El fin de la telefonía fija (Inglés)

Traditional fixed-line telephony has had its day
The end of the line.
The Economist

IT WAS the industry's bread and butter for over a century. But the end is now in sight for traditional telephone service, which will soon be overtaken by voice-over-internet calls in terms of usage, and displaced by broadband internet access as the core revenue-earning service offered over fixed lines by telecoms firms. And even if the traditional telephone is not quite dead yet, its business model certainly is: metered telephone calls whose cost depends on the length of the call and the distance covered are becoming an anachronism.

The demise of traditional telephony can be charted in two ways: by looking at the proportion of call traffic carried using voice-over-internet-protocol (VoIP) technology, which already exceeds 50% on some routes and seems to be heading towards 100%; and by looking at the cost per minute of calls, which appears to be heading inexorably downwards, thanks to VoIP's far lower costs and higher efficiency. VoIP is cheaper because instead of establishing a dedicated circuit to connect two callers, it encodes the telephone call as a two-way stream of data packets that are sent over a high-speed internet connection. This encoding can be done either by a computer running a piece of software such as Skype, the most popular VoIP provider, which now has more than 100m users; or it can be done by a small box, called an analogue terminal adapter, which allows a standard telephone to be plugged into a broadband connection.

VoIpocalypse now

Sending packets across the internet is free once you have paid for your broadband subscription, so calls that travel entirely on the internet, such as those between two Skype users, cost nothing. If you use a VoIP service to connect you to a traditional telephone, the call travels mostly across the internet but pops out onto the local phone network at the other end; the owner of that network then charges a fee to deliver, or terminate, the call, typically no more than a local call. All this reduces the price of telephone calls dramatically. Indeed, Niklas Zennstrom, the co-founder of Skype, believes that voice calls will eventually cost nothing. You don't pay for each e-mail or each web page you load, he says. It's the same with phone calls. That's where it's going. It will be free.

Aside from undermining the pricing model of a trillion-dollar industry that still makes most of its money from voice calls, VoIP is disruptive in other ways, too. VoIP phones can have traditional phone numbers associated with them. But they work wherever they are, provided they are plugged into the internet, making a mockery of geographical conventions such as area codes. So you can assign, say, a San Francisco phone number (area code 415) to your phone, take it to another country, plug it into a broadband connection and have people in San Francisco call you for the price of a local call.

More subtly, VoIP decouples the two previously intertwined components of telephony: access to the network (via a wire running into your house, for example) and service (the ability to make and receive calls). Traditionally, access and service have been provided together. But with VoIP you can buy broadband access from one firm (a cable operator, say) and a telephony service from another (such as Vonage). So owning the access network no longer confers a monopoly on voice service; conversely, it is possible to offer a voice service without owning an access network.

The result has been a surge of innovation and competition as new entrants flood into the market. The spectacular failure of Vonage's initial public offering—the firm's share price collapsed after it floated on the NASDAQ exchange in May did not signal a lack of confidence in VoIP; it merely demonstrated that Vonage now faces serious competition in a market it helped to pioneer. According to Infonetics, a market-research firm, VoIP-based telephone services worldwide had 24m residential subscribers last year; by 2009 the number is forecast to reach 131m.

Let computer speak unto computer

Those figures exclude computer-to-computer VoIP calling, which is also growing fast. The success of Skype has prompted big internet firms, including Google, Yahoo!, Microsoft and AOL, to launch similar services, which allow free calls between computers and very cheap or free calls between computers and traditional telephones. That is why Skype sold itself to eBay for $2.6 billion last year, Mr Zennstrom explains. We thought it would be good for us, as we get into competition with big internet companies, to be part of a big internet company ourselves.

Businesses are also embracing VoIP, which allows them to use a single network to carry both voice and data within and between offices. To start with, the attraction of VoIP was simply cost reduction, says Cisco's Mr Lloyd. His company, which competes neck-and-neck with Nortel to be the leading supplier of VoIP telephony equipment, has sold over 9m desktop VoIP phones. New buildings and offices now routinely have a single network installed, rather than separate phone and data networks, he explains. Sales of traditional switchboard equipment are in decline, whereas sales of IP-enabled equipment are growing at a rate of about 30% a year. Already, more than one-third of large North American companies have adopted VoIP, and two-thirds will have done so by 2010, according to Infonetics.

