Voice Apps Beyond Dial Tone: A Discussion

A discussion of custom apps beyond dial tone.

Most VoIP LInes Sold as Part of a Bundle

Most VoIP service is sold as part of a bundle, data from the Federal Communications Commission shows.

About 79 percent of IP telephony or VoIP lines sold by cable companies or competitive local exchange carriers are sold as part of a bundle, and intended to be used at a fixed location.

About 90 percent of IP telephony or VoIP lines sold by incumbent telcos are sold as part of a bundle, and intended to be used at a fixed location.

Google Voice to Integrate with Gmail

Google apparently is testing a new feature that makes Gmail chat more useful: users are able to make and receive Google Voice calls from inside the Gmail application, as they would using Skype on a PC.

A new phone icon opens a Gmail chat window with a dialpad, an option to find contacts, a credit balance and a call button.

Google Voice to Integrate with Gmail as a VoIP Service:

Tesco Abandons VoIP Market

U.K. retailer Tesco, which began selling consumer VoIP service in 2006, now is pulling the plug, though it will continue to sell mobile service. Without reading more into the news than is warranted, the move is illustrative of the fact that consumer VoIP might be less an innovation than some had hoped for, and certaintly is a less-robust business than anticipated, especially compared to mobile service, at least for the moment.

That is not to say other competitors, with different assets, can fare better. But the April 27, 2010 shutoff at least suggests that the "VoIP" market has not proven to be the lucrative business Tesco once believed it was, given its ability to support and market the business, as well as the evolution of end user demand, which arguably has tipped in the direction of mobility.

Earlier in the last decade, there was much more apparent optimism that fixed-line VoIP would "change telephony forever," creating significant new opportunities for non-traditional providers.

One might argue that VoIP's primary impact has been to accelerate voice price erosion, without creating a significant new market, though it has been the way cable operators have taken market share from telcos.

Tesco says "trends in technology have moved forward since we launched Internet phone so that this is no longer a sustainable service". One might infer that means mobility now is the "hot" service.

"Tesco Internet Phone" was basically a Skype-style PC offering, though the supermarket did offer a Vonage-style terminal adapter version as well.

That is not to say further innovation in voice services is impossible, or in fact unlikely. There will be advances. The issue is whether the scale, impact and economic importance of such voice innovations is going to approach the advances being made in mobility, broadband, Internet and Web services.

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VoIP Will be a Mixed Blessing for Mobile Service Providers

This prediction for use of mobile VoIP by about 2013, made by In-Stat, might suggest the reasons why incumbent voice providers have been somewhat hesitant to fully embrace VoIP.

The pie chart suggests that a majority of VoIP activity on mobile phones will be provided by third party, over-the-top providers, not the "service providers" themselves.

That's roughly the same experience fixed line operators have had: most of the usage is enabled by third-party application providers or competitors, notably cable companies.

Some might find it odd, but VoIP actually has been a mixed blessing for incumbent voice providers. It represents the next generation of voice, but the next generation of voice turns out to be an application "anybody" can provide.

VoIP proponents have hammered away at the theme that VoIP is about new features, not price. The market keeps demonstrating by its spending that price is what VoIP "really is about." Features are nice, especially in the business market, but consumers seem to buy based on their ability to "save money," rather than for the whiz-bang new features.

The fundamental dilemma for an incumbent voice provider is that they essentially must invest more money, to provide new features end users won't pay for, at lower or the same prices. To a certain extent, that's the similar problem service providers face when upgrading to fiber-to-home or fiber-rich access networks. Video services are truly new. But broadband access has been following a "more speed for the same money" trajectory, for the most part. Fiber-rich access networks have made possible new faster tiers, sold for more money, to be sure.

But it would be tough to make the argument that the new sales of faster access, plus revenue from new video services, have earned sufficient return to justify the investments in a classic sense. More often, such investments are strategic, intended to ensure that a provider still has a business, more than investments that immediately produce attractive revenue lift.

VoIP has been a mixed blessing for incumbent telcos, though it has been very satisfying for cable operators and some over-the-top providers.

