VoIP eats into fixed-line revenue

damien

VoIP eats into fixed-line revenue

http://www.thepost.ie/post/pages/p/story.aspx-qqqt=THE%20INSIDER-qqqs=themarket-qqqs=computersinbusiness-qqqid=8217-qqqx=1.asp

Just a few days before US internet auction company eBay announced it was buying telecommunications software company Skype for at least $2.6 billion (€2.1bn), I met my first Skype user. I had vaguely assumed that most users would be techie types. But it turns out that all sorts of Irish people are now turning to Skype for free or cheap telephony.

Skype makes software that allows you to talk to people round the world for free over your computer provided they have downloaded the software too. It also allows you to call fixed and mobile telephone users from your computer at very cheap rates provided you set up an account.

James O'Neill, who lives on the lone parent allowance, said he had been enjoying practically free telephone calls for the best part of two years - courtesy of Skype. O'Neill bought €11 of credit from Skype two years ago - and still has €4 left. One of the great benefits of Skype is that it allows him to call a family member in New York for free.

One week after eBay announced it was buying Skype, a barrister and a public relations consultant told me they had recently become Skype users. The PR consultant, who regularly calls family members in Canada and France from her home in Dublin, used to spend €100 per month on calls. Now halfway through her first month using Skype she reports that she has spent less than €6 on calls. Assuming that she ends up spending about €12 this month, her telephone service provider has just lost €88 in monthly revenues - or €1,056 a year.

It will come as no surprise to learn the PR consultant is delighted with Skype. “Geez, I sound like an advert or spokesperson but I've yet to spend €6 this month on my calls,” she said. Worldwide, Skype now boasts 54 million users. A Skype spokeswoman told The Insider that there are now 135,000 registered Skype users in Ireland. Needless to say, the world's traditional fixed-line telephone companies are considerably less delighted with the impact that Skype and other similar companies are beginning to have on the revenues they can generate from selling phone calls.

The potential of the new technology - known in the jargon as Voice over Internet Protocol (VoIP) - to kill off traditional voice telephony has been talked about for years. But it is only recently that the scale of the threat facing traditional fixed and mobile operators is beginning to be understood. It appears to be too much for some operators to swallow.

Earlier this month, China Telecom, the nation's biggest fixed-line telephony provider, blocked computer-to-telephone call services including those from Skype. The Chinese telco told customers that internet telephone services are illegal under a 2004 regulation because they would “destroy market order'‘.

Closer to home, Eircom isn't blocking computer to telephone services just yet. But then it doesn't need to (at least, not yet). That's because VoIP services, such as Skype's, require decent broadband - that is high-capacity connections. And Eircom has been slow in rolling out its broadband capability.

The result is that broadband penetration rates here are extremely low by international standards. They are currently at about 4 to 5 per cent of the population representing just 200,000 homes and businesses, according to telecoms regulator ComReg. On the fact of it, it may not appear to be in Eircom's immediate interest to roll out broadband in circumstances where broadband users will then use the facility to avoid paying for their voice calls.

If Ireland only has 200,000 broadband users and 135,000 of them are already registered with Skype, the potential for broadband to help destroy the revenues of fixed-line companies is clearly enormous. So it appears to be a “no brainer'‘ for Eircom to delay the rollout of broadband in order to protect its voice revenues. But things may be more complicated than would first appear. The problem for Eircom is that customers unable to obtain fixed-line broadband connections may instead turn to other operators such as cable and wireless broadband companies for broadband services.

Users don't need aphone line if they buy broadband from a wireless operator. So when a user goes wireless, Eircom runs the risk of not only losing revenues from call charges, but also losing its crucially important line rental revenues as well. It is a sign of the times that Irish Broadband, which sells wireless broadband connections, is making rapid inroads in the broadband market. Feargal Brady, chief executive officer of Blueface, another wireless broadband provider, estimates that any increase in wireless broadband connections could result in a sharp reduction in fixed line revenues for Eircom.

