Report: B'band VOIP is a Niche

CAMBRIDGE, U.K. -- New retail voice over broadband (VoBB) services will struggle to establish themselves and win a substantial share of the Western European voice market, according to a new report, The Impact of Voice over Broadband: forecasts for Western Europe, from Analysys, the global advisers on telecoms, IT and media.

"New and old players must not assume that the experience of non-European VoBB providers can simply be transplanted on to the specific features of the European telecoms landscape," warns Rupert Wood, author of the report. "Not only does broadband penetration remain stubbornly low in Europe compared with North America, Japan and South Korea, but broadband access continues to be dominated by operators that have a natural interest in minimising the effects of VoBB. This, coupled with a competitive and generally low-priced fixed calls market, limits the opportunity for VoBB."

Of the competing business models in retail VoBB, Analysys forecasts that the direct access model, where calls are sold with Internet access, will have the most success, and that indirect access will be squeezed. "Those providing access and calls have the flexibility to offer attractive bundles to existing customers," says Wood, "whereas high customer acquisition costs, plus termination charges and an already competitive calls market mean that the indirect access VoBB players may have little room for manoeuvre." The report also argues that DIY VoIP should not be lightly dismissed by telecoms operators, and that the long-term disruptive potential to operators of closed-user-group voice applications is high.

The report forecasts that VoBB spend in the residential and small business markets in Western Europe will grow to around EUR1.3 billion in 2007, with slightly greater impact being felt in the small business segment. "The threat to mainstream voice," argues Wood, "is not apocalyptic. This means that as major operators, including incumbents, launch broadband voice services to counter the threat from new players, they should carefully weigh up the risks of legitimising broadband voice and making an otherwise niche service more visible."

The report does argue, however, that if retail VoBB does not precipitate a damaging voice price war, this gives room for major operators to dovetail their retail IP communications strategies more closely with their core network migration strategies, and to treat VoBB not simply as cheap voice but as the first stage in the development of new broadband-based person-to-person communications services.

Analysys Research Ltd.