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Mobile VoIP evolution & VoIPo3G Business Models
Disruptive Analysis, Nov 2007
Forecasts & scenarios for wide-area wireless VoIP for mobile operators & their challengers.
Predicting that the number of VoIPo3G users could grow from virtually zero at the beginning of 2007 to over 250m by the end of 2012. This is comfortably in excess of the number of VoWLAN users with dual-mode phones, although it will still represent fewer than 10% of all global mobile subscribers (c3.5bn). Most of these users will be using mobile carriers’ own VoIP capabilities, over advanced 3G+ networks, but a significant minority of about 60m will be using independent or Internet-based solutions, often operated through a variety of partnership models. Most VoIPo3G users will also still be using circuitswitched telephony for some of their traffic, when out of suitable network coverage.
Using 3G networks for VoIP is inevitable. Future generations of wireless technology – LTE, UMB, WiMAX – are all-IP, so unless mobile operators continue to run separate voice networks in parallel, they will have to transition to VoIP eventually. But these radio technologies are 3-5 years away from mainstream deployment, and in the interim, the situation is much less clear. Today’s 3G networks can already support VoIP, albeit often without the quality, efficiency and reliability of circuit-switched telephony. Some independent VoIP players are already exploiting this, by putting dedicated software on smartphones linked to non-operator services. At the same time, there is an increasing trend of carriers marketing 3G modems for PCs – not just for mobile computing, but also to compete with DSL/cable broadband offerings. Laptop users will expect to be able to use their normal broadband applications, including voice-based ones like Skype.
Mobile operators generally wait for standardised, fully-optimised technologies to become available before large-scale deployment. For CDMA carriers, telco-grade VoIP should be available relatively soon, as EV-DO Rev A has long had packet voice ‘designed-in’ as an expected primary usage case. Most of the larger CDMA operators also have the luxury of very tight control of their handset architecture, enabling homogenous software and chipsets to be rolled out quite quickly. There is also latent demand for VoIPo3G-based push-to-talk, especially in the US, which should help ease the path towards full CDMA IP telephony, which will come at a later stage.
Conversely, beliefs that 3GPP operators with UMTS networks face some serious challenges. The current newest variant, HSPA, was not originally designed with VoIP in mind as a core usage case. Although it is voice-capable, it is not voice-optimised, unless all its numerous add-on options are actually implemented – which is not the case in most existing deployments. The next, more VoIP-centric generations HSPA+ and LTE are still several years away, and sometimes dependent upon new spectrum allocations. Operators are also unlikely to want to risk rolling out a complex new radio network (LTE) and transitioning their core telephony service to VoIP at the same time. Furthermore, while the standards bodies have created “IMS multimedia telephony” as an enhanced service, they have neglected to develop ‘plain vanilla VoIP’ as a mobile-centric application so far. To gain some pre-LTE experience of packet voice, carriers will therefore be forced towards pre-standard or proprietary approaches, with attendant risks such as limited handset range or poor interoperability.
On the independent ‘challenger’ VoIPo3G side of the equation, the situation is also polarised – it is generally the HSPA networks which have a growing proportion of users with ‘open’ smartphones capable of supporting 3rd-party VoIP, as well as growing numbers of 3G-enabled laptop subscribers expecting unrestricted Internet application usage. Also, high levels of competition in many HSPA markets are driving down data charges towards flatrate, and this together with technical limitations and regulatory oversight are likely to limit carriers’ attempts to block or differentially charge for ‘off-portal’ VoIP traffic. Again, the situation in the CDMA world is rather different, as there are far fewer fully-open smartphones, and handsets are often heavily operator-customised. Nevertheless, in some CDMA markets like the US there is also a regulatory and market push towards device and application openness, as evidenced by the FCC’s rules for the 700MHz auction and Sprint’s WiMAX plans.
At the same time, another background trend is emerging, exploitable by both carriers and independent players. VoIP is no longer just about normal, Person A calls Person B telephony. A wide range of ‘non-telephony VoIP’ usage cases is emerging that should further stimulate adoption, even by reticent carriers. The most high-profile are probably push-to-talk, voice-enhanced IM, and various forms of videotelephony. But less well-known but potentially more interesting are those that embed voice inside another application, perhaps using ‘context’ information about the user or the device. These VoIP ‘mashups’ can range from consumer use cases such as in-game playerto- player conversations or voice plug-ins to FaceBook, through to corporate applications such as remote dictaphones or the embedding of real conversations into enterprise systems like SAP. VoIPo3G phone calls can also be encrypted in realtime.
