Unified communications breathes new business revenue life into rural telcos

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Sean Buckley, FierceTelecomUnified communications (UC) may still be arguably a nebulous concept, and chances are if you were to ask two business or two people what UC means, you'll probably get very different answers.  

Putting aside what it actually means for a moment, for many smaller independent ILECs, which have spent much of their 100-plus year lives selling nothing more than traditional POTS, UC for businesses is becoming a new revenue savior.    

Take WVT Communications (NYSE MKT: WVT), for example.

Led by CEO Duane Albro, the 110-year old telco began a transformation to become a serious player in the cloud and UC markets in 2009 when it purchased USA Datanet. To get there, the service provider went and purchased two key companies: USA Datanet and Alteva. While it still runs a regulated traditional telco, Warwick Valley Telephone, the service provider now touts itself as a "Cloud Communications Holding Company."

Similar to the strategy taken by larger telcos--such as TDS (NYSE: TDS) and CenturyLink (NYSE: CTL), which have been building up their cloud and data center capabilities by purchasing companies like Visi and Savvis--WVT has maintained the brand identity of USA Datanet and Alteva as units of the broader company.

Both Alteva and USA Datanet bring complementary elements to serve WVT's diverse business customer base. Alteva serves businesses with 35 or more people, while USA Datanet can serve SMBs with 35 employees and below. Through these subsidiaries, WVT offers a host of UC and cloud-based services including cloud-based, IP voice and data solutions, hosted IP PBX, hosted Microsoft Communication Services, and fixed mobile convergence to the business desktop.

In addition to broadband services, "our other strategy to counter voice revenue loss with our hosted VoIP strategy has really gained huge traction," said Duane Albro, in an interview with FierceTelecom.

Albro added that while 20 percent growth it was getting from USA Datanet was helping to offset landline losses, they needed to make a big move to further offset landline voice losses.

"In late 2010, I compiled a list of unified communications and cloud companies and began calling CEOs, saying 'we're in the same business and we have a reasonable growth path, and is there any interest in collaborating and pulling together through some kind of M&A vehicle to improve our collective success?'" he said. "It ended up that the synergies that we got from Alteva were so significant that we paid a premium to acquire them."

When WVT did announce they were acquiring Alteva, they noted that the cloud provider had 60 percent of top line revenue.

WVT's UC strategy continues to show positive results. In Q3 2012, the service provider reported that UC service revenues grew 38 percent to $3.6 million, up from $2.6 million in Q3 2011. A big contributing factor to this growth was its acquisition of Alteva last August. Overall, WVT's UC segment contributed over 51 percent of revenues versus 38 percent in the same period a year ago, and 47 percent in Q2 2012.

In an effort to illustrate its new direction and focus, WVT changed its stock listing from the Nasdaq Global Market to the NYSE Euronext's MKT and began the process of restructuring into an unregulated holding company, which will transfer its regulated local telephone business to a new wholly-owned subsidiary.

Of course, the growth in cloud and UC comes as WVT, like other traditional telcos, saw ongoing voice revenue losses. During the quarter, voice revenues declined $3.4 million in Q3 from $4.2 million in Q3 2011.

WVT Communications is not the only independent telco catch onto the UC and cloud services wave.  

Twin Valley Telephone, a small independent telephone company serving over 6,000 customers in the Miltonvale, Kan. area, last November purchased ISG, a provider of data center, cloud and managed services tailored to business customers.

While neither WVT nor TVT are going to be billion-dollar players in the cloud and UC market segments, their moves are necessary to breathe new life into voice-centric telcos that would otherwise be prone to being acquired or, even worse, extinction.--Sean