Mobile VoIP: cheap talk

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Mobile Voip

Thanks largely to the fear of a bit-pipe future, mobile network operators continue to drag their heels over a truly open mobile internet. If MNOs become ISPs, the carriers may well lose their voice.

There is a branch of applied mathematics used in social sciences known as game theory. A common ‘game’ used to help explain the theory is known as the Prisoner’s Dilemma. Two burglars are caught and immediately separated from one another by the police. The police do not have enough evidence to prosecute either suspect, however, the suspects are unaware of this fact. Each suspect is given the opportunity to inform on their former colleague without the potential for reprisals.

In the event that one detainee points the finger at the other, while the other stays silent, the former will go free, while the latter will serve a ten year sentence. If both stay silent, both are detained for only six months while awaiting trial. But if both ‘turn canary’, they each get five years.

In the Mobile VoIP Dilemma, a group of operators have the opportunity to launch and promote a voice service that could give them the opportunity of offering their subscribers tariffs that dramatically undercut their rivals’ offerings. If one carrier launches the service, they stand to acquire millions of new customers at the expense of their rivals. However, they would have to accept a potential reduction in ARPU. If none of the carriers launch and promote the new voice service, equilibrium will be maintained and margins on voice will stay relatively high. But if all of the carriers launch and promote the service, no one will gain any new customers and everyone will suffer dramatic, possibly catastrophic, reductions in ARPU.

There is, of course, one crucial difference between the Prisoner’s Dilemma and the Mobile VoIP Dilemma. In the former both parties are kept in the dark regarding the actions of their rival. In the latter all of the players know exactly what is at stake and the current state of play. Without wanting to insinuate that a cartel is in operation, surely no one would risk upsetting the status quo?

There will always be a renegade though, and the UK’s perennial disruptive influence is 3. As a new entrant coming into well-established 2G markets, 3UK has, by necessity, played the role of rebel. This time last year it launched the 3 Skypephone which provides free Skype-to-Skype calls and enables free Skype instant messages to other Skype users. And, at the end of August, the carrier launched the Skypephone S2 which can also be used as a dongle for enabling mobile broadband. 3UK now has over 140,000 active Skype users and more than one million minutes of Skype usage on its network every day.

Shortly after 3 launched the Skypephone, analyst firm Disruptive Analysis suggested ‘VoIP-over-3G’ would grow from zero to 250 million users worldwide within five years. While 140,000 people would make for an impressive crowd at a rock concert, it represents only 0.056 per cent of the analyst’s predicted total for 2012.

3UK is not utterly alone in the world of mobile VoIP but, with only four years left to run, the growth curve is going to have to be dramatic for Disruptive Analysis, and other mobile VoIP proponents, to be proved right. Plus, technically, 3’s Skype service is not true VoIP over 3G, since the handset connects voice to the nearest tower using standard means and not via the data channel.

In the Mobile VoIP Dilemma, as with a number of other Disruptive Service Dilemmas, 3 moved first. The UK’s Big Four-O2, T-Mobile, Vodafone and Orange-are not suffering the wholesale collapse described above as the resulting outcome of one of the gang breaking ranks on mobile VoIP. Crucially, none of them have followed 3’s lead. So the vendors’ oft-repeated phrase, ‘once one goes the rest will follow’, didn’t bear out.

Unfortunately for 3, its six per cent share of the UK market is minute by comparison to its competitors. Market leader O2 has about 28 per cent, and its exclusive launch of the Apple iPhone late last year grabbed a good deal more of the headlines than was granted to the Skypephone. 3UK’s subscriber numbers have crept up, but then so have those of O2, Vodafone and Orange.

Still, 3 built its six per cent from zero in the UK on the delivery of cheaper voice and Skype offers just that. In time that six per cent will probably grow and, publicly at least, 3 is happy with the progress made on the Skypephone: “We have seen a very significant uplift in the amount of data flowing across our network over the past year, driven largely by the uptake in USB modems, but also through much greater usage of services such as Skype, instant messaging, search and social networking through customers accessing the internet directly from their mobiles,” the firm says. “The growth in usage is significant and sustained and shows how competitive internet communications can be when they are taken truly mobile.”

