VoLTE: It's Not Just About Voice
Spectrum re-farming and spectrum utilization to support the massive growth in data traffic is the primary factor that justifies the business case for voice-over-LTE (VoLTE). Longer term, however, the impact of VoLTE on operator networks and business models will be profound.
In the short term, while there are important benefits to VoLTE from a services perspective, most notably high definition or HD voice, it's unlikely there will be direct incremental revenues to operators as a result of VoLTE services. That is, operators will not be able to charge more for VoLTE or HD voice. Voice quality, however, is an important determinant for customer churn. VoLTE and HD voice can further prompt mobile operators to develop and market communications services and applications targeted at the enterprise market. These services often generate higher revenues with higher value customers who are less likely to churn.
VoLTE video calling or ViLTE services will help to stem the movement to OTT services like Apple Inc. (Nasdaq: AAPL)'s FaceTime -- especially if there is interoperability across carriers -- and the incremental data usage may push consumers into higher tiers of service. Although OTT services generate considerable data traffic in their own right.
As mentioned above, VoLTE's primary importance to operators in the near term is about spectrum re-farming and spectrum utilization to support the massive growth in data traffic. By having both voice and data traffic reside on the same radio spectrum, operators can convert their legacy GSM- and WCDMA-based spectrum bands -- and network infrastructure -- to LTE, which is perhaps 40% more spectrally efficient.
The launch of Apple's iPhone 6 in September 2014 fully legitimized VoLTE and prompted many operators to solidify their deployment plans for VoLTE and, as a result, IMS. Also spurred in large part by the introduction of the iPhone 6, operators are increasingly investing in voice-over-WiFi (VoWiFi) as a way to differentiate their service offerings and to improve coverage and voice quality in homes.
As wireless voice core networks transition to IMS driven by VoLTE, VoLTE will act as an anchor tenant or application for operators' IMS networks and then other applications including wireline services, and services based on RCS and WebRTC, will be gradually added to the IMS core network. These new technologies will help mobile operators to deploy web-scale applications and services to better compete against the OTT players.
Another key potential benefit of an IMS within operator networks is "openness." IMS and NFV architectures will enable operators to provide the application developer community open application programming interfaces (APIs) so that they can efficiently develop apps that can take advantage of the services that networks operators provide, including voice, messaging and video. This will allow network operators to start to monetize network traffic that would otherwise be purely over-the-top and will allow app developers faster time to market and a better experience for their end users.
Thus far much of the investment and subscriber uptake in VoLTE has been in North America, Japan and South Korea. And in these regions, operators are just beginning to introduce VoLTE roaming, which should further spur migration in the coming years. So we are still at the very early stages for VoLTE and its effect on operator investments.
As more and more wireless operators prepare their networks for VoLTE, voice-over-WiFi (VoWiFi), RCS and other services enabled by an IMS core network, Exact Ventures forecasts that the overall market for IMS core networking equipment (consisting of the CSCF, HSS and Application Server) will grow by 30% in 2016 to reach $3 billion. We expect that wireless/VoLTE-related investments will account for nearly 80% of the market in 2016 and will grow by an average of 27% through 2020.
Wireline and cable operators will also continue to invest in IMS as a means of modernizing their core networks, many of which are decades old, so that they can deploy OTT-like services.
— Greg Collins, Founder, Exact Ventures