Tony Lavender is Ovum’s Director of Telecoms Research. He is responsible for the company’s global telecoms research programme. He has 24 years’ experience in the telecoms industry. Prior to Ovum, Tony was at Oftel - now Ofcom - the United Kingdom’s telecom regulator where he played a leading role in competition and technical issues. Mr Lavender began his career with BT where he held a number of senior roles. Tony Lavender studied Electrical and Electronic Engineering at Queen Mary College, London. He is a Chartered Engineer and a member of the UK Institution of Engineering and Technology.
Mark Main is a Senior Analyst with Ovum; he has 25 years of experience in the telecommunications industry. He is presently a member of the Broadband@Ovum advisory service team - responsible for the analysis of fixed-line consumer broadband services - but also works closely with other Ovum Advisory Services on broadband network issues. Before joining Ovum, Mr Main was a Communications Engineer at Nortel Networks’ Harlow Laboratories, developing advanced broadband and IP networking solutions. He had worked previously as a Communications Engineer at BT’s research and development laboratories. Mark Main is a Chartered Engineer, holds a BSc Degree in Electronic Engineering from the University of Southampton and has a post-graduate Diploma in Management Studies. He is a member of the Institution of Engineering and Technology.
VoIP is growing throughout the world wherever broadband penetration permits. Mobile broadband, hence mobile VoIP, is still quite limited. Although there are several VoIP service providers, they are not interconnected. A user of one VoIP service cannot directly call another without going through the public telephone system. The ‘SIP’ technology VoIP uses is not limited to voice, and it seems that voice will become just another component of transaction-based business rather than a significant cash-generating business in its own right.
Voice over IP, VoIP, is gaining ground. VoIP voice services over broadband have been steadily gaining acceptance since about 2003, although much of the technology and the overall principles pre-date that by many years. In some markets around the world, consumer VoIP is performing well - users in Japan and Hong Kong are keen adopters of VoIP solutions with a double-digit percentage uptake by population. In Europe, France is the shining star with a few percentage points less. Elsewhere, VoIP uptake is considerably lower, in the region of a few per cent - although growth is still relatively rapid. What this means is that while VoIP is starting to make an impact, a fundamental change has yet to come about. One reason is that the availability of voice services has grown steadily in recent years and mobile services have tended to dominate fixed-line substitution so far. These mobile services are attractive to new voice users in that they can be used anywhere, often have simple pre-pay arrangements and - in regions where fixed line broadband penetration is low - are an easily accessible alternative. VoIP services have hitherto focused on the fixed-line broadband market, primarily as a means to reduce long-distance and international calling rates. The appeal of VoIP depends, in the first instance, on the availability of broadband service. This will change as the market matures and as feature sets grow. VoIP is a starting point, not the endpoint A growing number of VoIP service providers base their solutions on Session Initiation Protocol, SIP, technology, since the system components and customer premises devices are widely and inexpensively available. The Internet Engineering Task Force, IETF - a pre-eminent IP technology standards-making body - continues to develop new SIP-based voice services. SIP-enabled applications have great potential and are not limited to voice. A broad range of new applications will become possible as voice becomes a feature embedded within other applications. Until recently, voice telephony has been a relatively stand-alone, and very ‘protected’, application - largely because it is a significant cash-generator for telcos. That, increasingly, is no longer the case. Triple play (voice, video and data) service providers have to offer voice services in their bundle, but do not necessarily expect to yield much other than a relatively fixed revenue from it. Equally, the incorporation of Skype’s communications capability within the eBay business model seems to indicate that voice will become just a component of another transaction-based business rather than a significant cash-generating business in its own right. The service opportunity Voice presents a paradox. Voice services are getting cheaper as PSTN, public switched telephone network, tariffs fall, but users still expect high quality, reliable and secure voice services for their person-person communication. Currently, a number of highly competitive, non-interconnected, service providers, each trying to dominate the market, offer VoIP. The limited amount of VoIP interconnect that exists today tends to be between the smaller players and is rather basic - many calling features are not supported. VoIP interconnect will present some significant challenges as the number of users and networks scales-up. Providing all the end-to-end feature support, security, support for law enforcement requirements, quality and reliability within an interconnected business model necessarily means that someone will have to pay - most likely the end-user. It is unlikely that guaranteed end-to-end voice service will ever be free - it will probably always have a price. Nevertheless, there is an emerging opportunity in the VoIP interconnection business; VoIP interconnection is a complex business, but certainly one with rich rewards for the successful service facility providers. Of course, many of the major telcos have their own longer-term VoIP migration strategies as part of a wider plan to implement next-generation