Having started out as a means of reducing costs, VoIP phones are now being adopted because of the new features they offer, says Mr Lloyd. With a VoIP-based phone system, office workers can sit down at any desk and log into the phone, which instantly becomes their extension. They can also use VoIP phones at home or in hotel rooms, making and receiving calls just as though they were sitting at their desks. It completely decouples us from location my office is wherever I happen to be,says Peter Carbone of Nortel, via his VoIP phone. VoIP also allows call-centre operators to work from home, making it easier to match the number of workers to fluctuating demand.

If you can´t beat ´em, join ´em

All of this is a decidedly mixed blessing for telecoms operators. On the one hand they have been able to reduce their own costs by adopting VoIP internally to carry calls around their networks. Telecom Italia, for example, began using VoIP for all phone calls between Rome and Milan in 2002, reducing costs by 60%, says Stefano Pileri, the company's chief technologist. Once BT completes its 21st Century Network in 2009, all calls will travel across the network as VoIP calls, though customers will still be able to use their old telephones. Being able to handle voice calls cheaply, as just another stream of data, is one of the benefits of building a converged network.

On the other hand most operators still derive most of their revenues from voice calls, so the inexorable decline in voice revenue as consumers and companies adopt VoIP strikes right at the heart of their business. According to figures from Informa, a market-research firm, global revenues from fixed-line voice calls were around $600 billion in 2005, and data revenues were $202 billion. By 2010, it predicts, fixed-line calls will account for less than half of operators' revenues in the developed world. Instead, their new core product will be broadband internet access.

This is the key dilemma for the telecoms industry, says Mr Odlyzko of the University of Minnesota . Voice is still what matters the most, it is still 70-80% of revenues for the industry worldwide, and it's going to zero in price. So how do you handle that transition? Forrester, a consultancy, reports that voice revenue is now falling by 10% a year at France Telecom, 6% at Deutsche Telekom and 5% at BT. The same sort of thing is happening in America, Japan and other developed countries.

Incumbent telecoms firms around the world have responded to VoIP in a number of ways. Some Middle Eastern countries have banned VoIP and blocked access to Skype's website, in order to protect their incumbent telecoms firms and ensure that phones can continue to be tapped (which is very difficult to do with VoIP). But in the developed world regulators take a dim view of such practices, so operators have had to respond in other ways. To start with they switched to new pricing structures, reducing their call charges and raising their monthly line-rental charges instead. Many operators have now done away with call charges altogether and instead offer unlimited local, national and even some international calls for a flat monthly fee.

Incumbent operators also reluctantly began launching low-cost VoIP services of their own, because their customers were defecting to VoIP providers, and a VoIP customer is better than no customer at all. Obviously, even if it disturbs the business model of traditional voice, you cannot stop it it's ridiculous to fight against progress, says France Telecom's Mr Lombard. Instead, he says, incumbents must now try to capture as much as possible of the new VoIP market. For example, France Telecom has differentiated itself from VoIP competitors by using the technology as the basis of its new Voix Haute Definition (high-definition voice) service, which enables hi-fi quality audio connections between subscribers. Other operators, including BT, have launched similar products. Operators around the world, including AT&T and Verizon in America, also offer VoIP services which customers can use over any broadband connection.

Bundling provides incumbent operators with another defence against VoIP. They might choose to offer subscribers a triple-play bundle in which voice is free ie, the subscriber pays only for the broadband and television services at the usual rates. Some cable companies and alternative operators (which run fixed-line phone networks in competition with incumbents) are already doing this: Free Telecom in France, for example, includes unlimited national calls to fixed-line phones, as well as a selection of free television channels, with its broadband service. Conversely, some firms offer free broadband to telephone subscribers. Of course, nothing is really free, insists BT's Mr Verwaayen. Where voice, data and video are interchangeable, it's very difficult to allocate cost to one service or another,he says. The word 'free' can only be used once, and you can randomly choose the component you make free.

Mr Wegleitner at Verizon thinks the threat from firms like Skype and Vonage is overstated, because they cannot offer the same range of services as a network operator. I question the long-term viability of those solutions,he says. Can a VoIP supplier really compete with a full-service provider like a telco or a cable company? On this view, the real threat to incumbents comes more from cable operators offering cheap (or free) VoIP services than from pu re-play VoIP companies.

