WMD's Require Preemptive Dog Kicking

If I read the comments correctly – well, maybe not correctly but at least politely antagonistically, as is many a successful blogger’s way to fixate more eyeballs – the Preemptive Dog Kicking of VG was necessary in order to smoke out industry terrorists who could, at any moment, launch cable industry WMD’s in the form of a VOIP price war, thereby initiating and accelearting an inevitable race to the bottom of Lake Wobegin (the evil anti-lake of Wobegon, of course).

Since very few ppl click through to comment threads on blogs like this one, I’ve pulled this up top before replying, below. I definitely appreciate the writer’s cogent insight and hope the author will understand my requisite, if insincere, histrionics. Amidst the hand waving are a few actual thoughts, I think.

6/13/06 Anonymous said …

Vonage is a fine company with a very good product. The stumbling IPO has nothing to do with their quality or with Citron's past at Datek ... there's no doubt they've done a great job with implementing and popularizing VOIP.

The problem with Vonage, and any single service VOIP provider, is that cable and telcoms are hot on Vonage's trail with their own VOIP offerings.

All it takes to steal Vonage's thunder is for any of its large competitors - Comcast, Cablevision, Time-Warner, Verizon - to drastically lower the cost of their VOIP service and start a price war. That would kill Vonage and any single service VOIP provider.

Because these huge companies make income from a variety of sources related to their principal ventures, they can absorb the lower VOIP revenue without hurting their stock price. Because all Vonage offers is VOIP their stock price would probably plummet to below $5 and eventually become delisted.

If it wasn't for that huge threat from huge competitors like cable and telcoms, Vonage's IPO would have been extremely successful. 

To which Metavalent replied …

I can’t argue with the WMD theory of sudden price war (smile) – however, price wars seem unlikely over the next five years, given continued pressure on cable to upgrade its OSP (outside plant), the growing bandwidth requirements of peer-to-peer video (YouTube, MySpace, RocketBoom, iTunes, etc.), HD and content must-carry rules. The cable companies have a hell of a lot on their plates and can’t afford to throw revenue around at things that don’t threaten their core business. Certainly, Vonage is no threat to Communications As We Know It. VG does one thing, and does it very well.

Cable is damned close to obliterating the old bellheads, once and for all (good riddance!); however, they need to stay focused in order to succeed in blowing up the Death Star. Absorbing losses from a VOIP price war is not as trivial as cable CEO’s might make it sound at the luncheon table; not in a world where cable still needs every spare penny to continue retrofitting, upgrading, and maintaining the OSP. Architecture and maintenance of the OSP is the boat anchor around the necks of all these guys; it’s the mundane killer costs for all of telecom – perpetual plant improvement, expansion, repairs after disasters, dreaded “truck rolls,” etc.

The devil is always in the details, right? And that’s why Vonage is protected from the threats you rightly describe – for the next three to five years – and that’s plenty of time to make up the marketing losses and rake in a ton of cash. It’s been my experience that only emotionally hijacked lunatics launch self-destructive price wars; and as far as I can tell, there are (relatively) stable adults at the helm of Comcast, Cablevision, Time-Warner, and Verizon.

Could any of them launch WMD? Sure. Will they? Personally (but then, who the hell am I?), I give it a 30% liklihood, at most. It’s in everyone’s interest to keep building marginal value into network services wherever possible and to encourge value creation at the network EDGE instead of the core. This tangents off into net neutrality, but let’s stay focused for the moment.

Launching a VOIP price war would be a sacrifice to the eternally ego-stoking and exceedingly vengeful God of Unsustainable Market Leadership. The result of launching price war WMD’s would get your name in lights for a few months – definitely long enough to proclaim Mission Accomplished – but having sacrificed your long-term value and credibility in the cause, it would not last long.

In my who-the-hell-am-I-to-say opinion, the smartest of the cable carriers will focus on building the MOST KICKASS, TUNABLE, LOW OPCOST OSP; let Vonage develop VOIP, let others develop various component services, then swoop in for the various kills. It might seem obtuse to the casual observer, but I contend that the most efficient, lowest operating cost OSP is what will win all the communications marbles; before 2020, but not before 2010.

But then, this is exactly what I’ve been saying since 1992, so there’s no compelling reason to expect that I’d suddenly be right about this. After all, it’s not like the whole world migrated to Ethernet or anything crazy like that. Everyone knows ATM will rule the network in the end, right? :)