networks, NGN, that call for the convergence of fixed and mobile access and networks for both data and voice. Although the equipment vendors are busy developing their respective NGN voice solutions, there will be a role, no doubt, for a new breed of facility service providers working alongside, or even on behalf of, today’s telcos. Personalisation and presence Voice telephony historically used a fixed, wired, connection. Mobile telephony began the move towards personalisation of voice services, but the integration of fixed and mobile applications has had relatively limited success so far. This is partly for reasons of technology, but it has also to do with the relative high cost of terminating voice calls on wireless than on fixed networks. As IP-based solutions increasingly permeate all types of voice platforms, it will become simpler to implement applications based on users’ availability and ‘reachability’ - a phenomenon known as presence. The use of SIP-based communication features will aid this integration, not only for voice applications but also for multimedia - video, file transfer, chat and other forms of messaging. Value-added features are expected to drive VoIP adoption along with other multimedia communications, but they will need to be simple to understand, simple to use and appropriately priced. There is an opportunity to carve out, designing and implementing services to match the changing needs of user groups. The rise of the application-focused providers Service providers have historically provided connectivity and value-added applications. The lack of a common architecture has, so far, hindered applications development. The move towards NGN will give operators and their service provider partners a chance to move into new applications. Most NGN plans call for the development and implementation of new services over time. Emerging markets As noted, the adoption of basic VoIP services is underway and growth is particularly strong in emerging markets. A number of alternative network providers have moved quickly to undercut the incumbent voice operators’ calling rates. Incumbent providers have been slow to respond with their own, competitive, tariff bundles and are losing out. In these markets, the adoption of broadband services is accelerating, not only because of high-speed Internet access, but due also to the availability of lower-cost voice services. As a result, broadband access is growing fast in emerging markets such as Eastern Europe, South America and parts of the Middle East. The growth is not limited to consumers - municipal and commercial organisations are adopting new network solutions to make possible changes in working methods and procedures. Many of the changes are still quite simple, largely because until recently IT infrastructure has been rudimentary and poorly integrated. However, evidence of a greater focus on new applications and services is emerging, driven by a growing equipment vendor focus upon these promising markets. Given the relative absence of legacy voice systems in emerging markets, we expect to see more rapid adoption of new business applications with embedded voice services than has been the case in developed markets. Change of end-users needs People today are using technology in unexpected ways, reflecting what is important in their lives. We should not assume that voice communications in the next ten to 20 years will be used the way they were in the past. The rise of social networking clearly indicates that people are readily embracing new online tools and services in their lives. These are not simply generation-driven changes - although there are differences in the way today’s youth communicates compared with older generations. Organisations, and people within them, are also taking up new ways to work. As in the earlier discussion on ‘presence’, it is clear that all communications - including voice - will extend well beyond the rather basic tools we have long been accustomed to use. As with social networking, we expect that new groups and associations will form the foci for many new communications-based applications; the potential of these groups is already drawing the attention of entrepreneurs. Issues and problems As noted, fixed-line broadband availability has tended to temper the overall market size for VoIP. We expect this to change as new applications start to drive broadband availability. Adoption of VoIP technology by wireless operators will also catalyse VoIP uptake. The lack of interconnection between VoIP service providers, which could enable lower-cost end-to-end service, is an even greater problem. Interconnection is hindered by a number of factors, some commercial, some technical and some political. It is a complex area, and one that needs considerably more attention. In the meantime, there will be concentrations of users around relatively narrow application areas. Indeed, it may suit some service providers to remain isolated, particularly as business and revenue models are still taking shape. Skype, for example, has never thought it necessary to connect to other VoIP providers, although some of its users would certainly wish to do so. VoIP has made a solid start, but there is much yet to do. The story does not end with VoIP - extended voice services will provide enriched, more personalised, more purposeful communications. Voice is breaking out of its traditional limitations, but there is a great deal of work yet to do. In the interim, there are short-term opportunities to create and capture new regional and national markets with the new VoIP/SIP platforms. Real opportunities will result from identifying the subtle changes in how people and organisations interact. We are likely to see unexpected developments on the long journey to an all-IP communications world. Building and sustaining a successful business model as the markets and technologies evolve through a long series of complex changes is the challenge service providers face.