Besiegen by VoIP: VoIP has taken a tiny toehold in the voice market, but it's on every carrier's radar. The battle for voice could be the biggest battle of all

Telecom Asia, Dec, 2004 by Robert Clark

"[IT]heir available resources dwarf even the largest of the alternative VoIP providers," said Griffin. "The local VoIP market is already crowded with more than a dozen players vying for local consumers."

JupiterResearch senior analyst Joe Laszlo said new VoIP players would be important in jump-starting the market, but it was "unlikely that start-up VoIP providers will become a significant threat to the incumbent phone companies."

But if there's one market that is going to test just how much value VoIP can bring to consumers, it has to be Hong Kong. Five main fixed-line service providers--four of which have built out extensive access networks--have brought VoIP offerings to the market.

CTI, an aggressive IDD player, kicked off the competition in August, offering service at 20% below incumbent PCCW's monthly subscription. "We are doing what Skype is doing, " said corporate development director NiQ Lai.

Since then other challengers have joined the battle, offering monthly subscriptions, including unlimited local calls, at prices as low HK$39 ($5.01).

"Hong Kong is going to lead the region if not the world in how this plays out," said Caspari of Cisco. "Plenty of other markets in the world are offering these services, but no one is offering all these at the moment."

The cellular challenge

The startling aspect about all of this activity is that it is focused almost entirely on the local phone service. Only one provider is bundling IDD, and that's with a videoconferencing service. "Rates for IDD are so low, and quality is better, there is no incentive to change to VoIP," said Tony Cheung, vice president consumer market for Wharf T&T.

So it's a battle to see what combination works: voice and data bundies, voice and video, low local calling rates, free premiums such as fridges and PCs, or value-adds like a free phone for an overseas member of the family.

"We believe IP is the growth driver. IP will not only bring about cost savings, but the capability to launch applications and content," said William Kwan, COO of New World Telecom. "The real challenge is to find the right mix of services."

And all this before the incumbent, which is now litigating against CTI (see "Challenging the rules", p. xx), enters the market.

But the punch line for VoIP players could be that their real rival is not each other, or even the incumbent, but the fastest-growing part of the voice business: cellular.

"For attracting young adults, VoIP's biggest competitor may prove to be mobile operators, not the Bell companies," warns JupiterResearch's Laszlo. He recommends that VolP providers offer plans for consumers seeking only a low-use back-up to their mobile.

The huge bundles of cheap minutes offered already by 3G operators point to the fierce contest ahead for the voice dollar, Ovum's Main points out. The future voice market will be a battle between hungry 3G players, aggressive VoIP startups and incumbents stoutly defending their patch.

"It's something of a land grab right now," says Main. In a few years will be the inevitable shakeout. Incumbents are accustomed to challenges to their market. With mobiles on one side and VoIP operators on the other side, the battle for voice could be the biggest battle of all.