Voice: free, dead or the killer app? It's certainly in disruption...

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So, Telefonica O2 Germany is offering free voice and messaging on four tariffs with pricing determined by data rate, from €19.99 for basic with 3.6Mbps up to €50 for 50Mbps LTE up to 5GB.

Meanwhile, back at the Mobile World Congress, the CEO of KT told us that his voice business is "rapidly collapsing", with fixed revenues nearly halving between 2010 and 2012 and mobile down by a billion dollars in the same space of time. And Hakam Kanafani, the Group CEO of Turk Telekom, was positively apocalyptic:

"Voice is God's gift to humanity. It's what differentiates us from the animals. And we position voice at zero -- you don't have to pay for voice. Voice is dead."

Much drama indeed, though regular readers of Telco 2.0 will know that we've been talking about the business model transition facing voice and messaging for a number of years. We've also recently published bleak views on the outlook for voice in Europe in European Mobile: The Future's not Bright, it's Brutal, and we're working on further global analysis on both voice and messaging as a whole, and the stage of the transition of telecoms and other digital industries.

European Core Mobile Services Revenue
Euro Voice Brutal Image 2 Chart Euro 5 Oct 2012.png
Source: European Mobile: The Future's not Bright, it's Brutal

We'll be sharing more of this at the Silicon Valley Brainstorm in San Francisco next week, and at the EMEA Brainstorm in London, 5-6 June (please email contact@telco2.net to contribute or find out more).

Anyway, going back to one of this year's CEO bandwagons at MWC, Vittorio Colao of Vodafone didn't go quite as far as say that 'voice is dead', but then he doesn't have an incumbent fixed network to worry about. However, he did discuss the RED tariffs, introduced first in Spain, which work much the same way at different price points. The new pricing strategy, he argued, is "unlimited voice & messaging with generous data" - which implies that voice isn't a significant driver of cost any more.

Voice: becoming decoupled from costs?

The good news is that, because voice is no longer a significant driver of cost, going to "unlimited bundled" or "free" voice isn't as big a problem as it might seem. It's pushing packets, specifically video, that drives cost. And it's never been cheaper to provide voice. One data point comes from Viber, an OTT voice & messaging app whose CEO Talmon Marco spoke at the event - it costs $200,000 a month in OPEX to serve 175 million users with VoIP and instant messaging.

In our Free Mobile note, we point out that Free's cost structure is a "tell" here - it needs to charge enough for mobile voice to support a thin overlay cellular network, and to pay termination on only that fraction of their offnet voice that doesn't get least-cost routed onto SIP peerings that are either free or very cheap.

It's all about the experience, isn't it?

That said, as Viber's CEO pointed out, price isn't the problem. One of Viber's highest-penetration markets, at 90%, is Monaco, after all, where they're aren't short of a bob or two and anyway the local MNO bundles unlimited SMS. He said that the customers use it because they like the experience better.

As we've been saying since 2008, the future of voice is that voice becomes a software application, and as such, it will sell on features and user experience rather than a utility-like model. To dip into our Twitter feed, KT's CEO repeatedly made the point that future telco services must be better than OTT competitors.

Or is it in the OTT-bundle?

Alternatively, another answer is to declare peace with the OTTers. Essentially, this takes the strategy of bundling voice and messaging and eliminating out-of-bundle costs a step further. Assuming that everyone ends up bundling unlimited voice, how do you differentiate in order to compete, if not on the features and the user experience? Viber at least is (possibly too) enthusiastic, being "delighted to integrate with your IMS".

But that doesn't mean telcos have no future in their own right. While Vodafone's RED tariffs adjust down to unlimited voice and messaging and managed data revenue growth, their One Net enterprise Voice 2.0 product is doing good business, with 2.4 million customers globally.

In fact, you could characterise Vodafone's strategy as being "Happy Pipe in retail, enrich products in enterprise".

Or is it 'getting hacked into apps'?

Meanwhile, the Voice 2.0 community was much in evidence at MWC with vendors like Voxeo, Twilio, AcmePacket, and a few even we hadn't heard of, plus the emerging WebRTC community, which these days includes Ericsson and Metaswitch. Voxeo's technology, in particular, is now deployed with telcos as gigantic as AT&T and Deutsche Telekom, supporting the Call Management API and the voice aspects of DeveloperGarden respectively. And Telefonica is pushing its Tu GO product out to more markets, while buying AcmePacket technology to support the scale-out. At the WIPJam hackathon on day four, we were struck by how many of the projects involved telephony of some form.

And longstanding Telco 2.0 ally Tim Panton, of PhoneFromHere fame and now with Voxeo, was struck by the fact that one of the developers entered the same app in the DTAG and AT&T hackathons - both carriers implemented Voxeo's Tropo.com platform without being tempted to alter the API, so the app could be ported between them without needing further integration work. Hackers gonna hack.

Disruption is temporary, change is permanent

So, the future is here, for good or ill. We're now moving fast into a world where voice and messaging are zero-rated products.

At a little more length, we would argue that the industry faces a disruptive transition in terms of customer behaviour, which will not flip back to pre-crisis conditions. Fortunately, for many operators the core business is no longer reliant on voice revenues, but rather on running a profitable happy pipe ISP. Future voice business models are based on features and freemium. And the Voice 2.0 technologies were in the euphoric sector of the hype cycle in 2008-2010, and have now crossed the chasm.

We'll be discussing this in much more depth in our forthcoming Voice Strategy Report and at our brainstorms. Watch this space.