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Optical/IP

Warning for Europe's VOIP Upstarts

Voice-over-IP service provider upstarts stand little hope of making inroads into Europe's consumer broadband market without being able to offer the access service as well, according to telecom consultancy Analysys (see Report: B'band VOIP is a Niche).

Despite the continuing strong growth of broadband penetration, the consultancy believes the European consumer market will not be fertile ground for the likes of Vonage Holdings Corp., and that it makes little commercial sense to offer voice-over-broadband services unless it is bundled with a high-speed access service.

Analysys predicts there will be 6.2 million users of voice-over-broadband services in the major Western European markets (France, Germany, Italy, Spain, Sweden, and the U.K.) in 2007 generating revenues of €1.3 billion. This will account for just 3 percent of the total voice market, with the greatest impact coming in the small business market. "The threat to mainstream voice is not apocalyptic," concludes principal analyst Rupert Wood.

The business case is particularly weak for "indirect" service providers that offer a service over another provider's broadband connection, says Wood. He says new entrants with this model will face massive customer acquisition costs, voice termination fees, and the prospect of having to offer the VOIP service at a very low price because of the existing inexpensive fixed-calls market in Europe. He cites Sweden's Digisip AB as an example of such a VOIP provider that has had "little impact on the market." [Ed. note: In fact, its Website seems to be down.]

This conflicts with Digisip's own projections for rampant growth in the near future. Last year, CEO Hans Eriksson predicted a 10- to 30-fold increase in traffic in the next three years.

Still, Woods adds that broadband penetration will not continue to rise at the current fast pace, with Analysys believing the market will reach saturation point once fewer than 40 percent of Western European households have a broadband connection. This leaves the indirect players with only part of the overall voice market to target, and only a limited portion of these customers will be interested in taking a VOIP service from an alternative provider, reckons Wood.

This puts Europe's national infrastructure owners, the incumbents such as BT Group plc (NYSE: BTY; London: BTA) and Deutsche Telekom AG (NYSE: DT), in the driver's seat, and these are the very companies that have a vested interest in minimizing the impact of VOIP on the voice market.

That won't stop those incumbents from launching services, though, "especially if it spoils the launch of a new entrant," says Wood. "Offense can sometimes be the best form of defense."

So with Vonage poised to launch in the U.K. in the coming months, BT's recent announcement of a residential broadband VOIP service, something it intends to replicate for the small business market, could be construed as a spoiling tactic (see BT Does VOIP – With Strings Attached).

Wood, though, says the likes of BT need to be careful about making VOIP look too attractive. Incumbents with legacy voice revenues to protect need to be careful about how much they are "legitimizing VOIP" and making "an extremely niche service more visible."

And while there's little chance of these indirect players making much impact on the market, there is greater potential for disruption to the voice market status quo from the likes of Skype, which Woods describes as a "DIY VOIP" player.

— Ray Le Maistre, International Editor, Boardwatch

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materialgirl 12/5/2012 | 2:14:00 AM
re: Warning for Europe's VOIP Upstarts Who paid for this "research", er uh "opinion"? This sounds like the MSFT-sponsored research by Forrester that said Linux had higher Total Cost of Ownership than MSFT.

No new technology copies the business model of the old. It is disruptive by its very nature. Perhaps they should read "Innovator's Delimma." Its only been out about 8 years now. VoIP is a classic disruptive technology. It will bring with it a new business model the incumbents cannot touch. These estimates are baloney.
dljvjbsl 12/5/2012 | 2:13:50 AM
re: Warning for Europe's VOIP Upstarts I agree that the toll bypass rationale for VoIP is very very very weak. However there is much more that VoIP can do beyond this.

technonerd 12/5/2012 | 2:13:50 AM
re: Warning for Europe's VOIP Upstarts L.D. rates are damn close to being so low that no one cares what they pay, at least on the residential side. I don't see what opportunity exists for cut-rate L.D. providers (i.e., VoIP) in such an environment. Some niches, like international toll arbitrage, will continue to exist. But not mass-market domestic or regional service.
dljvjbsl 12/5/2012 | 2:13:49 AM
re: Warning for Europe's VOIP Upstarts VoIP's worst enemies are the vendors who are trying to sell it by replicating TDM features. Most of these features ahve little meaning with the type of connectivty that a packet-based system can create.
technonerd 12/5/2012 | 2:13:46 AM
re: Warning for Europe's VOIP Upstarts I agree that the toll bypass rationale for VoIP is very very very weak. However there is much more that VoIP can do beyond this.
Such as? And don't do the usual high hoo-hah crap in which the alleged new services aren't defined but rather described in general terms ("new forms of collaboration!") and promoted to the sky(pe). Rather, tell us specifically and exactly what these unique new services are.
technonerd 12/5/2012 | 2:13:46 AM
re: Warning for Europe's VOIP Upstarts I agree that the toll bypass rationale for VoIP is very very very weak. However there is much more that VoIP can do beyond this.
Such as? And don't do the usual high hoo-hah crap here that describes the promotes the alleged new services. Rather, tell us specifically and exactly what these unique new services are.
SemiconductorMan 12/5/2012 | 2:13:29 AM
re: Warning for Europe's VOIP Upstarts the prices that Long distance and VOIP costs. I can't see how it would not be more affordable to use VOIP.
aswath 12/5/2012 | 2:13:02 AM
re: Warning for Europe's VOIP Upstarts ...there is much more that VoIP can do beyond this.
...tell us specifically and exactly what these unique new services are.

My take is slightly different. Granting that there is more to VoIP, it is not clear that service providers are needed. Can't the end-points realize these features on their own?
sgan201 12/5/2012 | 2:12:59 AM
re: Warning for Europe's VOIP Upstarts Hi,
You are assuming the LD rate of other country is the same as USA. Which is not necessary true.. There are people in Australia now that get a USA phone number by VoIP and make International calls to Australia to bypass LD calls within Australia.. It turns out that the LD call in Australia is so high that it is cheaper to make internatiol call from USA to Australia. Ditto for quite a few countries in Asia.

If the European and Asian countries has the same kind LD rate, people might just subscribe to USA VoIP service that provide unlimited call to either Europe or Asia.

Dreamer
technonerd 12/5/2012 | 2:12:59 AM
re: Warning for Europe's VOIP Upstarts Granting that there is more to VoIP, it is not clear that service providers are needed. Can't the end-points realize these features on their own?
So ... how will the packets get from one point to another?
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