Rent-to-Own Model Eases VoIP Entry

These suites, which can include all the features of a PBX, plus softswitch functions and Web interfaces, can cost upward of $1 million, a hefty sum for a service provider that also will have to build its own data center and back it up with redundant installations. In addition, this may be the service provider’s first foray into VoIP, which means a steep learning curve to acquire the in-depth knowledge needed to operate a reliable service. This is particularly true if the service provider intends to be a wholesale operator, providing the service to cablecos, ISPs or their providers for resale.

However, an alternative to outright purchase of software is developing — one that can take the burden of paying for software off the service provider and through a rent-to-own. These companies are offering a revenuesharing model to service providers in which they install and maintain the software and taking a piece of the action as the services are sold.

One of the first to offer a revenue-sharing model was Vistula Communications Services Inc., based in the United Kingdom. The company developed a software suite, called V-Cube, which includes all the features for a hosted PBX service. Adam Bishop, CEO of Vistula Ltd., the arm of the company offering the revenuesharing service, says Vistula’s cut is “substantially a minority share in the revenue generated.” Amounts vary by contract, and, for the hosted PBX service, Vistula’s share is about 2 euros ($2.35) per month, per seat, for services that are usually sold on a per-seat, per-month basis.

Once Vistula enters into a contract with a partner, it can install the software in the partner’s network and have it running within three months or less.

Vistula is not alone, particularly in Europe, in offering a revenue-sharing model. In parts of the world where telecoms are small or new, the model has substantial appeal.

Centile Ltd., based in France, offers a hosted-PBX software suite originally developed by 8x8 Inc., now called IntraSwitch. The company sells the software on a revenuesharing basis to mid-sized carriers that want to offer new VoIP services without a large upfront capital expense. “There is a large gap between the Tier 1 software vendors offering application servers at blue chip prices and a lot of open-source unsupported software,” says Shahal Khan, CEO at Centile. “But there is no middle ground with a good product at a reasonable price.”

Each revenue-sharing deal is highly customized. “We look at the business model and create almost a custom revenue model for them,” says Khan. “It is based on each seat they can sell, and we do a deal over a minimum of three years.”

Centile takes in, on average, 75 euro cents (89 cents) to 1 euro ($1.18) per month, per seat for residential and 1.5 euros ($1.78) per seat for IP Centrex.

A typical customer is Grupo Media Capital SGPS S.A., based in Portugal. The company has launched a Skypelike product, IOL Talki, in Portugal. “So we came up with an amount they would charge per sub, per month, and that becomes part of operating expense rather than capital expense,” says Khan. With a five-year contract, “they could spend more of their money on sales and marketing and customer acquisition.”

In the United States, a new service provider, InVueTel, is scheduled to launch early in 2006 using the MyCall and IPlay3 software products of Netcentrex. The company would not reveal its specific pricing or revenuesharing plans, but says it intends to offer “multichannel, on-demand and payper- view video, high-speed Internet, voice-over-IP telephony, gaming and e-commerce. The company will also create hospitality services that will help hotels improve customer service, build brand, and promote customer loyalty.”

The focus on the lodging industry and on a service package that includes video and high-speed data is a response to the significant challenges lodging operators face trying to meet their guests’ expectations for sophisticated technological services, though they lack expertise in maintaining the equipment to provide those services. They also are limited in their abilities to invest in such equipment upfront, particularly when the technology is influx.