Visionary service providers will reinvent themselves and their core communications in the cloud. The alternative is continuing to tread water in the status quo: maintaining a defensive posture with legacy networks that promise to become riskier and more costly at the expense of revenue growth as margins continue to erode.

“Telcos that have invested in fiber and 5G networks will increasingly be judged on how effectively they have been monetized,” according to the Omdia analysts. “The prospect is that in five years, many will fail the test when it comes to financial market analysis.”