Eircom currently has about 1.8 million fixed lines. Brady estimates that if, say, 600,000 users were to opt for wireless broadband services, about 1.2 million of those lines would no longer be needed. He reckons that would cost Eircom €288 million a year in forfeit revenues. The emergence of competition in the area of call charges prompted Eircom to restructure its pricing strategy in recent years. It famously increased line rental charges three times in one year in order to compensate for declining revenues on the call side of its business.

Eircom's vulnerability is clear from its annual report and accounts for the year to March 2005 which showed that the revenue value of basic voice traffic fell by 11 per cent or €53 million to €456 million, while access rental and connections increased by 14 per cent, or €68million, to €557 million. At the time Eircom said that while the voice traffic reduction reflected lower prices and some market share loss, it also indicated the loss of voice traffic to mobile operators. On the other hand, Eircom noted that the “access revenue growth arose substantially because of line rental increases in the prior year'‘.

The fact that eBay was prepared to pay more than $2.6 billion to buy Skype from founders Niklas Zennstrom, Janus Friis and their venture capitalist backers, is a sign of the value that some players in the market attach to the ability of Skype's technology to deliver customers in large numbers.

eBay's massive vote of confidence in Skype is hard to overstate given that the company has revenues of only $60 million and has yet to make a profit. And while some analysts may argue that eBay has overpaid for Skype, the message to investors in fixed line telephone companies is a scary one: namely that the internet is killing the phone business. The Economist magazine nailed its colours to the mast in a leader last week which stated that it is no longer a question of whether VoIP will wipe out traditional telephony, but a question of how quickly it will do so.

It may take a good deal longer in Ireland than elsewhere. For while the tide is turning against incumbents worldwide, the levees that Eircom has erected to protect its monopoly have proved to be particularly strong. That explains why Eircom's share price continues to prove relatively resilient as the management team headed by Philip Nolan continues to wring the monopoly for all its worth while running rings around the regulator.

But the wise investor will have noted that Eircom shares took a dip following the eBay acquisition of Skype and will be watching carefully for signs of pressure building on the Eircom levees.

zuma

Eircom's vulnerability is clear from its annual report and accounts for the year to March 2005 which showed that the revenue value of basic voice traffic fell by 11 per cent or €53 million to €456 million, while access rental and connections increased by 14 per cent, or €68million, to €557 million.

Now that just makes me want to VOMIT!!!

Paddy20

I have no doubt, but thatTHE END of Eircoms line rental & last mile scam is nigh.

Thanks to Skype , look at it. If you have broadband as I do Why should I not take advantage of, free worldwide skype to skype customer calls, or very unbelieveably cheap calls to other ordinary 'non skype' 'landlines and mobiles' worldwide (including Ireland) without the need to use €irCoNs last mile line connection into your home.

Friends of mine have already started using skype, and the sound quality is great, and all you need is a skype telephone linked up too your broadband connection.

It's a No Brainer destined to come out on top. Taaaraaa €irCoN .

P. :cool:

paulm17781

Feargal Brady, chief executive officer of Blueface, another wireless broadband provider, estimates that any increase in wireless broadband connections could result in a sharp reduction in fixed line revenues for Eircom.

Blueface aren't a wireless ISP, they are a VOIP company. Getting that wrong in an article about VOIP is pretty bad.

Blaster99

Having completely missed the whole media hype around Digiweb's Metro says something as well. They're the only wireless ISP that has a telephony service to my knowledge, unlike Irish Broadband that did get a mention. Not exactly priced at VoIP levels, but no line rental is something.

I will continue to say that I don't believe in the VoIP argument as being a reason behind Eircom's failure to rollout broadband. Eircom only really makes money on line rental and going forward they will only really make money on broadband, if they get their act together. You can, right now, get VoIP-like rates from Telestunt over Eircom's network, so the threat already exists. And this is without spending money on VoIP equipment, which right now negates any savings. The main benefit of VoIP over a non-Eircom connection is that you don't have to pay line rental, which is a significant saving.