The UK carrier is benefiting from increased customer retention among its Skypephone user segment and an overall increase in mobile usage says Sue Powell, director of product management devices and mobile with Skype. “3 is also focused on letting people access the mobile internet. So people can use the new Skypephone as a dongle as well as a phone, so they have been able to reach people who wouldn’t buy a dedicated dongle to surf the internet for a flat rate charge of £5 per month. And of course Skype is provided free of charge on that device as well and it is very easy to use,” she says.

Powell says Skype has talked with a number of other operators regarding a partnership. “When we first launched the Skypephone in November last year there was significant interest as people realised the potential for Skype on a mobile.”

Rebecca Swansen, research analyst for VoIP services with IDC, who earlier in the year authored a report that predicted half a billion personal IP communications subscribers worldwide by 2012, confirms that other operators are looking seriously at the space: “I have heard of one provider, and there are a few mobile VoIP providers that use a USB that plugs into the laptop. There are some providers looking at partnering with mobile providers to let their customers travel internationally and have the same minutes,” she says.

Arguably the largest mobile VoIP player in the world operates in Japan. EMobile, a wholly-owned subsidiary of broadband internet provider eAccess, is a 3G data-only carrier. It received a WCDMA commercial licence in November 2005, launched its HSDPA mobile data service EM Mobile Broadband, using JaJah VoIP technology, in Tokyo, Nagoya, Kyoto and Osaka in March 2007 and, as of March 2008, had 85 per cent coverage of Japan, with 752,400 subscribers nationwide. It is an impressive standalone figure, but as with 3 in the UK it only represents a small proportion of the country’s total mobile user base.

The three dominant MNOs in Japan were granted their 3G licences in beauty contests, while in many other markets carriers paid billions. It is unlikely that other regulators will follow Japanese regulator the MIC’s move in granting a new data-only licence in addition to those already in place. In short, like much else, the EMobile model is likely to remain a curiosity of the Japanese market. Still, it provides an interesting glimpse into what is being widely tipped as the end game of all markets, namely that of an all IP network.

“Everybody tells you that, in the future, mobile calls will be purely IP-based,” says Roman Scharf, president and co-founder of JaJah. “They just disagree on whether it will be three years, five years or 20 years. Nobody believes that existing voice standards will survive. The more the industry moves towards flat-rate models, the easier it will be for them to switch into IP.”

The move to fully flat-rate could take some time, though. Carriers are in no hurry to open up, and unlike fixed ISPs, they are currently under no regulatory pressure to embrace true net neutrality. Until then, consumers might have to exploit VoIP predominantly over wifi connections.

“Mobile VoIP is still best suited for use with WLAN networks, at least as long as the greedy mobile operators continue to manipulate EU legislation,” says Jan Berger, CMO of VoIP provider Vyke. “In most developed countries, I believe it is fair to say, people who have phones that can be used for mobile VoIP also have access to WLAN (wifi) both at home and at work. This can then save people huge amounts on their mobile calls.”

“If you look at every single market, the mobile operators rank within the top ten corporations of that country,” says Allen Scott, general manager of IM firm Neustar NGM. “They have invested a huge amount in 3G and the regulators are not likely to start hammering the operator too much. Even if regulation kicks in, it will take some time. You’ll hear about it before it kicks in, which means the MNOs will use their networks a lot longer,” he says, concluding:

“The operators will fight tooth and nail to stop the networks being fully open and the regulators will be on their side. There has been too much of an investment.”

Indeed, there have been some fairly high profile cases within the last 18 months that would seem to demonstrate how the carriers feel about mobile VoIP. When the Nokia N95 was shipped in the UK last year, both Orange and Vodafone initially ensured that users would not be able to use the SIP stack to access VoIP services over wifi. While T-Mobile’s rift with VoIP provider Truphone is very well documented. And in the UAE carrier Du effectively blocked Skype use on its networks.

Neustar NGM provides the IM element of 3’s Skypephone offering. There are certain parallels that can be drawn between IM and VoIP. Both are popular internet services, both offer alternatives to existing comparable cellular services at price points that would prove appealing to consumers and yet both continue to struggle, despite plenty of hype, to displace SMS and cellular voice.

Not surprisingly, Neustar’s Allen disagrees that the two services are analogous: “The difference, I would say, is that IM is a different type of service. SMS is an offline messaging solution as is email. IM is real time text communication. In fact, it is more like voice. VoIP is actually a voice channel, it’s the same as what you have already got, except it is going over IP,” he says.

