US opens new VoIP opportunities but Korea Telecom shows the way
Published: Thursday 11 November, 2004
As the US opens the way for unhampered roll-out of voice over IP, a major catalyst for hybrid cellular/Wi-Fi devices and services, South Korea is ahead of the game as usual. As it grants VoIP licenses, the experiences of operators like Korea Telecom will provide valuable lessons for western counterparts.
The US FCC has decided to free VoIP – wired or wireless – from many state and local regulations and taxes. It voted 5-0 in favor of VoIP service provider Vonage, which asked the agency to declare the company's product an interstate service, giving the FCC regulatory responsibility over most aspects of IP telephony. This will keep it exempt from most of the many state and municipal rules and taxes covering local telephony. (The ruling does not affect access charges to local phone operators for completing calls sent via the internet to the PSTN system.)
This is a major boost that is likely to force cellular operators to accelerate plans to provide dual-network services and, in the future, WiMAX voice. While these may cut into the ARPU and margin available when cellular was the only voice network available, the operators will now be under pressure to ensure that they at least keep the bulk of the less economically attractive Wi-Fi voice services out of the hands of rivals such as wireline telcos and cable operators.
However, there are many hurdles to overcome, despite the positive noises being made by carriers like Cingular, and the emergence of early dual-mode devices from Nokia and Motorola. Although the Yankee Group estimates that one-third of current mobile calls in the US are made within reach of a WLan, quality of service standards do not yet exist for Wi-Fi and therefore hotspots will not provide good voice experience.
The main attraction of VoIP is, of course, its low cost, but while telcos and other providers can absorb low voice rates by providing bundles that also include high value services, the model is less clear for cellular operators. Unlike wireline telcos, which have adjusted their strategies long ago to encompass low cost voice calls, the cellcos still charge a premium for the convenience of mobility, a premium that could be swept away by VoWi-Fi, with a dramatic effect on overall margins.
The carriers face many headaches before they can launch integrated networks. They need to be able to make a profit on the overall service, without making billing and tariffs more complex, a major turn-off for consumers. While, in areas where operators have sparse spectrum, Wi-Fi at least allows them to offload some voice and data traffic to IP and free up CDMA or GSM-based networks for higher value applications, this will be offset by the investment in the infrastructure and the inevitable technical hitches of the first year. With customer perceptions of cellcos low, such glitches could increase churn, negating what most providers see as the chief attraction of dual-mode – the ability to increase loyalty to the core network, as T-Mobile USA claims to have done by offering hotspot access bundled into some of its cellular plans.
Perhaps the most important short term attraction for cellcos, aside from the purely defensive one of offering wireless VoIP before someone else does, will be to accelerate the decline in use of landlines. In Germany, O2’s Genion plan, for instance, lets users set a ‘home zone’ of 500 meters in diameter, where calls are charged at very reduced rates – the aim being to lure users from landlines to the cellular-only network. Genion users provide the highest ARPU of any German operator and a business zone version has now been launched.
Such creative approaches, offering a combination of services, reasonable pricing and good call quality, as well as a simple billing approach, will be more important than sheer price fighting if the cellcos are see VoIP as a blessing rather than a threat.
In South Korea, four companies have now been approved to offer wired or wireless VoIP and some will go live as early as next month. These are Samsung Networks, Anyuser.Net, Great Human Software and Moohannet Korea, but the two major wireline carriers, Korea Telecom and Hanaro Telecom, will also launch services in mid-2005.
Both plan to implement IP services on wireless networks as well as wireline in order to move back into the wireless arena and address broader territories. KT, the world’s largest hotspot provider, plans to upgrade a large part of its network – about 16,000 hotspots – from 802.11b to 802.11g in the early part of next year.
It will also investigate the use of WiMAX to backhaul these faster hotspots in some areas where high speed wireline connections are not available, and will move rapidly to HPi or Wi-Bro, the mobile broadband wireless standard for South Korea, which is expected to be merged into the 802.16e mobile WiMAX effort.
From this month, KT will pilot its upgraded public WLan service, branded Nespot Swing, promising average data rates of 25Mbps. This will support applications such as interactive 3D games that are very heavily used in Korea, and will help transform hotspots into a wireless equivalent of the wildly popular internet gaming cafes of the country, as well as centers for voice calls. The first locations to be upgraded will be restaurants and cafes, universities and the usual business traveller venues.
KT is enthusiastic about broadband wireless, which it sees as a way to gain traction in the wireless world and steal revenue from cellcos such as SKT. However, analysis of the telco’s business plans show clearly that the real ROI from broadband wireless will come with the addition of both voice and mobility. Even if 802.16e and HPi do not converge, KT will have the advantage of the early start into mobility of the HPi technology, and could have commercial services available in a year’s time.
Without mobility, KT runs the risk of offering fixed WiMAX but cannibalizing existing revenues from DSL, in which it is dominant. Offering a more powerful upgrade path from Wi-Fi has greater ROI potential, but again, largely at the expense of KT’s own huge hotspot and home Wi-Fi network. But with mobility, it can not only support voice on the move and add high ARPU new services, but most of the revenue it steals will be at the expense of the cellcos.
Such calculations will increasingly drive wireline operators in many countries to leap on to mobile broadband wireless technologies with voice support – and, as a short term stopgap, the more limited functionality of voice and data supported on a hotspot network. The pure play cellcos will need to move aggressively to fend off such strategies.
Government officials predict Korea will complete its transition to IP-based telephony by 2010, while generating 5.3 trillion won ($4.6bn) in service revenue by then. IDC forecasts that Korea's IP-based telephone equipment market will grow to $226m by 2008.
According to the National Internet Development Agency (NIDA) of Korea, 40.2% of Korean cellphone owners use wireless internet regularly, up from 36.1% a year ago.
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Willie Trombone .... o8-) |