I would have thought it's quite clear that the world is going towards free voice, so I would have thought commercial VoIP providers will struggle too. The main benefit with something like Skype is that it's free. Even Eircom bundles quite a few voice minutes in the line rental now. I get more free minutes from Eircom than I use so in effect my calls are free. Except mobile calls of course.

Oh by the way Damien, now that you've seen the Skype light, maybe we can stop using that archaic IRC thing...

byte

This is what I wonder, will Skype remain free or as cheap as it is now? Or can somebody explain where eBay intend to recoup their losses from the mental price they paid for Skype?

damien

byte wrote:

This is what I wonder, will Skype remain free or as cheap as it is now? Or can somebody explain where eBay intend to recoup their losses from the mental price they paid for Skype?

My own view is that the Skype deal was not totally about VoIP. More here.

oscarBravo

Blaster99 wrote:

Oh by the way Damien, now that you've seen the Skype light, maybe we can stop using that archaic IRC thing...

Nevar!1! IrC roxx0rz!!

Um, I mean: did people stop using typewriters when phones were invented? I don't see how VoIP replaces text chat.

eircomtribunal

damien.m wrote:

VoIP eats into fixed-line revenue

Interesting article on the subject in the Sunday Times

September 25, 2005

The Sunday Times

Irish agenda: Brian Carey: Skype will only lead more customers to Eircom’s door

AT EIRCOM, they shouldn’t believe all the hype about Skype. Free calls, voice over internet protocol (VOIP), talking down the internet, end of the world? The boys in St Stephen’s Green couldn’t care less. In the coming year, Eircom will earn more revenue from line rental than it does from call charges.
In the year to last March, connections (€31.8m) and rental fees (€627m) exceeded call revenue (€633.7m) for the first time. Line rental bulges out from the Eircom bi-monthly bill. Owning a home phone has become expensive, using it has become cheap. For easy comparison, as recently as 2000, the amount raised from line rental was less than half the income from calls.

With the help of Comreg, the regulator, the phone company has managed to massage dramatically its pricing model. It now successfully extracts most value from its monopoly network rather than commodity phone calls.

Local call revenues, for example, slid from €272.5m in 2000 to €94.2m last year. Eircom’s revenue from payphones has dropped from €33.m to €11.8m in the same period.

However, the extra €180m that Eircom now collects from line rental, and increased revenue from dial-up internet and calls to mobile phones, has helped cushion the effects of so-called “mobile substitution” and limited competition.

But what about Skype? In 2000, Eircom earned €218m from international voice calls. In the current financial year, international calls are expected to account for only €88m.

This is precisely the revenue that VOIP will attack in the short term. It represents just 6% of Eircom’s total revenue.

A big take-up on VOIP in Ireland will require a heavier migration to broadband, where the biggest player is Eircom.

Comreg’s complicity in this situation is reflected by its belated decision to impose a line rental freeze for the year to March 2006. In subsequent years, Eircom will be able to raise rental in line with inflation. Happy days.

P.

dahamsta

Very shortsighted article. The real danger to Eircom is mass migration to alternative access networks precisely /because/ of the disgracefully high line rental that ComReg allowed.

byte

Yes, but I'd imagine for a lot of Joe Soaps, all they'll ever use is Eircom. Many may not know of wireless alternatives etc.

And of course, wireless ISP's have the same problem as wired ISP's - lack of nationwide coverage. So, until proper broadband coverage to the whole country is addressed (and I don't mean satellite as a means for anything except TV viewing), VoIP isn't really a full on major threat just yet.