There is beliefs there is an argument for HSPA operators to partner with the independent software and Internet VoIP players. They need a way to get their own foothold in VoIPo3G; they cannot afford to sit back and allow their competitors to exploit a 3-4 year window of opportunity unchallenged. They also need a way to gain experience of VoIP before LTE rollout, and get exposure to the new voice mashup trend. In return, independent VoIP companies need operators’ scale in device distribution, service management and marketing: many mobile users shy away from downloading 3rd-party applications to their phones and self-configuring them.
Partnership models of various types represent a potential win-win, pre-loading and pre-configuring VoIP applications so that they are usable when the customer leaves the shop. This can drive uptake (or upgrade) of data plans and enable a variety of ‘smart pipe’ business models. The recent 3 / Skype deal is an early example of this general philosophy, although in its current version it does not involve VoIPo3G yet.
For CDMA operators, the VoIPo3G rationale and roadmap is somewhat different. They are on track for VoIP readiness anyway, and are likely to be aggressive with their own deployments, starting with large-scale 3G-based push-to-talk. Some like KDDI and Verizon are also aiming for all-IP core networks and FMC VoIP applications, spanning both their mobile operations and fixed business units.
Overall, the tracks of CDMA and UMTS worlds - and of carriers and ‘over the top’ independent providers - are actually converging. End-to-end VoIP is becoming mainstream in the fixed world, and is creeping into wireless though VoWLAN. Over the next five years VoIP will start its migration to wide area mobility. It is likely to be at least 2015 before a majority of cellular voice minutes are based on VoIPo3G or VoIPo4G, but the next few years will set the scene for how the eventual transition ill occur. Most of the 255m user base of VoIPo3G in 2012 will still use circuit voice as well – but the ways in which they purchase and use early mobile VoIP will define the shape of future value chains and mobile operator strategies.
VoIPo3G brings significant opportunities and challenges for incumbent operators, VoIP specialists and their suppliers. Circuit-switched mobile telephony is mature, reliable, ubiquitous and getting progressively cheaper. There is no appetite for arbitrarily moving to packet voice – there needs to be upside, as its introduction will inevitably bring new complexities, upfront costs and long learning curves. For mobile operators, there are a number of motives for adopting VoIPo3G, which vary according to geography, technology preference (eg CDMA vs. GSM/UMTS), and market position.
Among the most important are:
- Desire to squeeze more voice and data traffic into a given slice of spectrum. Future all-IP radio networks promise significant gains in efficiency.
- Moving to an all-IP core network, especially where a converged carrier can share it between fixed and mobile arms, reducing both capex and opex.
- Enabling new IP voice services like PTT, “high-definition” voice, multimedia telephony, mashups with social networks or other server-based applications.
- Competing with fixed-broadband players for provision of Internet access (and enhanced communications services) to PC users, via 3G modems or integrated laptops. Voice forms part of users’ expectations of the broadband Internet experience – mobile access needs to support this to be competitive.
- Eventually, switching off older and less-efficient mobile networks like GSM, reusing spectrum for 3G or 4G. For this to occur, late-massmarket users will need to be offered ‘ordinary mobile VoIP with an identical user experience to today’s cellular telephony, supporting capabilities like prepaid tariffs and SMS.
- The opportunity to offer innovative wholesale products, going beyond simple MVNO models towards ‘capability exposure’ and the provision of mobile VoIP functions through platforms such as web services gateways.
- The perceived need to compete with WiMAX operators’ VoIP services.
For independent VoIP players, the situation is different, and motivations include:
- Desire to offer true wide-area mobile VoIP, either to enable new services like voice-enhanced IM, or to offer competing ‘over the top’ telephony services to subscribers though tariff or interconnection arbitrage.
- Providers need to complement (or replace) VoWLAN-based services, which is only usable from a small proportion of handsets, and in select locations.
- Extension of existing Internet-based voice services or corporate IP telephony into the mobile domain, without loss of functionality.
