Is mVoIP a threat or an opportunity for mobile operators?

Having recently worked for more than three mVoIP-related assignments, it’s time to express our opinion in the subject and the potential implications we foresee in the coming future. A future that might not be bright for telecom operators and that will change the telephony perspective we know today.

Mobile VoIP or mVoIP refers to using your mobile handsets to make or receive VoIP calls, a service that will have a staggering growth within 5 years. According to industry researchers, the number of mobile VoIP minutes will rise from 15 billion in 2010 to 470.6 billion minutes by 2015. This is 31 times bigger than what we currently have in terms of mVoIP voice minutes.

At the consumer side, all that is required to use VoIP is a device to convert analog voice to digital and a network to carry the packets, that is, any Smartphone device similar to these. The main difference respect traditional mobile voice relies on the network integration required to integrate a mobile handset into a VoIP network. There are different potential methodologies for this.

One implementation turns the mobile device into a standard SIP client, which then uses a data network to send and receive SIP messaging, and to send and receive RTP for the voice path. This methodology of turning a mobile handset into a standard SIP client requires that the mobile handset support, at minimum, high speed IP communications. In this application, standard VoIP protocols (typically SIP) are used over any broadband IP-capable wireless network connection such as EVDO rev A (which is symmetrical high speed — both high speed up and down), HSDPA, WiFi or WiMAX.

Another implementation of mobile integration uses a soft switch like gateway to bridge SIP and RTP into the mobile network’s SS7 infrastructure. In this implementation, the mobile handset continues to operate as it always has (as a GSM or CDMA based device), but now it can be controlled by a SIP application server which can nowadays provide advanced SIP based services to it.

mVoIP is now lining up to challenge the established technologies with the introduction of products and services that meet the needs of modern business and technology savvy consumers. But mVoIP requires a compromise between economy and mobility. For example, Voice over Wi-Fi offers potentially free service but is only available within a 3G coverage area of a Wi-Fi Access Point. High speed services from mobile operators using EVDO rev A or HSDPA may have better audio quality and capabilities for metropolitan-wide coverage including fast handoffs among mobile base stations, yet it will cost more than the typical Wi-Fi-based VoIP service.

In our opinion, three major factors prevent this large-scale adoption of mVoIP. Although innovative companies such as Skype, Jajah (recently acquired by Telefonica), Truphone, among others have simplified the usage of VoIP to a large extent, and that most of the telecom mobile operators are moving towards the mVOIP space (e.g. Jah Jah sold for USD 200m to Telefonica in Dec2009), it is still not simple as picking a phone and calling. These factors are:

Business uncertainty surrounding the service. Mobile phone operators are well aware of the potential mVOIP and of its impact on their core service offerings. They are looking at different possible options around mVoIP in order to protect their business interests. Some mobile phone service providers have opted to block mVOIP traffic while some others have brought the matter into the market place and have designed mVoIP-specific deals to attract more subscribers and develop new streams for income generation. Net, net, it’s not yet a regulated service and the operator’s positioning around the service is far from being normalized or homogenised.

Smartphone penetration. Smartphone penetration has been growing dramatically in the last two years but it remains low when measured against the total customer base of a mobile telecom provider. Smartphones are still seen as luxury devices that come with big price tags and high monthly tariffs. Once the smartphones become more affordable to the majority of consumers, their proliferation will increase considerably and lead to a surge in mobile content and data consumption, including mVoIP.

Pricing competitiveness. As of today, in a pure pricing perspective, international calls are the only real advantage for the final user. For all its hype, mVoIP does not offer a clear cheaper alternative to standard MNO tariffs except for the case for international calls. It could be argued that the free calling offering is a good value proposition, but, in actual practice, its restrictions (of being only between VoIP clients and over a WiFi connection) take away the concept of “mobile”, where one can call from anywhere, to anybody. In addition, thanks to fierce competition and commoditisation, MNO tariffs today have become very competitive, with unlimited packages becoming standard. Under such circumstances, it is very debatable as to whether mVoIP has any financial advantage over MNO plans.

On the other side, there are also three major trends that could boost the adoption of mVoIP. These are:

Social networks will change the game. We are now witnessing the confluence of events that will lead to the full integration of mVOIP clients into the modern mobile communication networks. Several providers are developing applications to provide free voice calls between social network (e.g. Facebook) friends over Wi-Fi or 3G, tapping into the idea that, in future, consumers’ primary user experience and brand will be a social network or other app, not a device or operator. (Note: There’s an interesting opinion in the industry that argues that the phone numbers will gradually disappear and that people will be accessed through social network tools (e.g social media address books) killing the traditional model as we know it today.  Find a sample article of this thinking trend here).

Collaboration and over-the-top (OTT) players will also drive growth. Apart from pure voice communication, there’s a vast majority of communication that happens outside the pure voice domain, e.g. instant messaging, email, SMS, voicemail, etc. There’s a massive potential market opportunity when targeting the hundreds of million subscribers sending emails or instant messages, leaving voicemails or using any of the well know collaboration tools. Unified communications providers such as gMail, Yahoo, AOL, etc. will also be key in mVoIP adoption when similar exercises to what Google Voice has done with it’s gMail integration.

LTE & WiMAX networks will make it easier. Although there is some resistance so far by most of the mobile network operators to adopt VoIP on their networks, the deployment of 4G technologies -WiMAX and LTE – is set to change the game as well. mVoIP is expected to offer mobile operators a significant business opportunity by reducing infrastructure costs and service charges to better compete with fixed operators, by expanding their coverage by supporting access from WLAN access points, and by offering richer communications services to their users.

Now imagine you are the Chief Strategy Officer (CSO) of a mobile telecom operator, which CEO has requested a simple what-to-do strategy after reading different mVoiP announcements, acquisitions and launches in the mobile space. Nice project right?

If we take a look at most of the mobile operators in developed countries, we can group mVoiP strategies in three categories: A) “Head in the sand” operators insisting in closing the eyes and not facing the mVoIP demand whilst blocking the service as it clearly perceived as a threat to their regular voice revenue business. B) “Wait & See” operators or providers that decide to open the service to the market enabling the mVoIP traffic through their networks, charging a surplus in their customers’ data flat fees and waiting until the market matures and the threat is confirmed (or not). C) “Face the facts” operators that decide to have a proactive role in the market and move forward with risky (?) acquisition long time partnerships strategies. You might think that the bigger the operator is, the closer to the “head in the sand” positioning, right?. While in most of the cases that assumption is true, there’s a case that’s worth remarking: Telefonica acquired Jah Jah (a leading VoIP service provider) to prepare what they call the next-generation services for the next decade.

Similar exercises will come to the market soon if the mVoIP traffic has to triple current rates within the next five years.

Enjoy the reading, CVA