I'll not even go into the possibly deliberately low upload speeds. Or can Skype run happily with 128k (usually less) upload speed? (I have broadband 5 weeks and still havne't bothered with VoIP).

dahamsta

I don't think it's going to happen all of a sudden byte, but I do think that if awareness of broadband keep increasing as it is - people surprise me regularly these days - awareness of alternatives will increase too. And although there's less awareness of the monstrous prices we're paying for line rental, the whole Rip-Off Ireland thing is making people think a little more about these things. People are starting to talk about these subjects in the pub and the supermarket, and I think that could easily lead to:

a) traditional Irish snobbery, where dialup/landline is for cheapskates and silly people and broadband/voip is for sophisticates; and
b) traditional Irish cost-saving; less popular these days but I reckon a resurgence is on the way.

The way I see it, the alternative access providers have an opportunity there, they're getting two for the price of one. Course it's up to them to leverage that, and they're traditionally not very good at it. But we do have some new players on the scene now.

As to national coverage, I can't argue with you, but digital divides are nothing new around here, and it's worth remembering that a quarter of the population lives in Dublin. Which is pretty much bathed in RF at the moment, with more to come...

Paddy20

VOIP is the new telecommunications revolution, when the telephone first became available it took almast 50 years before the vast majority copped on .

Now with 'Skype' there are already millions of users worldwide, so anyone with Broadband in Ireland, whose numbers are increasing daily NOW have a choice, they could stop using there ordinary phone tomorrow, it's like a tidal wave, it will sweep €irCoNs call income away with it.

The sooner the better . Which would be a lot sooner if people did not naturally resist change so doggedly, the invasion of computers followed by broadband into Irish homes marks the end of €irCoNs honeytrain.

P. :cool:

clearz

I have been using skype for some time now but I know for a fact my parents still wouldnt use it or a lot of my friends. If they came out with a seperate box that could connect into your home router which would allow the service to run independently of a PC then I could see this been adopted by the mass market but until then skype will just be another novilty applaication running alongside MSN and Yahoo Messenger.

Paddy20

Maybe we should have a SkypeOffline.org for educating the population ! .

P. :cool:

Eurorunner

clearz wrote:

I have been using skype for some time now but I know for a fact my parents still wouldnt use it or a lot of my friends. If they came out with a seperate box that could connect into your home router which would allow the service to run independently of a PC then I could see this been adopted by the mass market but until then skype will just be another novilty applaication running alongside MSN and Yahoo Messenger.

it can be run independently of a pc. Get the right router for the job and open up an account with blueface.ie - let them get your tel. no. transferred - and your in business...

Paddy20

Eurorunner wrote:

it can be run independently of a pc. Get the right router for the job and open up an account with blueface.ie - let them get your tel. no. transferred - and your in business...

Eurorunner,

You are brill Oh, 'Happy days are here again' everybody sing ?.., thats a song title you know !.

P. :cool:

Mr_Man

A couple of quick points on this, firstly Eircom are working on a VoIP product and guess where the majority of potential VoIP users in Ireland will go for their service - Eircom. Now while this will hit call revenues it will help lessen the bleeding that Eircom are seeing.

Secondly until LLU becomes a reality in Ireland the revenue from Line Rental will provide a nice cushion for Eircom while they wring the last few cents from the network. At the point where LLU becomes a reality then you have the potential to see a major shift in the market, whether one occurs or not will depend on the level of competition. Esat have show little appetite for it up until now, Smart may get aggressive if their still in a finanically sound position to do so otherwise it may take something like Magnet or Clearwire, with strong backing from the US to make a dent.

Just my 2c

M.

SkepticOne

I don't think Skype type services are a particular threat yet. It requires a little too much trouble on the part of the user. Eircom are probably more worried about the likes of Smart, NTL, Digiweb and others bundling VoIP boxes into which you plug your ordinary phone making the whole thing transparent to the user and bypassing the Eircom network monopoly. Even without VoIP, Eircom are probably losing a lot of revenue as people switch more calls to mobile and substitute email for some of their voice communication. I think Clearwire could represent a threat if they bundled VoIP and brought the price down a bit though it looks to be having a bit of teething troubles atm.

dahamsta

Skype is just one VOIP service. Services (like Metro I suppose) with hardware that you can plug all your devices into - assuming they work out of the box - are far more important.