60% of Calls are Video-Enabled on fring in W. Europ

After just two months, video over Internet calls account for more than 40 percent of fring's global call traffic, on devices capable of doing so, and more than 60 percent of its call traffic throughout Western Europe, where fring mobile video call usage doubles the leading PC-based video call services, fring says.

Fring launched the world’s first interoperable service between mobile video users of fring and Skype last November, enabling users to conduct video calls to other fring users as well as with Skype users using aWi-Fi or 3G mobile Iternet connection.

The majority of fring's mobile video calls are international.

Keep in mind that fring only works on devices running the Symbian or Apple mobile operating systems, including all Symbian 9.2 and 9.3 Nokia devices including the E71N95, N95 8G, N83, N97, 5800 and other Nokia touch-screen S60 devices and the iPhone and iPod touch.

Voxbone Adds Text Messages to Global Phone Numbers

Proponents have argued that  new IP-based communications would offer many innovative features not possible on older telephone networks. Voxbone, for example, now provides "global phone numbers" that are not tied to a specific country, and now has added text message support for those numbers, a feature that will be welcomed by users who see the advantages of a single, global telephone number.

Voxbone’s carrier and enterprise customers now can offer their subscribers one global number that can receive SMS messages at competitive rates, on mobile phones that do not have Internet access. In other words, it works the way the current services do, in terms of user interface and experience.

The move marks something of a potential breakthrough in "iNum" usage, as wireless subscribers from a growing number of prominent carriers, including Vodafone, T-Mobile, Orange, Virgin, and Boost Mobile, now are able to send text messages to iNum "phone" numbers.

The service is already available in the United Kingdom, France and the United States, at prices ranging from 10 to 20 pence per message in the United Kingdom., for example.

Voxbone will be adding reachability from more wireless carriers in more countries in the coming weeks.

The new feature highlights another interesting angle: Landline phones have not traditionally been able to receive text messages. It isn't entirely clear how many people would find this interesting or useful. But it could be done.

All iNum numbers have a prefix of +883, the International Telecommunications Union-assigned international code for the Internet, just as +44 is the code for the U.K. and +1 refers to the U.S.
As a wholesaler of direct-inward-dial numbers and IP transport provider, Voxbone receives calls, and now SMS messages, to numbers with this code and delivers them over IP to its carrier customers, for delivery to their end users.

Google Voice Extension for Chrome Browser Now Live

Google Voice now is available as an extension for the Chrome browser. Adding the extension
adds click-to-ccall functionality to Web pages. If there is a phone number on a Web page, or your online address book, it will now have a hyperlink. Click it and Google will open a pop-up window asking which phone you want to use to set up the call, and does.

Google Voice, you will recall, is not an IP telephony or VoIP application n the sense that Skype or Vonage are. Basically, Google uses the Web to set up and complete calls using your existing mobile or fixed connections, adding some interesting call management features.

The extension also adds a small icon in the upper right of the browser. You can type in a name or phone number and call or send a text message from the browser, and read recent text messages and transcribed voicemails (Google automatically transcribes voicemails, usually not all that well).

Many observers think Google ultimately will add softphone functionality, allowing Google Voice to function as an VoIP client.

How Will Global Telecom Revenue Sources Change Over the Next Two Years?

Looking at global telecom revenue sources over the next couple of years, some basic trends can be seen (click image for larger view).

Fixed network services other than broadband continue to decline.

Wireless revenues continue to grow, as does broadband access revenue.
Dial-up access revenue continues to decline.

Keep in mind that these are global, aggregate numbers, buoyed by huge broadband and especially wireless growth in developing regions. The patterns can be quite distinct in specific national markets.

In the U.S. market, it is conceivable that video and content revenues could be a somewhat significant factor over a decade-long time frame. Wireless growth will be highly susceptible to broadband and data services growth, balanced by a certain amount of "harvesting" of mobile voice revenue, which will decline, relative to broadband, over the decade.

It is worth noting that voice revenue trends have been through two fundamental cycles, with a third on the way. At one time, international long distance was the highest-margin product, followed by domestic long distance. That changed fundamentally between 1997 and 2007. Over that 10-year period, long distance, which represented nearly half of all revenue, was displaced by mobile voice services.

