Just as mobile operators thought they were getting to grips with the conundrum of how to monetize the growth in mobile data, they are now being posed with a new threat: how to protect against the cannibalization of SMS and voice revenues that mobile data growth is enabling through instant messaging (IM) and mobile VoIP (mVoIP).
mVoIP is basically the use of over-the-top (OTT) VoIP applications such as Skype on mobile devices. Three key drivers are making mVoIP a clear and present danger (and perhaps an opportunity) for operators.
First, the near ubiquity of 3G and advent of LTE in many markets means a growing number of customers have access to the high data speeds required for mVoIP. Second, the explosive increase in smartphone penetration has driven a concomitant growth in mVoIP adoption, as one typically needs to download an app for mVoIP. Finally, the stark price differential between voice and data effectively affords an arbitrage opportunity whereby it is 50 to 100 times cheaper (often perceived as free) to make a minute-long VoIP call than a one-minute voice call.
So, how are operators managing the threat of mVoIP? Responses have evolved from outright blocking of mVoIP, through to permitting it, promoting it and even competing with it. A given operator’s chosen stance has depended greatly on its market positioning and regulatory conditions.
Incumbent operators in highly regulated markets, such as Etisalat in the UAE, have simply blocked Skype and other mVoIP apps from being used on their networks. In competitive markets that lack the luxury of such regulatory protection, operators are wary of blocking mVoIP for fear of losing customers to more obliging competitors or attracting bad press. AT&T in the US, for example, allows Skype to be downloaded onto smartphones, but only allows usage over Wi-Fi.
Challengers who have less revenue to protect and aspire to gain market share have moved a step further, promoting mVoIP in an attempt to disrupt the market and drive acquisition. In 2007, 3 in the UK partnered with Skype to offer the Skypephone, allowing free Skype-to-Skype calls. 3 claimed in 2009 that mobile Skype users generate almost 60% more voice revenue and spend almost a third more than non-users, resulting in a margin uplift of 20%.
Finally, some operators are starting to launch their own mVoIP services to compete with Skype and other OTT mVoIP players. Only a couple of months ago, Telefonica launched Tu Me - its own mVoIP and IM app - after having acquired the capability by buying VoIP startup JaJah in 2009. There are now 250,000 active Tu Me customers and, interestingly, the third-largest user base for Tu Me is in the US, where Telefonica has no network and is effectively an OTT player on Gringo mobile networks. No doubt this has led to voice cannibalization, but the operator says that Tu Me might be monetized in the future through advertising or partnerships.
Managing mVoIP intelligently
There are a few ways in which operators could manage mVoIP intelligently and even turn it into an opportunity. These are neutralization, smart pricing and mVoIP differentiation.
Neutralization is probably the most effective way of hindering VoIP. By offering large or unlimited voice bundles and effectively removing the pricing differential between voice and mVoIP, operators can make mVoIP much less attractive. Naturally, this approach is predicated on the operator’s ability to offer large or unlimited voice bundles at the right price point, and there may be a margin trade off here.
The second approach, smart pricing, is effectively the move away from per minute, SMS and MB pricing towards value-based pricing centered on access speed, devices and content - things that customers really value. For example, Swisscom has launched a range of tariffs with unlimited voice, SMS and data (with fair usage policy), but different access speeds. The higher the speed, the higher the price. This has the effect of simultaneously neutralizing the mVoIP threat (by offering unlimited minutes), blocking it (on low speed tariffs) and enabling it (on high speed tariffs). It also has the added benefit of predictable monthly bills, since there is no out-of-bundle spend.
Verizon’s plans differ slightly. It also offers unlimited voice and SMS, but has a range of data caps. Additionally, Verizon offers shared bundles that enable different devices to access a single bundle, and there is a different fee for each device type (for example, tablets are cheapest, smartphones are the most expensive). These tariffs effectively stop voice cannibalization by mVoIP. The shared bundle concept could also reduce churn.
The final approach, mVoIP differentiation, is something we have not yet seen operators pursue. Essentially mVoIP differentiation involves operators launching their own mVoIP apps and leveraging their network and billing assets to enhance the apps with unique qualities that Skype and other OTT players cannot provide.
For example, an operator might prioritize its own mVoIP app traffic over other traffic in order to improve QoS. Or it could provide high-bandwidth services such as high definition voice or mobile videoconferencing, with much higher QoS than circuit-switched voice (and for which customers could even be charged a premium). One must remember that cost is not the only driver for mVoIP. Features such as presence, conferencing, location and in-call file transfer all enhance the mVoIP proposition.
Owning and controlling the network puts operators at a significant advantage when it comes to enabling these services. Proponents of net neutrality might well be raising eyebrows, but why should an operator not leverage its core network assets to its advantage?
Alternatively, operators could do clever things with pricing by making calls from the app to mobile numbers on its network free or very cheap. Skype and other OTT mVoIP players could never do this as they must pay interconnect.
All these mVoIP differentiated features could help drive adoption of the app, even by customers of rival networks. Once downloaded on a rival customer’s smartphone, the app could be used to gain mindshare and gather data about that customer’s behavior - who they call, where they are, and so on. Imagine having rich information about your rival’s customer base. Once an operator has an app-based relationship with its customers, this could be monetized further through advertising or additional services.
In the LTE world, there will be only mVoIP (specifically termed VoLTE), as the standard does not support circuit switched voice. With VoLTE comes new features that enhance the voice experience - video, media sharing, presence and location. OTT players are already preparing their attack. Heavy-hitters such as Facebook (through their chat function) and Apple (through FaceTime) are already in the mVoIP game.
Proactively and intelligently migrating to mVoIP, while managing the impact on traditional voice revenues will serve both to address the needs of customers, and improve positioning against the inevitable OTT onslaught.
Anish Shivdasani is manager at Delta Partners