- Exploiting a growing base of smartphones and PCs with flatrate data plans.
- Exploring the possibilities of building communities or social networks on top of a base of active VoIP usage.
- Development of innovative concepts around voice mashups and nontelephony VoIP, such as player-to-player communications in mobile gaming, voice plug-ins for FaceBook, encrypted voice, or corporate applications.
In some cases, there are alternative approaches to using VoIPo3G – for example, using ordinary circuit mobile telephony (and a user’s ‘free’ minutes) for ‘call through’ services via a VoIP gateway. While these may be easier or cheaper in the short term, beliefs that the evolution of networks, handsets and applications will shift the balance over time.
CDMA and UMTS roadmaps for VoIPo3G The report highlights some important differences between the timelines and development paths for VoIPo3G in CDMA and UMTS networks. Generally, the CDMA community is better-positioned for early rollout of operator-controlled VoIP. By contrast, UMTS providers will need to contend with later availability of full, standardsbased end-to-end mobile VoIP, as well as much stiffer competition from insurgent 3rd- party competitors while they are waiting.
The development of CDMA from EV-DO Revision A onwards has been tightly coupled with the expected requirements of some major existing operators – especially Verizon Wireless, SprintNextel and KDDI. The North American operators in particular have a large existing market for push-to-talk services to migrate to VoIP, that can form the foundation of the early stages of the VoIPo3G business case. PTT is less demanding than full telephony VoIP and provides both a stepping-stone, and part of the rationale for having ‘designed in’ VoIP to the Rev A standards at an early stage.
The largest CDMA operators are also all within converged fixed/wireless groups, typically with advanced strategies for FMC and deployment of a single IP core network. While acceptance of IMS is high, the larger operators all have the will and resources to tune and customise it for applications like VoIP, even if this means creating proprietary architectures. Furthermore, the CDMA handset market is highly operator-controlled, with Qualcomm dominating the semiconductor platforms, meaning that VoIP software and components like codecs should be comparatively easy to push through to massmarket devices. There are also far fewer ‘open’ smartphones capable of accepting downloaded aftermarket VoIP clients, largely reflecting the absence of Nokia and Symbian, and the more ‘locked-down’ nature of platforms like Qualcomm’s BREW.
What this means is that on CDMA networks, there is only a limited window for competitive VoIPo3G providers before full carrier-grade service rolls out, as well a smaller population of host devices. The threat from over-the-top mobile VoIP is relatively limited, although it will still be important among some groups of users, especially on laptops.
Compared with this, the 3GPP-centric operators have a number of problems:
- The current generation of HSPA technology was designed without VoIP as a major expected use case for operators. Most networks are being implemented in a fashion that is acceptable for small, independent VoIPo3G startups – but not for full, large-scale carrier-grade VoIP.
- HSPA+ and LTE networks will support VoIP better, but are still some years off deployment, especially LTE.
- Although most HSPA operators are loyally compliant to industry standards, most are yet to deploy IMS core networks.
- Current expectations are for a new standard called IMS Multimedia Telephony to be used to support a variety of person-to-person communications, with ordinary voice telephony as a ‘special case’. Thoughts thinks that it is a serious mistake not to have also created a simpler standard for optimised ‘plain vanilla’ mobile VoIP.
- Many HSPA operators have had little success with new 3G services except mobile Internet access, particularly for laptops and smartphones. This makes it hard to justify VoIP-unfriendly terms of service, that may run counter to users’ reasonable expectations from a broadband service.
- Nokia’s huge market presence is driving large volumes of VoIP-capable open smartphones into the user base, some with built-in VoIP software usable over both WiFi and 3G. Other vendors like HTC, SonyEricsson and Motorola are also selling phones with ‘naked SIP’ and open OS’s which could support VoIPo3G.
- Local regulatory regimes, in many GSM/UMTS markets, involving mobile interconnection fees and separate mobile number ranges are making 3rd
party VoIPo3G business models more attractive.
