"We'll be big, we'll be bought, or we'll be dead."
I uttered these words in 1995 when I was an employee at DIGEX, an fast-growing Internet startup company that grew from a handful of people above a Chinese restaurant in 1993 to its (first) IPO in 1997. DIGEX was later bought by WorldCom and ultimately became a part of Verizon. A number of small to mid-sized VoIP/ITSP providers should have their own "Big or bought" moments in the months and ahead.
Acquisition and consolidation in the voice space is going to be driven by Tier 1 phone companies losing SMB market share, a need for independents to scale to compete against each other and the growing encroachment of cable companies in the space.
The SMB market is flooded with VoIP provider options, with the most rapid growth occurring in cloud services. You can still find people purchasing on-premise PBX equipment, but it's easy to simply add voice onto an existing broadband service, either via an over-the-top offering or as a bundle provided by a broadband provider.
Tier 1 providers -- basically AT&T (News - Alert) and Verizon -- have gone through the acquisition cycle before during the post dot.com era, picking up Internet networks, hosting providers, and collocation facilities to round out their organic portfolios for enterprise customers. The long slow decline in wireline business -- vanilla POTS dial tone -- translates into a decline in revenues and there's constant pressure to offer higher broadband speeds at lower prices thanks to cable and independent fiber efforts such as Google Fiber.
Buying back lost customers and revenue can be done through acquisitions. In theory, there are economies of scale by incorporating acquisitions into a larger marketing and accounting machine, but gains can be offset by intangibles as the ability of an independent sales force having to be integrated into a larger corporate whole.
Cable companies continue to steadily grow organically in the SMB and mid-market space, but are currently a bit limited when it comes to efficiently providing a full national and international footprint for customers. Temptation could grow for Comcast (News - Alert) or Cox to buy a mid-sized business Internet/VoIP provider to be able to provide a seamless experience for multistate and multinational businesses.
I expect the biggest action to take place with smaller-sized companies, such Junction Networks and Phone (News - Alert).com. Smaller businesses can get rolled up on a regular basis at an affordable price, with the biggest challenges keeping the talent and customer relationships the acquisitions bring into the business.
Life gets more interesting when you look at Bandwidth.com and CBeyond. I expect CBeyond to be a big deal for someone down the road, either a Tier 1 provider or a cable company. Both companies are of a size right now so as to not trigger a regulatory uproar or a "You're spending how much?" moment.
Finally, I come to 8x8 (News - Alert) and Vonage. Each has its own unique attributes. With its expansion overseas, 8x8 is going for the "big" title and I could see it continue to steadily grow both organically and by acquiring other companies. Vonage (News - Alert) has traditionally been strong in the consumer world, but it is making progress in the business arena as well.
I can't see anyone buying Vonage in the short-term. An 8x8/Vonage combination would make for an interesting company, combining the Vonage brand name and marketing machine with 8x8's business services and growing international footprint.
Edited by Cassandra Tucker