Since about 2000, fixed voice lines and revenue have been steadily declining, at least in the telecom service provider segment, with the cable segment able to grow the role of voice in overall revenue.

In the third change, mobile voice will follow a trend similar to that of long distance.

In each of the shifts already occurring, several things happened. Prices and profit margins steadily were compressed. And new competitors picked up significant share of the remaining business. In each of the three periods, the product has changed.

Between about 1997 and 2007, "long distance" became loosely coupled with local calling and local access. Long distance increasingly could be consumed "over the top," using prepaid calling cards or separate providers for "long distance" on a local line, for example.

Between 2000 and 2009, it became possible to use mobile phones to similarly displace both local and long distance calling, as well as to substitute mobility for fixed voice, while both over-the-top and IP-based calling options became available.

Over the next 10 years, both voice itself and long distance calling in the mobile and fixed realms likewise will be increasingly disaggregated and amenable to "over the top" consumption.

At the same time, the number of settings where voice is used likewise will disaggregate. Voice will be used as an embedded feature of many types of applications and experiences, using many types of terminals and featuring multiple revenue models.

Telecom Italia Sparkle, iBasis Activate First All-IP Bilateral Operational

iBasis and Telecom Italia Sparkle have migrated all their bilateral traffic between Italy and the Netherlands to IP, using i3 Forum specifications. "We are pretty sure this is the first all-IP bilateral agreement," Chris Ward, iBasis senior director says.

All traffic over the connection uses iBasis premium voice service, with quality of service guarantees.

"I already sense some real energy about what we are doing, where there is greater access to the full range of resources at KPN," says Ward, because of the recent acquisition of all of iBasis by KPN.

Right now iBasis represents about seven percent of KPN revenue, but KPN obviously expects that to grow significantly. In part, that optimism results from a change in iBasis strategy of late.

"We have been very focused on margin growth over the past couple of years," says Ward. "But revenue growth is now more important."

KPN's corporate resources will play a part, but also KPN's status as a "member" of the global carrier club. To the extent that financial stability and resources are an important requirement for carrier business partners, the new ownership structure should prove reassuring.

But the iBasis core strategy hasn't changed. It wants to be a leading provider of global voice operation outsourcing for carriers who frankly have many other priorities and might prefer to focus on customers and products with 30-percent profit margins rather than the four percent to seven percent margins international long distance now provides.

"You can't be Neiman Marcus and Wal-Mart all at the same time," says Ward. "You have to choose."

As carriers migrate traffic to IP, we are a natural partner for outsourced international voice operations, says Ward."It doesn't make sense to run international long distance, for most people, unless you are a specialist."

"It's sort of like email, in a way," he says. "Don't devote resources to it, if you can avoid it."

Skype "Dial Tone" No Threat to Mobiles, Fixed Lines

About 21.5 million Skype users were logged in simultaneously on January 11, 2010, which likely is a record.

Some refer to this as "Skype dial tone."

To give you some idea of how far Skype would have to go to be a credible alternative to other forms of consumer voice, consider that in March 2009 there were 4.1 billion mobile subscriptions in service, according to the International Telecommunications Uniion. The ITU also estimates there are about 1.3 trillion fixed lines in service globally.

So make that 5.4 billion devices that have "dial tone," compared to a third of a percent of Skype accounts, at peak. To the extent communications really does depend on network effects, Skype has quite some ways to go.

Incumbent Telco VoIP Transition is Not Technology-Led

The fact that AT&T has asked the Federal Communications for a definite date to shut down the public switched telephone network is, like most regulatory filings made in Washington, D.C., more complicated than it might appear.

Virtually all telecom service provider executives believe IP voice is the future, whether in the mobile or fixed domains. But the economics of the transition are complicated, at least for an incumbent provider.

Attackers, such as cable companies or independent VoIP providers, have no installed base of customers to cannibalize. Incumbents most certainly do, and that makes all the difference in perspective.

A Verizon executive recently noted that, “at this point in time, the business case does not support a technology-led migration off of the PSTN with the combination of land line loss, the economy, competing priorities and competitive dynamics.”

The key phrase is "technology led." Cable digital voice, Skype and Vonage build on VoIP: the technology directly supports the business case.

