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Euro Telcoms Brace For VoIP Race

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Reuters Summit-Operators Brace for 'Voice Over Internet' Race

May 27, 2005

By Astrid Wendlandt and Santosh Menon

PARIS (Reuters) - Sooner or later, most phone calls will be made over the Internet, telecoms executives predicted this week.

But while the transition will be a boon for consumers, who will save money, it will be bane for telecoms operators, who will be forced to lower prices and change their business models.

"Phone companies probably wish Voip (voice over Internet protocol) never came about," Mike Fries, chief executive of UnitedGlobalCom, Europe's biggest cable operator, said at the Reuters Telecoms, Media and Technology Summit in Paris on Wednesday.

"Today, they have the choice between lowering their prices or launching their own Voip service, and I am sure they would rather not be in this situation."

Voip breaks voice traffic into fast-moving packets that can be sent over the Internet in the same way as e-mails. It allows less expensive calling than traditional phone services, because it does not require a dedicated circuit for each connection.

Several European telecoms groups, including Deutsche Telekom, France Telecom, Swisscom and BT Group, have already started adopting Voip to retain customers and stop haemorrhaging revenue.

But they lag top Nordic telecoms operator TeliaSonera, which has been using Voip for years.

"(VoIP) is the ingredient of success for the future," Anders Igel, TeliaSonera's chief executive, said at the Reuters Summit on Thursday.

"We will see many business models," Igel said. "I think prices will go down in some cases but volume will increase ... It is too early to say what the net impact will be."


Some analysts believe that Voip will hurt telecoms operators.

Research firm Evalueserve estimates that, by 2008, Voip will cut profit by least 22 to 26 percent at established telecoms operators that offer fixed and mobile phone services, while their revenue will be trimmed by at least 5 percent.

Some analysts also predict that telecoms operators' business models will move from charging by the minute to a flat, all-inclusive monthly subscription fee.

Operators would seek to increase subscription rates, they said, by adding new services such as pay-TV, interactive TV and games.

Increasingly, customers are deserting standard phone lines for VoIP, using services such as Skype and Vonage.

Skype provides free software that lets users call anywhere in the world for free or at very little cost via the Internet. Just two years after its launch, it has accumulated 39 million users -- equivalent to the population of Spain -- without any advertising of its own.

Vonage, on the other hand, is a subscription-based service that relies on the Internet for only part of its traffic and offers a much wider range of services than Skype.

After rapid growth in its home U.S. market, Vonage launched a service in Britain this year and is planning to expand further in Europe soon.


Cable operators have also joined the Voip fray.

UnitedGlobalCom, Europe's biggest cable operator, started offering Voip in Hungary and Holland at the end of 2004 and in France this month, and is planning to expand elswhere in Europe later this year.

"To be competitive, phone companies have to offer VoIP," UnitedGlobalCom head Fries said.

Telecoms executives predict the next big step will be applying Voip to wireless communications.

Efforts already under way to integrate mobile and fixed networks, to allow users to move seamlessly between the two, will help prepare the ground for VoIP's arrival in mobile phones.

"We are working on our network to put everything on IP," Frank Esser, chief executive of SFR, France's second-largest mobile phone operator, said at the Reuters summit on Thursday.

He expected the technology for wireless Voip to be ready by 2007.

But other operators, such as UK-based Vodafone, the world's largest mobile phone company by revenue, are not sure what they will do with VoIP.

"Do we need to promote a technology such as voice over IP or do we compete simply by changing the price model? ... We have not decided yet," Vodafone Chief Technology Officer Thomas Geitner said at the Reuters summit on Thursday.

"It is not a question for today. It will be a question for a year from now," Geitner added.

Vodafone holds a 44 percent stake in SFR, while French media group Vivendi Universal controls the mobile operator with a 56 percent holding.

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†AK and HI residents pay $29.95 shipping. ††Limited time offer. Valid for residents of the United States (&DC), 18 years or older, who open new accounts. Offer good while supplies last and only on new account activations. One kit per account/household. Offer cannot be combined with any other discounts, promotions or plans and is not applicable to past purchases. Good while supplies last. Allow up to 2 weeks for shipping. Other restrictions may apply.

1Unlimited calling and other services for all residential plans are based on normal residential, personal, non-commercial use. A combination of factors is used to determine abnormal use, including but not limited to: the number of unique numbers called, calls forwarded, minutes used and other factors. Subject to our Reasonable Use Policy and Terms of Service.

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HIGH SPEED INTERNET REQUIRED. †VALID FOR NEW LINES ONLY. RATES EXCLUDE INTERNET SERVICE, SURCHARGES, FEES AND TAXES. DEVICE MAY BE REFURBISHED. If you subscribe to plans with monthly minutes allotments, all call minutes placed from both from your home and registered ExtensionsTM phones will count toward your monthly minutes allotment. ExtensionsTM calls made from mobiles use airtime and may incur surcharges, depending on your mobile plan. Alarms, TTY and other systems may not be compatible. Vonage 911 service operates differently than traditional 911. See for details.

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