This trend has surely not gone unnoticed in Mobile Operator HQs. According to Yankee Group, global mobile voice and messaging revenue are set to decline by $1B per month through 2013 and operators have been thinking through strategies to mitigate this loss. The answer, at least for Verizon and AT&T has been to charge more for data and device connectivity, bundling unlimited voice and text. This may seem crazy given how much revenue is generated directly from voice today but clearly demonstrates the threat that OTT players represent when operators don’t bundle services. The genius here is that it disincentivizes the use of over-the-top VoIP applications and creates a puzzle for competitors such as Sprint and T-Mobile who, to-date have benefited from their all-you-can-eat data plans, growing their average-revenue-per-user (ARPU) in the process.
South Korean mobile operators
have seen firsthand the impact of all-you-can-eat data tied with fixed minute
calling plans. Back in April 2011, a
local company, KAKAO launched a messaging app called KakaoTalk – a homegrown Korean
version of the popular SMS alternative WhatsApp. Last year, 38 million local subscribers were happily
texting each other for free (the population of South Korea is close to 50
million people). In June of 2012 KAKAO
enhanced their offering to deliver a full-blown voice service between their
subscribers – for free. The outcome was
extraordinary. Taking advantage of the
cheap, unlimited data plans of the local operators, within three days of
service launch, subscribers were generating 20 million calls per day.
Seeing a massive spike in
data volume and a precipitous drop in voice revenue, the South Korean mobile operators
moved to action within days and began throttling and then blocking VoIP traffic
over their network, obtaining the blessing of the Korean Communications
Commission to block or charge more for VoIP services. It will be fascinating to see if KAKAO and
others move to hide or tunnel VoIP traffic through encryption, VPNs and port
shifting, creating a cat-and-mouse game between network operator and
application vendor.
Perhaps not surprisingly, Korean
operators are not the only ones with a block-and-tackle approach. Vodafone has also moved to block VoIP
traffic to subscribers who aren’t on their higher-rate post-pay plans and we
can expect other operators to take the same approach, where regulation permits.
With large volumes of over-the-top
voice traffic now running across mobile networks and with the fixed-line world
as a case-study, the long-term outcome of Telco voice is certainly unclear. What is certain is that Operators will take
advantage of LTE technologies to offer superior voice and video services of
their own. The question then, is can
they deploy these services fast enough, (before users migrate to the app world)
and will consumers really care?
It must be said there is a
natural protection mechanism available for most mobile operators which slows-down
migration, and creates a challenge for any VoIP start-up – it is called The Community-of-Interest
Problem. Your cell phone can reach
anybody else on the planet with a phone – Viber, at least today – cannot – that
is, not without having you pay to reach the legacy telephone world per call or
in pre-purchased minutes. The reason
KAKAO in Korea could be successful so quickly was that they already had most of
the population of Korea on their texting service. In the US, perhaps only Apple (with FaceTime)
has this community-of-interest leverage.
On this note, it is also important to understand the role of the handset
manufacturer in this equation. When
you consider voice as just another app on the smartphone, the voice app that
ships with the device is the one that is going to be used by the majority of
consumers. If it works, is free (or
included in the tariff plan), allows consumers to communicate with their friends
and family, has fall-back to legacy technology and allows you to reach
emergency services, then inertia dictates that these consumers won’t look
further afield.
What is fascinating then is
that for Mobile Operators, the driver for VoLTE adoption is not to compete with
the OTT players per se. Rather, the move
to VoIP services frees up valuable spectrum currently dedicated to voice in the
2G and 3G bands. This spectrum can
then be assigned to data services to feed consumer’s insatiable demand for
bandwidth. As an added benefit, the
operators eventually get to switch-off the expensive legacy voice systems and
run a single, unified IP network.
From a consumer perspective, VoLTE
will be touted as a higher quality service and voice will be just one of a
number of components including video, text, presence and location. Mobile operators will push for these RCS (rich
communication services) to be integrated with smart phone functionality, so for
example, your phonebook will show who is available to talk or if a voice call
can be changed to a video call. While
their original plan may well have been to charge individually for each service,
the required bundling of SMS with basic consumer plans may well be resetting
expectations. As an example, MetroPCS announced back in
October an RCS service called joyn – available on specific LTE handsets
in their network. Pulling-in application developers, AT&T
announced earlier this month an API, allowing developers to integrate their
apps with AT&T’s IMS architecture, paving the way for joint services and
revenue sharing.
So in 2013 we will continue
to see OTT players and handset manufacturers (but not likely many operators) drive
VoIP services and consumer adoption of these services will likely dictate
outcomes. Any player with a large enough
community-of-interest, bundled with a handset partnership could make significant
traction – Facebook anyone?
Operators will begin to roll-out VoLTE services as both the LTE networks
and handsets with VoLTE calling capabilities reach consumers. The race for subscribers for both OTT
services and VoLTE through 2015 will likely define our industry for the next
10-15 years.
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