For an incumbent telecom provider, the technology in some cases harms the business case. To the extent that VoIP services largely replace an existing service with no incremental revenue, added investment is not met by added revenue. To the extent that VoIP services are priced lower than the voice services they replace, the business case is negative.

Under such circumstances it is rational to harvest PSTN voice as long as possible, despite market share losses. At some point, the logic reverses, however. As the fixed costs of the old PSTN are shared over a smaller base of customers, it will at some point be advantageous to switch to IP voice, strictly on the basis of operating cost savings.

That point has not yet been reached, but it is inevitable. The issue right now is what regulatory regime will apply to incumbents as that transition occurs. And one might argue that is the real point of the AT&T request for the FCC to specify a firm timetable for shutting down the PSTN.

The replacement of PSTN technology with IP telephony also creates an opportunity for new rules about carrier obligations that directly affect the costs of providing such service. That is why the AT&T request also argues that legacy rules must be altered as the transition is made.

Those rules are arcane and of little visible consequence for the typical consumer user of fixed voice. But they have enormous impact on the voice business case, as viewed from an incumbent perspective. Basically, all the rules that govern how networks compensate each other for terminating traffic are the heart of the matter.

So incumbent sunsetting of the PSTN will not be "technology led." The institutional and business frameworks remain the key issue.

Vonage World Mobile Launches

Users of the iPhone, BlackBerry and iPod touch can subscribe to Vonage World Mobile, a new global calling feature available for "Vonage Mobile," Vonage's mobile calling application. Vonage World Mobile provides customers with unlimited mobile international calls to over 60 countries for one flat monthly rate when calling from their mobile device.

The service works on cellular or Wi-Fi (iPhone), just Wi-Fi for the touch and only using mobile spectrum for the BlackBerry.

Current Vonage World residential customers will receive a 40 percent per month discount on their home service when they buy Vonage World Mobile.

Vonage World Mobile costs $24.99/month and is available as a free download at www.vonage.com and the iTunes App Store.

Good News for VoIP, Bad News for Wired Telecom Providers

"VoIP" was the "industry of the decade," according to IBISWorld, which says the industry earned that accolade because of its 1,655 percent growth rate between 2000 and 2009. IBISWorld notes that VoIP, as a new industry, only began to earn any revenue in 2002, so it is starting from a "zero" base.

Wireless telecommunications ranked eighth for industries of the 2000 to 2009 period, posting revenue growth of 183 percent.

IBISWorld also predicts VoIP will show the most revenue growth in the coming decade as well, growing 150 percent between 2010 and 2019.

The bad news for the 2010 to 2019 period is that wired telecommunicatons carriers will show negative 52 percent revenue growth. Telecommunications resellers likewise will show negative 26 percent revenue growth over that same period.

FCC Seeks Input on Transition to VoIP

The Federal Communications Commission wants public and industry comment on the policy framework for a transition from circuit-switched to voice services on all-IP networks. The FCC will use the comments to issue a possible "notice of inquiry" on the subject.

"In identifying the appropriate areas of inquiry, we seek to understand which policies and
regulatory structures may facilitate, and which may hinder, the efficient migration to an all IP world," the FCC says. "In addition, we seek to identify and understand what aspects of traditional policy frameworks are important to consider, address, and possibly modify in an effort to protect the public interest in an all-IP world."

Among other issues, the FCC will be looking at consumer protection issues such as how the needs of people with disabilities can be assured. A look at the role of "carrier of last resort" obligations in an all-IP framework also is expected.

All comments should refer to GN Docket Nos. 09-47, 09-51, and 09-137 and title comment filings
as “Comments – NBP Public Notice #25."
 
Filers using the Commission’s Electronic Comment Filing System should enter the following text in the “Custom Description” field in the “Document(s)” section of the ECFS filing page:  “Comments – NBP Public Notice # 25."

Mobile VoIP is Inevitable, Yankee Group Says

Flat-rate data pricing has made mobile VoIP applications inevitable, and over time, all U.S. carriers will end up allowing them, says Yankee Group analyst Carl Howe. That, in turn, is going to have profound impact on the mobile service provider business model, as voice now is the key revenue driver.