Whatever the similarities and differences, mobile VoIP, like IM, is likely to play an increasingly important role as communications technologies converge. “At some point you will have a service that is on your desktop, that’s also on your mobile phone and also part of your social networking service and it becomes a more cohesive experience and I think that adds a lot of value to communications for the user,” says IDC’s Swansen. “While I don’t feel it will necessarily completely cannibalise traditional versions of telephony-I’m not talking about the PSTN, I’m talking about having a phone at home or having a mobile device that uses cellular networks-that stuff will take a really long time to go away, if it does at all.”

Hugh Roberts a senior strategist with Patni Telecoms Consulting offers some encouraging words for the network carriers: “There is nothing particularly catastrophic about mobile VoIP-indeed it is highly likely in the future that it will form a key part of most MNO service bundles that will promote customer retention and overall profitability rather than per service margins. However, what does appear to be in some degree of flux are service provider business models.”

It may be that third party players will find a market offering mobile VoIP solutions. But the MNOs do have one trump card: guaranteed quality of service. There is a perception among consumers that VoIP calls are patchy. Third party players wouldn’t be able to guarantee QoS over mobile networks since their feeds would be treated as data, therefore best effort. According to Charlie Baker, director of product management at Exfo Service Assurance, the carriers could guarantee higher QoS. If consumers’ first experiences of ‘official’ carrier branded VoIP services is significantly better than third party offerings, the carriers would win the early battle for hearts and minds.

“Quality will be a key differentiator for the operator,” says Baker. “The mobile operator may use VoIP direct from the handset, or simply carry VoIP over their backhaul, but they hold the inherent advantage, they can mark the VoIP traffic from their devices with a higher quality of service than ‘data’ traffic on the network.”

Baker suggests the transition of the network to LTE and 4G with large Ethernet backhaul to the core of the network “gives the mobile operator a platform for a quality based marketing plan and a way to explain that coverage and quality are the reasons to use a service.”

He’s not alone in suggesting that mobile VoIP will have to wait for 4G. “At the moment the 3G networks are not designed for voice over the data channel, and GSM is optimised for voice,” says Skype’s Powell. “I think the next big breakthrough will be when it is possible to do true VoIP over data networks which I think will come with 4G networks.”

Mobile VoIP is possible over today’s networks using today’s handsets though as JahJah proves in Japan with EMobile. Vyke’s Berger points out that a user needs a 72 kbps connection and will consume about half a MB per minute while making a mobile VoIP call. “Thus if a mobile data network has an ‘all you can eat’ mobile data subscription with a 100MB limit you can speak for (about) three hours before you are being charged per MB,” he says.

Handoff, however, might well be an issue. Indeed, where calls switch from 3G to 2G coverage (for example when a user goes into a building) calls would be dropped and the quality of service issue would come to the fore.

There’s no reason to suggest that once mobile VoIP comes along it will kill off traditional services. Commercial fixed VoIP has been available for a few years now. At one stage Skype’s rise looked unstoppable. Though, perhaps surprisingly, UK regulator Ofcom released statistics earlier this year that claimed VoIP usage is actually on the wane. In fact, it claimed VoIP services fell from 20 per cent in 2006 to 14 per cent in the first quarter of 2008.

The VoIP providers who spoke to telecoms.com’s sister publication MCI said that they had not found this to be the case. In fact, they suggested the opposite. Though Exfo Service Assurance’s Baker thought the Ofcom announcement made sense. “Bundled services, quality and ease of use are being thrown at consumers from every landline offering. Cable and fibre continue to battle and VoIP is the casualty. The benefits from a pure price position are limited and any additional applications are being offered on connected networks today,” he says.

On mobile, as in the fixed environment, using VoIP is just too complicated for most. VoIP might not seem that difficult to regular users or to those involved in talking about or promoting the technology, but in order to encourage mass market take up, the service should be the first thing users see on their phone’s home screen or, as with 3’s Skypephone, on a dedicated handset key. It’s unlikely that top tier carriers will go to those lengths.

VoIP is not being hidden from consumers, but it’s not being promoted either. The majority of consumers just can’t be bothered with overcoming the relatively minor hurdles to adoption. At this point, for most, the price incentives are negligible.