The front page of the Economist the other day (15th September 2005) was “How the internet killed the phone business” (cover picture here). It is offered as premium content to subscribers at the Economist web site. But the bulk of the content can be found free in another article entitled “The Meaning of Free Speech” published in the same issue, see here. The latter article begins ‘The acquisition by eBay of Skype is a helpful reminder to the world’s trillion-dollar telecoms industry that all phone calls will eventually be free‘. Dialpad, another Skype-like firm, in June. AOL, Apple and others have similar products” and goes on to detail the Ebay acquisition of Skype that occurred earlier this month.
Quotes I note for interest/emphases are “even before VOIP makes 100% of telephone calls in the world completely free (which may take many years), it utterly ruins the pricing models of the telecoms industry. Factors such as the distance between the callers or the duration of a call, the key determinants of cost today, are simply irrelevant with VOIP”, “voice service is fast becoming a marketing freebie”. It quotes Cyrus Mewawalla, an analyst at Westhall Capital as stating
VOIP will destroy voice revenues faster than most analysts’ models predict…Voice will very rapidly cease to become a major revenue generator for all telecoms operators, fixed and mobile.
The article splits up operators into “unenlightened” and “enlightened” camps. China Telecom and Madison River Communications are placed in the former camp for blocking Skype and VONAGE, respectively. As is Clearwire and Vodafone Germany for reserving rights to block VoIP calls. Operators are placed in the “enlightened” camp if they offer a flat-rate calling plan or have launched their own VoIP service; Verizon’s VoiceWing and BT’s Broadband Voice are given as examples of operator offered VoIP. Three arguments are given for an operator choosing to embrace VoIP and thus be in the enlightened category; to compete head-on (as the article sees it) with the likes of Skype, to lower their costs dramatically and to “start offering the fun new services that VOIP makes possible and charging for them”. Exciting new services turn out to be video-conferencing, unified messaging and IPTV.
Video-conferencing can already be done with the likes of Skype, so I ignored that service. Unified messaging I find rather boring and thus I again ignored. That leaves IPTV which the article lists as the most exciting service. I think that says it all! To paraphrase “the most exciting service for telephone companies is delivering television”.
Switching to the fairly identical but shorter premium access only article that was front cover, quotes I note for interest/emphases are
the rise of Skype and other VOIP services means nothing more than the death of the traditional telephone business, established over a century ago…the ability to make free or almost-free calls over a fast internet connection fatally undermines the existing pricing model for telephony…that means not just the end of distance and time-based pricing - it also means the slow death of the trillion-dollar voice telephony market, as the marginal price of making calls heads inexorably downwards…it is no longer a question of whether VOIP will wipe out traditional telephony, but a question of how quickly it will do so…perhaps only five years away.
The articles states that mobile operators are the most vulnerable to Skype type services rather than fixed line operators - in particular 3G networks since they have a lot of license money to recoup, often provide unrestricted Internet access and have slow take up. This is plain wrong; Skype will hurt the fixed line operators first. 3G operators in my opinion have around three years fairly clear breathing space. This is because people are willing to pay for seamless mobility - which works! Skype type services will only be a big threat to 3G operators when 4G/Qualcomm/Flarion/WiMax/mesh networks emerge. Luckily Tomi Ahonen picks up on this mistake which saves me typing! For those without a subscription to the Economist, then at least for now both articles can be found here.