By Jakob Sand, BDO
Telecoms companies all over the world are busy rolling out their Voice over 4G LTE technology, also known as VoLTE.
For telecoms, VoLTE kills two birds with one stone by lowering their costs as well as giving them the means to offer higher quality and new services to end consumers. It also looks likely that telecoms are getting ready to lob VoLTE in the general direction of some of their newest competitors.
“One of the things that VoLTE does is that it puts the Voice over IP applications like Skype, Google Hangouts and Viber squarely in the crosshairs of the telecoms,” IDC’s Telecom Industry Analyst Rosalind Craven says. “VoLTE gives seamless integration of voice and video calls and can provide a higher quality alternative to these services.
“While it is difficult to know whether telecoms are also willing to compete with the VoIP services on price, it does lead to an interesting confrontation.”
The stakes of the confrontation could, in other words, be as high as the future of voice and video messaging.
Recent bad memories could be set for repeat
For the telecoms, there are plenty of reasons to take on the newcomers.
A report from the telecoms and media research company, Ovum predicts that telecommunications providers stand to lose a combined $386 billion of the so-called over-the-top (OTT) voice over IP (VoIP) services.
To put it into perspective, they stand to lose more than the entire annual GDP of the likes of Hong Kong, Austria or Norway. At the same time, we are spending more and more time on voice and video calls – just not using the services provided by the telecoms, who are also still smarting from their last lesson in what disruptive technologies can mean to your bottom line.
SMS-services became so ubiquitous that texting abbreviations like LOL ended up in the dictionary. For a while, telecoms were laughing all the way to the bank, as text messages generated massive revenue. Then WhatsApp and similar applications happened, and telecoms went from LOL to OMG in just a few years.
Today, 90 percent of text messaging in Mexico happens via Facebook’s $19 billion acquisition of WhatsApp. In The Netherlands, texting has dropped to a level where the carrier Royal KPN NV has simply stopped offering free texts as part of its bundle deals. Telecoms have seen the revenue from texting dry up.
Telecoms have to be worried that OTT services will do the same to voice calls, and are now pushing back by using almost a weapon that is similar to those that have been deployed against them.
Telcos turning to slicing and dicing
Voices in the industry are very aware of what is happening. Vodafone, for example, had the following to say in its 2014 annual report:
“Mobile voice and texts, our traditional revenue sources, have reached maturity in a number of markets. To deliver future growth opportunities, we are investing in newer revenue areas such as data. Between 2013 and 2017 data revenue for the telecommunications sector is set to grow by US$128 billion.”
In other words, data is key. Even if telecoms would like to be more than data providers it will be at the centre of almost all the do in the coming years - including the new VoLTE service, which revolves around the chopping and dicing of data.
While Voice over IP (VoIP) and Voice over LTE (VoLTE) both work by chopping up your message and sending it in data packages, they differ in a way that looks likely to give telecoms an edge.
VoIP provides communication at much lower costs than those associated with traditional switch-based phones, but it does have some issues.
One is that a VoIP connection is not entirely stable, and that there is no guarantee of the packages being correctly sequenced. This means that there is a risk of the connection failing / being unstable, and that the quality of the call can vary.
VoLTE also chops your call into small data packets, but these are sent through the so-called IP Multimedia Subsystem (IMS). Figuratively speaking, the IMS functions like a smaller pipe running inside the main data pipelines. It is dedicated to transport data from things like phone calls and video messages, which means that there is much less risk of your message becoming ‘diluted’ or packets being lost than is the case with VoIP.
The result is better call quality and, once the system has been fully deployed and passed its initial teething problems, a more stable connection. At the same time, the increased data stability and capacity gives telecoms an opportunity to offer a whole new range of augmented services to their customers.
Customers can attach specific text messages to a phone call, so the person on the receiving end would not only see what number was calling but would also be able to see an accompanying text message that could read something like ‘I just need a quick confirmation about the meeting’ or ‘it’s about dinner’.
There would be the option of switching seamlessly between video and voice calling – and both at a much higher quality than currently available through OTT VoIP applications. You will also be able to share content and data during a call, like sharing your location, some directions, an interesting item on eBay – basically anything goes.
The list of new services is still growing, and these are some of the features that telecoms are hoping will have customers choosing their products.
Jakob is a Partner at BDO in Denmark and Leader of BDO’s global Technology M&A team. Jakob works with colleagues in over 150 markets around the world to provide advice on the strategy and tactics of acquisition.
Return tomorrow to read part two of Jakob’s feature on the influence of VoLTE, where he discusses whether the trend will lead to an M&A spree!