This is creating a serious problem for current HSPA operators. There is an approximately 3-year wide ‘window’ between their networks being suitable for independent, reasonably high-quality VoIP services, and the general availability of comparable operator-grade offers. There is also a much greater penetration of suitable, open VoIP-capable devices. In addition, many will be hesitant to risk deploying LTE and their first use of mobile VoIP at the same time, given likely interdependencies that will make optimisation more complex. Other believes that they will need some form of pre-LTE VoIP experience, either with HSPA+ or through partnerships with the independent “over the top” providers.
Market analysis & forecasts
The report includes highly detailed forecasts of the future VoIPo3G user base. The Market Analysis chapter goes through a step-by-step methodology assessing the addressable market, considering suitable network technologies, the prevalence of capable devices, and the various VoIP usage scenarios. The assumptions underlying the model are considered in depth.
At the end of 2007, there is a small number of existing active VoIPo3G users, including some early operator deployments of 3G-based push-to-talk, plus a growing number of smartphone users with software like Fring, Truphone or Yeigo. A number of operators are also trialling pre-standard VoIP clients on phones. The second half of 2007 has also seen a rapid uptick in the use of 3G-connected laptops, including propositions for consumer broadband aimed as an ADSL/cable alternative. The early years of VoIPo3G will have a significant baseline of PC-based usage.
Expect the user base to increase rapidly over the next 5 years, topping 250m by 2012. This involves a wide range of underlying assumptions, such as rollout schedules for UMB and LTE networks. If these are delayed materially, the ramp-up in users will be pushed out to the right, as by the end of the forecast period, the expectation is that operator-based VoIPo3G will be dominant.
Highlights
- The use of VoIP over 3G networks is inevitable in the medium term, as cellular operators move towards future all-IP systems like LTE & UMB.
- There are multiple scenarios for interim short-term deployment of VoIPo3G before that point, both for operators and independent VoIP specialists.
- Operators will deploy VoIP to improve voice capacity, gain synergies from FMC networks and counter competition from WiMAX or other VoIP providers.
- VoIPo3G will be more important than VoWLAN, for operators and 3rd parties.
- Forecasts 255m active VoIPo3G users worldwide by the end of 2012, dominated by mobile operators’ own 3.5G+ voice services.
- Despite this growth, penetration will still be below 10% of total global mobile subscribers (c3.5bn), and around 20% of all 3G+ users (1.3bn), by 2012.
- The main variable which could slow the forecast growth in VoIPo3G adoption is any delay in rollout of LTE and UMB networks by carriers.
- Even where VoIPo3G is deployed, circuit voice will still endure for years. Few users will see all their voice traffic transfer to IP; handovers will be critical.
- CDMA operators face fewer threats from independent VoIPo3G than their HSPA carrier peers. Carrier VoIP is designed-in from EVDO Rev A onwards.
- Most 3GPP / UMTS operators will need to wait until at least 2011-12 before starting broad migration of circuit telephony to standardised VoIP. In the interim they will have to compete or partner with pre-standard VoIP players.
- Operators expecting to deploy LTE networks need to consider gaining prior experience of mobile VoIP. Simultaneously rolling out a new radio technology and a new voice architecture is a huge risk.
- The key catalysts for independent VoIPo3G are the increasing penetration of smartphones, coupled with the growing availability of flatrate 3G data tariffs.
- 3G-connected laptops are an important VoIPo3G constituency, as operators’ rival services to home fixed broadband will generally need to support users’ expected applications - including VoIP - to be competitive.
- In the medium term, operators will drop VoIP-hostile 3G terms-of-service, on the grounds of competition, regulation and difficulty of enforcement.
- Too much emphasis is placed by 3GPP on unproven ‘multimedia’ telephony concepts rather than ‘plain’ VoIPo3G.
- It will be more important to embed mobile VoIP into new devices, services or web applications (Voice 2.0) than adding video or other media streams.
- There is scope for partnership between VoIPo3G innovators and incumbent operators (and other parties), especially on HSPA networks. Initial reticence will be countered by awareness of the threats of outright competition.
- Operators have sizeable opportunities for standards-based, non-telephony VoIPo3G applications like push-to-talk and person-to-server communications.
- Improved indoor coverage of 3G through femtocells may catalyse VoIPo3G.
- Operator-based VoIPo3G can fit better with prepaid tariffs than VoWLAN.
- HSPA+ will be a major VoIP platform, especially for operators without sufficient spectrum allocations to roll out LTE.
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