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Optical/IP

The Perfect Storm

It seems that the price wars are back on in the cell-phone market: T-Mobile US Inc. said yesterday it is reintroducing its "Get More 1500" plan (1,500 minutes a month for $40), in direct response to the recent introduction by Cingular Wireless of a $40 plan with 1,000 minutes.

Meanwhile, the EU said today that it will end most mobile telephony roaming charges because the major Euro-carriers, including Vodafone Group plc (NYSE: VOD) and Telefónica SA (NYSE: TEF), have ignored official warnings to cut consumers' mobile phone bills.

The comment from Viviane Reding, the strong-minded top telephone regulator for the EU, that accompanied this announcement is worth hearing: "Mobile phone operators seem to have some difficulties in understanding my message," Reding told reporters. The initiative, she added, "will end international roaming charges as we know them today."

The European Commission, which enforces EU regulations for the 25-nation bloc, estimates that the roaming-charge slash will reduce consumer mobile-phone charges by 40 percent to 60 percent. Carrier profits from roaming fees could total as much as $12 billion a year.

One more note on the voice-call-pricing front: London-based network operator Interoute Communications Ltd. is launching what it calls "the first genuinely secure corporate VoIP service." Interoute's press release today states blandly that "This widespread move towards VoIP-based solutions is also set to impact the traditional business voice telephony revenues of the large incumbent telecom companies." It also cites a report from Analysys Research Ltd. that says 1.6 million corporate employees in Western Europe will replace their traditional fixed office phones and have only mobile handsets by 2010. (See Interoute Intros Corp VOIP.)

In other words, mobile phone service providers, in both Europe and North America, are seeing the same price curve that has completely disrupted the traditional landline phone business over the last 10 years: The per-minute price that operators can charge consumers and businesses is diving swiftly toward zero. The absurdity of per-minute cellphone pricing packages is already clear. It's just a model that the carriers can't pry themselves away from.

What this will mean for big mobile providers like Cingular and Verizon Wireless is not hard to figure out: upheaval and continued consolidation as carriers launch a host of new high-priced services, hoping something will stick. The ramifications for enterprise IT managers are less direct, but they should involve new bundled services from mobile carriers that include mobile email and other applications as well as low- to zero-cost VOIP and VOIP-over-wireless-LAN services. And it should continue to drive prices for enterprise telephony downward, meaning that budgets can stay flat while options and services multiply. Those welcome developments, however, will likely be accompanied by a degree of chaos and noise on the supplier side, as carriers scramble to recast their business models.

Bring a tub of popcorn and some earplugs. It should be quite a show.

— Richard Martin, Senior Editor, Unstrung

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