How to Handle the Mobile VoIP Explosion

(Sep 20 2011) Mobile Broadband , Smartphones , Wi-Fi

1. By Jason Armitage, Senior Analyst, and Declan Lonergan, Research VP, Yankee Group

   Consumer VoIP land-line services are a big hit in Europe. According to Yankee Group’s 2011 European Consumer Survey, over 40 percent of Europeans in the five major markets have a primary or secondary VoIP line or make phone calls from computer to computer. And while consumer VoIP calling at the present time is primarily a broadband phenomenon, the increased popularity of smartphones and application downloads, however, is likely to change this. 

   This dynamic is quickly taking shape. At the launch of Skype’s first app for iPhone in April 2009, the company reported more than a million downloads in just two days. In August 2011, Facebook launched its stand-alone Messenger application and almost immediately topped the charts on the Apple App Store. As a next step, consumer VoIP services are positioning to compete in video calling over mobile devices, taking on services from device vendors with the provision of cross-platform capabilities.

   Currently, several European mobile operators have blocked consumer VoIP calls on mobile phones. This means those operators’ smartphone users can only make Skype and other VoIP calls via Wi-Fi—when they are at home or near a Wi-Fi hotspot. In contrast, 3 (in the U.K. and Italy) offers consumer VoIP services—and specifically Skype phones—as a differentiator. These two approaches sit at opposite ends of operators’ potential strategic responses to consumer VoIP services. 

   Operators have also tried the tactic of launching their own services. In the European region, Tier 1 operators have implemented this for over a year, but early indications show these services are struggling to match the takeup of consumer VoIP services. In Yankee Group’s recent user study, operator-owned VoIP services hardly show up, despite the high usage of VoIP among European respondents. Yankee Group believes it will be challenging for operators to differentiate their own VoIP services and achieve the scale reached by Skype, MSN and Google Talk. 

    

   Blocking Is Not the Answer

   European Commissioner for Digital Agenda Neelie Kroes warned in April of 2011 that an investigation over service blocking could lead to new rules if ISPs are misleading customers about Internet speeds or targeting select applications. That includes throttling and blocking consumer VoIP over mobile networks. 

   Media coverage of the topic will increase over the course of 2011 as the report by the Body of European Regulators for Electronic Communications (BEREC) nears. National regulators and governments are also increasing their scrutiny of blocking practices. 

   Two other factors also undermine a policy of blocking. The first is the challenge of competitive dynamics to maintaining a broad consensus on consumer VoIP services. Germany provided an example of how quickly attempts to block VoIP services fall apart once individual operators break ranks. In 2009, O2 broke ranks on blocking VoIP services over mobile networks, placing heavy pressure on its competitors to follow its lead. 

   The second factor is high levels of interest in services among European consumers. Yankee Group’s 2011 European Consumer Survey finds that 41 percent of consumers use VoIP as a service. This is almost double the rate for U.S. consumers. 

   In July 2011, KPN Telecom changed its policy for Skype to meet regulator and consumer demand. It is now offering bundled voice, text and data services in one package, increasing the price of the total package, increasing the price of smartphones and subsidizing the use of a smartphone with a one- or two-year subscription. This is similar to the bundled pricing plans offered in the U.S. KPN subscribers can now use Skype without limitations or throttling under these plans.

   The long-term operator solution is to focus on careful pricing of all data plans and giving customers choices that are beneficial to them. This focus should take into account both bundled postpaid packages and prepaid services that are priced with total traffic voice and data considered. To position for the new market environment, Yankee Group recommends operators place data plans at the center of strategic decision-making, offer value-priced voice calling and increase the number of monthly prepaid plan offers that focus on data capabilities.

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