Mobile VoIP About to Explode?

by Gary Kim

Mobile VoIP subscribers will grow from 47 million in 2010 to almost 410 million by 2015, Infonetics Research forecasts. That is not a good thing for service providers.

Mobile service providers globally earn about $500 billion a year providing voice services.

In 2010, mobile operators made $13.21 per user, per year, from mobile VoIP services. That works out to about $1.10 per user, per month, demonstrating how little revenue there is to be made from over-the-top mobile VoIP services. Mobile VoIP forecast.

Consider that, even after a 20 percent decline over the last three years, monthly average mobile revenue is about $27.77 a month. That points out the complicated business impact of IP telephony and VoIP.

So what happens if 363 million more mobile VoIP users are active by 2015? Assume the same revenue metrics for the additional 363 million mobile VoIP users, which is $13.21 per user, per year, compared to a typical payment of $27.77 a month for legacy voice services, or $333.24 a year.

If the 410 million mobile VoIP subscribers use nothing but VoIP, they would spend $131 billion less with mobile service providers than they used to.

That suggests a loss of about 26 percent of total mobile service provider revenue in four years.

The scarier scenario is if the mobile VoIP growth rate, and the revenue metrics, remain in place for just several more years after 2015. If so, one could predict that nearly all current mobile voice revenue is gone by 2018 ($476 billion of $500 billion).

Some of us would bet against that drastic a scenario. But what we would not bet against is mobile service providers losing half their current voice revenue, or $250 billion, within 10 years. That happened in the U.S. long distance industry between 1997 and 2007, for example.

Over a five-year period between 2005 and 2010, U.S. incumbent telcos lost 32 percent share to competitors, as well. The point is that there are historical reasons to believe that incumbent service providers can lose half of a voice market within 10 years, once competition takes hold.

To make the point, it would not be unrealistic by any means to expect mobile service providers to lose $250 billion in voice revenue over a decade.

And that is what is really striking about IP telephony and VoIP technology. One might say that IP telephony and VoIP simply represent the latest generation of voice technology, much as step-by-step switches were replaced by crossbar switches, then crossbar switches by electronic switches, then electronic by digital switches and now by IP or “soft switches.”

What is strikingly different, though, is the business impact. Up to this point, it has been possible to argue that each generation brought efficiency gains, and more recently that each generation has made possible new services. History of voice switching.

Since the business was highly regulated for nearly all its existence, those enhancements did not necessarily lead to lots of new revenue, but the trend was upwards. These days, with over-the-top voice increasingly prevalent, voice revenue per session or minute actually is falling significantly, while voice usage has shifted significantly from fixed line to mobile modes.

In other words, for incumbent service providers, VoIP has had an arguably negative revenue impact. To the extent that VoIP has been the underpinning for revenue growth, that is true for attackers, ranging from Skype to cable companies and competitive local exchange carriers.

Despite the fact that IP telephony platforms actually offer the greatest enhancement of voice features in the history of the business, VoIP will be the first generation of switching technology that cannibalizes incumbent voice revenue, even as it creates some new opportunities for attackers.

The impact on mobile revenues already has started to be felt. European mobile data use has so far failed to compensate for the sharp decline in mobile voice revenue, according to new Wireless Intelligence research.

A new study by Wireless Intelligence suggests that mobile average revenue per subscriber across the 27 European Union (EU27) countries has fallen by 20 percent over the last three years, dropping from EUR25 in 2007 to EUR20 in 2010 on average.

This fall has been caused primarily by ongoing declines in the average per-minute price for voice calls, which dropped from EUR0.16 to EUR0.14 in the EU27 mobile markets over the period. Mobile Voice ARPU is falling.

“Despite the fact that we expect mobile VoIP subscribers to grow nearly 10-fold from 2010 to 2015, there is relatively little money to be made from it in the near term," says Diane Myers, directing analyst for VoIP and IMS at Infonetics Research.

That isn’t going to bother some contestants, whose businesses are structured either around very-low capital and operating costs (such as Skype) or based on some other revenue model (such as Google Voice).

That might be more true in the consumer markets than in business markets, since there arguably is quite a lot of value when mobile and fixed modes of communication are unified.

Still, incumbent revenue losses will dwarf competitive VoIP provider gains, by roughly an order of magnitude.

In the near term, mobile service providers will rely on new revenues from mobile data to offset voice losses. But that can only go so far. That is the reason executives at telcos all over the world are engaged in a serious pursuit of big opportunities in machine-to-machine communications, mobile banking in various forms and mobile advertising.

There is time to position and scale such initiatives in time to offset the expected maturation of mobile broadband revenues. In all likelihood, it will be mobile broadband that compensates in the near term for voice losses, plus further “growth through acquisition.”

Though there is some upside in business markets, mobile VoIP is not going to be helpful for mobile service providers, anymore than competition has been “good” for incumbent long distance and local access voice revenues.

Gary Kim is an active industry writer and analyst, editor of Mobile Marketing & Technology,  Content Marketing News and Carrier Evolution. He is a frequent contributor to IP Carrier and TMCnet, and a good friend of Razorsight. Keep up with all his industry insight -- follow him on Twitter @garykim.