Without outside pressure, operators would not concern themselves with VoIP until they had LTE networks. By this time, operators would be able to offer their own VoIP services at a cost far below today's circuit-switched networks. However, in the real world, user demand, competitor strategies and increasing regulator interest in the net neutrality debate are dictating the timeline.
Most operators are clinging on desperately to their high-margin traditional voice service revenues. Yet these are being eroded in developed markets as competition and regulation push down costs to the end-user. In parallel, over-the-top VoIP services, such as Skype, are generating huge volumes of traffic over the fixed network and threatening to leverage the uptake in mobile data usage to take their services mobile.
Ovum has identified six responses adopted by operators through which they pass on the way to competing directly with their own VoIP service.
First, the majority of mobile operators are simply blocking VoIP access due to fears of cannibalizing their already pressured voice revenues and margins. Irrespective of the method used, this approach merely generates customer resentment, bad publicity and regulator attention.
Second, some operators allow restricted access, with tight controls and monitoring to assess the danger. Unfortunately, the problem does not go away on its own and demand continues to rise.
The next stage is to offer large voice bundles as a means of neutralizing the threat. One of the key drivers for user adoption of VoIP is cheaper calls, so large voice bundles bypass the danger, with the added benefit of a more convenient user interface.
However, by this stage operator intransigence may have attracted regulator attention. Therefore, several operators today have pre-empted the wrath of the regulators, particularly in Europe, by offering special VoIP tariffs that allow access. These are engineered to "meet" the demand, while being wholly unattractive to anyone wishing to use VoIP.
A necessity to compete
The fifth stage is barely visible today, but has been adopted by 3 and Verizon. Yet it is the stage we believe that all operators will need to adopt over the next five years. Embracing VoIP gives the operator some semblance of control over offerings from over-the-top providers. It also plays to the operator's strengths, offering better quality of service and the potential to bundle other services. From a marketing perspective, the operator is seen as the VoIP user's friend. In addition, the VoIP player is seen as part of the "establishment."
Finally, LTE will arrive and operators will be fully able to exploit the VoIP opportunity cost effectively, as has been seen in the fixed world. In this stage, the former VoIP partners of the embrace stage become rivals again, but on a more level cost basis. However, KPN's quality of service issues when it launched fixed VoIP in the Netherlands are evidence of the need to focus on quality of delivery as much as availability.
Ultimately, the competitive environment will shape when, where and how mobile VoIP is adopted - and whether operators are able to dictate their own destiny. The scale of the first mover will be key: too small and it will be ignored, but if it is large enough, it will prompt a response. Regulation will be critical as well. If regulators seek to push net neutrality principles, then operators will have little choice but to adapt their stance. At the other extreme, particularly in the Gulf States for example, regulators are contributing to limiting VoIP access.
Legacy voice pricing will also be crucial in stimulating demand for VoIP. Expensive domestic and international calls will increase pressure from users seeking a lower-cost alternative. Conversely, cheaper calls and large call bundles will enable operators to circumvent calls for VoIP access. Call patterns will also be important. High international traffic combined with high international call pricing will be a major driver for end-users to demand VoIP.
Smartphone penetration is the most crucial determinant of the addressable customer base. However, this must be put into context. Smartphones still make up the minority of the installed device base, and the addressable market is further curtailed by the limited availability of VoIP clients, both with regards to the operating system OS and UI languages supported. It is also true that smartphones are not a prerequisite for VoIP. 3's low-cost Skypephones are testimony to that.
Aside from the smartphone perspective, the key customer segments for mobile VoIP are the same as for fixed. Early adopters will make up the bulk of the smartphone segment and, although small in number, they will be vocal and influential. Operators should ignore them at their peril. Ethnic segments will want VoIP for international calls. Students are always keen to make a saving and already have access to fixed VoIP on campus.
The final key segment is business, although here VoIP is not only a useful cost-saving measure, but also part of an FMC approach to communications. Furthermore, operators are actually in a strong position to leverage the opportunity. As well as providing the integration and FMC solutions, they can offer the requisite quality of service and security demanded by enterprises.
Steven Hartley is a principal analyst for Ovum and is based in London
For more details on "Mobile operator responses to VoIP: the six steps" contact Tanisha Kaul