CAMBRIDGE, U.K. -- A two-speed Europe for retail VoIP services is emerging, with France, Italy and Sweden leading the way and the UK at the back of the pack, according to a new report, Retail VoIP in Western Europe: forecasts 2005-2010, published by Analysys, the global advisers on telecoms, IT and media.

A complex set of factors will influence the development of the retail VoIP market. Significant discrepancies in the level of POTS (plain old telephony service) pricing between country markets and equally significant differences in the competitive landscape for broadband have created a patchwork landscape in which retail VoIP has gained a foothold.

“Launch of retail VoIP services and take-up of those services has so far been strong in some European markets while nearly non-existent in others,” says Dr Rupert Wood, author of the report. The report predicts that by 2010, retail residential VoIP will capture 27% of fixed minutes in Sweden, 24% in France and 23% in Italy, but only 9% in the UK. Wood explains, “Mass-market local loop unbundling has provided a real spur to retail VoIP, but in many markets broadband is dominated by players with a vested interest in preserving traditional voice. Where the voice market is already highly competitive, smaller ISPs and pure-play VoIP service providers will find they have very little room to price competitively while covering their costs.” As the report shows, despite the high-profile VoIP service launches across Europe, competitive POTS is still frequently cheaper than VoIP.

From the end-customer point of view, retail VoIP is simply another form of fixed voice. The report points out that levels of usage of VoIP will be held back by – what is in the final analysis – a declining market. Even in countries such as France and Italy, where broadband usage is well penetrated by VoIP, retail VoIP may account for as little as 11% of all voice minutes because fixed–mobile substitution is already well advanced there. On the other hand, countries such as Sweden (where fixed–mobile substitution has had relatively little effect) may see retail VoIP capture 22% of all minutes.

The report also shows how incumbents’ response to retail VoIP will affect its popularity. Some incumbents will have little option but to enter a retail VoIP market or dramatically cut POTS prices. Others subject to less intense immediate competition will bank on the transformation of their core network to VoIP to deliver huge savings in operating costs and hence a competitive advantage. “One factor that could dramatically affect VoIP take-up is naked DSL, namely the supply of either wholesale or retail DSL by an incumbent without a POTS charge and service,” continues Wood, “but without regulatory pressure, most incumbents will strongly resist naked DSL.”

Analysys Research Ltd.