Some of the effects are easy to predict. International call traffic will migrate to VoIP. In the U.S. market, for example, domestic voice calling minutes are cheap, but international rates are fairly high.

On the other hand, mobile VoIP also will shift international traffic from the landline networks (including use of VoIP from fixed broadband connections) to the mobile network.

Less easily quantified is the boost mobile VoIP will give to purchase and use of specific handsets, and the emergence of specific mobile VoIP user segments. For example, devices with front-facing cameras potentially can become the foundation for mobile videoconferencing services and applications.

If you think of BlackBerries as "email" centric phones, and iPhones as "mobile Web" phones, while other devices are "social networking" or "navigation" oriented, you can see where the niches might be.

It is conceivable that "flat-rate data plan caps will tighten," says Howe. Mobile service providers might try to avoid a wholesale collapse of voice revenue by trying to manage network capacity through through more-stringent bandwidth caps.

The operative word in that sentence, however, is “trying,” says Howe. Data caps and over-cap pricing are likely to receive intense regulatory scrutiny to ensure that operators aren’t gouging customers in an attempt to replace lost voice revenues.

The other big unknown is whether service providers will be allowed to create optional "voice optimized" or "conferencing optimized" service plans for users that want priority handling of their own conferencing and voice bits, or "video optimized" plans for users who deem video apps to be key.

In a sign of things to come, Verizon Wireless and AT&T now allow use of mobile VoIP. Google's Android phones running on Verizon's network have VoIP applications available on them.

AT&T also now allows use of the Skype VoIP application on AT&T’s 3G network and iPhones. Vonage and iBasis, among others, also support mobile VoIP calling.

The VoIP trend actually only accelerates an on-going trend. U.S. mobile service provider monthly voice revenue per subscriber has declined from an average of $58 in 2000 to less than $35 in 2009. VoIP might accelerate that process, but is not singlehandedly causing it.

Data plan revenue is the obvious replacement revenue source. And with more application stores offering mobile VoIP clients, it will be hard to stop users from substituting VoIP for traditional calling. Of course, mobile providers have options.

They might not want to do so, but one way to prevent substantial migration to VoIP calling is simply to lower prices for tradtional calling, especially under conditions where voice is carried on one network, and data on a separate network. Part of the overall equation is the additional load mobile VoIP calling will place on 3G networks. In a sense, providing incentives for users to use the voice network for voice offloads traffis from the 3G networks.

Ease of use will emerge as a key issue as more mobile VoIP clients are made available. For many users, domestic calling is cheap enough that mobile VoIP will not provide much advantage, as compelling as international VoIP will be. Anything other than the normal process people now use to dial calls will create huge barriers to domestic VoIP usage.

Call quality also will be an issue. People are used to mobile voice call quality being less than landline. They are used to VoIP calls being equivalent to mobile call quality. But quality less than mobile will create barriers to usage.

On the other hand, use of high-quality codecs will be an incentive to use of mobile VoIP. Anybody who has used Skype high-definition codecs might have new incentives to use VoIP calling services that offer such experiences. Adoption barriers exist here, as both ends of a circuit must be equipped with high-performance codecs to maximize the experience.

The other unknown is the impact of devices able to support multitasking and integrate data services such as instant messaging and presence functions with voice sessions.

Carriers might want to ationalize data and voice pricing, says Howe. A $30 per month data plan capped at 5 GB a month allows your typical 24 Kbps codec VoIP user to talk for nearly 21,000 minutes. That makes the $60 AT&T charges for 900 voice minutes a month look pretty expensive, says Howe.

Operators should do the math on tariffs they charge and adjust rates so VoIP arbitrage becomes less attractive.

Service providers also should build their own mobile VoIP apps, optimized to work with 3G networks as well as Wi-Fi and 4G networks they also may own. That of course assumes such optimization will remain legal once the Federal Communications Commission finishes its rulemaking on network neutrality.

Hardware Sales Flat, Software up 4.8%, Telecom up 2.3% in 2010, Says Gartner

Providers of information technology solutions likely will have to emphasize customer retention more than customer acquisition in 2010 and 2011 because of a sales environment that will remain challenging, says Richard Gordon, Gartner Research VP. That said, sales of IT hardware and software will grow about 3.3 percent in 2010, about in line with telecom service provider revenue growth of 3.2 percent.