And while I'm a big fan of LLU, we all know that Eircom will litigate to the death to prevent genuine cost-oriented prices in that area. No-one in Ireland has the balls to try to make them do it anyway.

eircomtribunal

Mr_Man wrote:

.
Secondly until LLU becomes a reality in Ireland the revenue from Line Rental will provide a nice cushion for Eircom ...

ComReg made sure that even if and when LLU can become a reality later next year or so (and SMART and BT will have a real go for it) Eircom's finances and monopoly birthright won't suffer, because in its eternal wisdom the regulator fixed Eircom with the second highest full LLU price in the EC, inclusive of automatic price rise with inflation.
Just as "single billing", masquerading as "whole sale line rental" (WLR), does not negatively affect Eircom's bottom line, LLU with neither.
When OLO's can eventually use the last mile they will pay a hefty € 14.67 a month per line (hardly much loss from the €18 line rental Eircom is getting if it uses the last mile itself), plus a hefty price for getting into the exchange.

P.

thegills

plus a hefty price for getting into the exchange

Hehe, thats assuming there is any room in the exchange...

Blaster99

oscarBravo wrote:

Nevar!1! IrC roxx0rz!!

Um, I mean: did people stop using typewriters when phones were invented? I don't see how VoIP replaces text chat.

I'm sure it doesn't, but voice is infinitely more productive than text chat.

Cabaal

VoIP is a interesting thing in Ireland, you'd think most people wouldn't use it because their stuck with paying line rental, but yet you got thousands of NTL, Digiweb & IBB users using it without issues not to mention many ADSL users using it because they can get cheaper calls.

I myself have replaced my eircom line with a VoIP setup that allows incoming/outgoing calls via a 051 number and is only 10e per month with about 2hrs worth of free calls. compare that to Eircom 24e pm for JUST line rental.

It may not affect eircom right now but it certainly will in the futrure imho,

Paddy20

Way to go!, Cabaal ,

Never even knew we had a dedicated VoIP forum on Boards.ie .
Very interesting, magic

P.

paulm17781

have a look at blueface.ie. 9.99 p/m gets you 5 hours of free calls. After that calls are really cheap with VOIP to VOIP calls free. I have used it to replace my Eircon line. You can even keep you Eircon number.

Cabaal

Paddy20 wrote:

Way to go!, Cabaal ,
Never even knew we had a dedicated VoIP forum on Boards.ie .
Very interesting, magic
P.

Its been around for many months now,

paulm17781 wrote:

have a look at blueface.ie. 9.99 p/m gets you 5 hours of free calls. After that calls are really cheap with VOIP to VOIP calls free. I have used it to replace my Eircon line. You can even keep you Eircon number.

In the interest of equal competition, may I also suggest skytel.ie & the newly launched broadtalk.ie

Cuauhtemoc

Yep...I've gone with the NTL 1Mb and Blueface 9.99 p/m option as well, is working a treat.
Cancelled the Eircom line last week.
5 hours of free calls to the Ireland, US, UK, Australia etc.
Phone bill will drop from an average of 60 - 65 euro p/m to between 10 and 15 p/m.
Would recommend them to anyone. Although some people i've talked to have been reluctant because it wouldn't work during a powercut. The only downside i can see.

viking

Cuauhtemoc wrote:

work during a powercut. The only downside i can see.

If you have a mobile phone then it should work during a power cut as most/all mobile base stations have backup power.

paulm17781

Cabaal wrote:

In the interest of equal competition, may I also suggest skytel.ie & the newly launched broadtalk.ie

Yeah but I have never used them so can't recommend them.

HelterSkelter

If Ireland only has 200,000 broadband users and 135,000 of them are already registered with Skype, the potential for broadband to help destroy the revenues of fixed-line companies is clearly enormous.

He is not taking into account that many of the 135,000 could be dial-up users. Skype's website says you can use it with a min of 33.6kbps connection.