But Mr Zennstrom insists his company will stay ahead of the game. This has now moved on to enhancing communications in new ways, he says, by integrating voice calls with videoconferencing, instant messaging, presence service s that show whether someone is available, file transfers and other social-networking and collaboration tools. Beyond the zero price point you need to start offering better services, unleashing and enhancing telephony using IP networks,he says.

Trouble in the air

Even if their voice revenues vanish altogether, fixed-line operators do at least have a booming new business in the form of broadband internet access, global revenues from which will grow from $202 billion in 2005 to $410 billion by 2011, Informa predicts. That will help to make up for the decline of voice, and some operators believe that new broadband services such as television will actually enable them to increase their overall revenues. Mobile operators, however, are in a very different position. They rely even more heavily than fixed-line operators on revenue from voice calls, and despite years of effort and the construction of new high-speed third-generation (3G) networks, they have been unable to convince their subscribers to embrace data services.

This makes them extremely vulnerable to the spread of VoIP to mobile phones. Convergence of networks implies convergence of prices, argues Cyrus Mewawalla, an analyst at Westhall Capital, and mobile prices are typically three to ten times higher than fixed-line prices. The majority of mobile operators depend on voice for over 80% of their revenues, and voice prices are likely to fall close to zero in an internet-centric world,he says. He notes that each new telecoms technology spreads more quickly than the last: fixed-line telephones took 50 years to reach 50% of the population, mobile phones took 20 years, the internet ten and broadband five in some parts of the world. Mobile VoIP could be widespread within two or three years, he thinks.

The emergence of a Skype-like piece of software that could be downloaded onto a 3G phone and used to make VoIP calls could be lethal to mobile operators, says John Barrett of Parks Associates, a consultancy. Operators offer data communications far more cheaply than voice, often in the form of flat-rate data packages, so subscribers could avoid call charges and roaming charges by using a VoIP program to disguise their mobile calls as data traffic. Operators could block access or degrade the quality of their data services, but that would antagonise subscribers. Cutting voice prices to make traditional mobile calling more attractive would decimate their revenues, and raising data prices to discourage VoIP calling would erect more barriers to the take-up of their new data services upon which the operators are relying for future growth. They are between a rock and a hard place, says Mr Barrett.

For the time being, he says, getting VoIP to work on a mobile handset would be too fiddly for most people. But as handsets start to resemble pocket computers, with downloadable games and other software, the threat of mobile VoIP looms ever larger. Ironically, as mobile operators race to upgrade their 3G networks to offer wider coverage and higher transmission speeds, they also increase their vulnerability to VoIP.

So what can mobile operators do? Some of them are already experimenting with mobile VoIP, says Mr Zennstrom, as a means of differentiating themselves from their competitors. In particular, E-Plus, a German mobile operator, has a partnership with Skype that allows subscribers to its unlimited 3G data plan to use Skype on the move for a fee of ‚40 ($51) a month though they still have to use a laptop computer with a wireless-data card rather than a mobile phone. E-Plus is doing this mainly to sell wireless-data cards and win valuable business customers from rival operators. But its model may point the way for other mobile operators.

Just as fixed-line operators have switched to flat-rate billing plans, mobile operators could offer unlimited national voice calls plus unlimited data for a fixed fee, so there would be less incentive to use VoIP instead. Some operators are already moving that way, and unlimited-use data plans are also growing in popularity. Vodafone's Mr Sarin says he is watching the technology closely. But it need not be bad news for his company, he insists, because to make mobile VoIP calls subscribers will still need to pay for access to a high-speed wireless network, which is exactly what mobile operators provide.

Indeed, operators might embrace mobile VoIP technology themselves, as the cheapest way to offer unlimited calls. A recent report by Analysys, a consultancy, predicts that mobile VoIP will account for 25% of mobile calls in Europe and America by 2015 but that this will actually be a good thing for operators. They will offer mobile VoIP as a premium service with additional features such as instant messaging and presence information. At the same time mobile VoIP will reduce costs for operators, just as it has done for fixed-line operators, the report predicts.

Voice-data convergence, then, seems likely to mean that in future customers will pay a monthly access fee to use their phones but not pay for individual calls. Geographical and time-based charging will pass into history as VoIP erases the distinction between voice and data. This will happen on both fixed and mobile phones though convergence is starting to erase that distinction, too.

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