Enterprise hardware sales, for example, will show zero growth in 2010, compared to 2009, Gartner forecasts, in part because hardware lifecycles have lengthened.

Software sales, on the other hand, should grow 4.8 percent, says Gartner.

Net Neutrality Not Good for Real-Time Services?

One of the unknowns at the moment is how any proposed Federal Communications Commission network neutrality rules might affect a service provider's ability to offer quality-assured services.

That's possibly important for any users or providers of real-time services (voice and video), since bandwidth alone is not a guarantee of quality experience.

Real-time services are highly sensitive to latency and delay. The issue then is whether consumers will have the option of buying services optimized for real-time services.

Think of this as an end-user opportunity to buy bandwidth services that are akin to the Akamai content delivery service currently available to businesses.

AT&T Google Voice Complaint Partly About Traffic Pumping

In asking the Federal Communications Commission to investigate Google's refusal to terminate some calls placed to high-cost rural areas, AT&T is not simply sparring with Google over network neutrality, but rather pointing up a pricing anomaly that distorts behavior and reduces carrier profits.

while suggesting current regulatory rules do not fairly treat competitors in the market, and arguing for narrowing the regulatory differences between VoIP and other carriers and between access, application and content providers, AT&T also is highlighting what it and other carriers say is a pricing distortion in the termination rate regime that directly underpins the businesses of free conference calling services.

At immediate issue here is Google's refusal to terminate some calls in high-cost rural areas. Many of you are familiar with free conference calling services that use area codes in rural areas. You might have wondered what the business model is. Simply, it costs carriers enough money to terminate calls in those rural areas that conferencing services can afford to give away the service and make their money on the termination fees.

Over the last couple of years other skirmishes have been fought about high termination rates in some rural areas of Iowa and some other areas.

Services such as Free Call Planet, freeconferencecall.com and others teamed with Iowa telcos to set up inexpensive or free calling services that generate profits for the providers primarily by collecting millions in access fees.

The local telcos provide the Iowa telephone numbers and voice gateways for the services, bill long-distance companies to terminate calls and then pay“marketing fees” to the conference calling services.

AT&T said in 2007 that the arrangements were costing it $250 million a year. AT&T, Verizon, Qwest and Sprint Nextel have opposed the "traffic-pumping" schemes, and the Federal Communications Commission did move to limit the practice.

Rural phone companies are allowed to charge about 2 cents to 8 cents a minute to connect long-distance and wireless calls to their networks. The fees, up to 100 times higher than rates charged by large local phone companies, are intended to offset the rural companies' high costs and low call volumes.

But that's where the arbitrage opportunity arises. Specialty calling services teamed with some rural phone companies to offer free conference calling, adult chat and other services, splitting the call-connection revenues with the rural carriers.

The FCC did move to suspend the rural companies' rates. But new providers have set up shop.

About 160 million minutes of calls by AT&T customers were routed to rural CLEC networks in March, 2008, surpassing the peak level of calls to rural incumbents, about153 million minutes, in January 2007, AT&T says. Sprint told the FCC that its bill from 11 competitive carriers soared 5,000 percent in 21 months.

Recently, even other rural telephone companies have decided they'd better side with the large tier one providers as well, as the practice might damage the wider rural termination regime.

Google tariff specialists know that, and apparently want to avoid those costs by restricting termination to such numbers, as the tier one carriers themselves did until forbidden to do so.

So aside from the other clear issues about treating like entities in similar fashion, there is the outstanding issue of high termination rates in some jurisdictions.

CallVantage Closing Highlights VoIP as Part of Triple Play

AT&T is discontinuing its CallVantage "over the top" VoIP service, a move that has some observers calling AT&T stupid for turning its back on the future. But that isn't what AT&T is doing. It will focus on using VoIP as a key part of its triple-play or quadruple-play consumer offerings, instead of devoting resources to a small, if well-run service that offers little synergy or business value with the other things the company is doing.

It just makes more sense to focus on VoIP as a part of a bundle.