Digitalwall: VoIP Gives out the First Cry

Who's whose value added service?

VoIP (for phone calls through the IP-based broadband access) has been a hot subject in Taiwan's telecom market lately. Actually, a service to enable phone calls through the Internet to save money has been an attempt of many people since the beginning of the Internet.　

So far, most VoIP services have been enabled through computers. A user installs software in his/her computer, use it to dial a phone number and talk with the other party through a microphone and a speakerphone. Of course, the computer has to be connected to the Internet.

The one you call can be anyone with the same software program, or a conventional telephone number, or a mobile phone number, or you can even make a call to another country. To enable non-computer users to use the service, some operators have also introduced traditional telephone sets with built-in Internet access IDs, which allows VoIP calls without a computer.

Today's VoIP is even easier to use. ADSL subscribers could apply to subscribe the VoIP service to specific service providers, install a gateway (leased or bought) behind the ADSL modem, and connect the computer and the telephone, and then the user can dial VoIP phones.

Thanks to the low cost brought by the Internet, the phone toll fee is much cheaper. As ADSL infiltrates into more and more families and offices, the service is being increasingly recognized for its enormous potential. Particularly, as the profit margin of the ADSL service gets increasingly narrow, ADSL broadband ISPs are hoping to raise their revenues through VoIP service.

The success of VoIP in Japan seems to boost the confidence of broadband ISPs. Among the ADSL subscribers of the market leader Yahoo!BB, over 80% are VoIP users. By the end of May 2003, the number of VoIP users had exceeded two million. It is expected to reach 5.7 million by the end of this year all over Japan.

The reason of Yahoo!BB's success is the built-in gateway in the ADSL modem. ISP promotes the VoIP service whenever a subscriber applies to subscribe the ADSL service. Even if the subscriber does not want to subscribe the VoIP service right now, they could do it later when they want by activating the gateway inside the modem, without having to install a separate gateway..

A subscriber subscribe to the VoIP service will get a telephone number, which he/she can use to dial phone calls to other subscribers of the same service, which are treated as on-net calls. Of course, the number also allows calling conventional fixed line or mobile phones, as well as receiving phone calls, just in the way that a conventional phone is used.

Impacted by VoIP service of Yahoo!BB, the voice revenue of fixedline telecom operators in Japan drops by 20% in a year. To retain their subscribers, telecom operators in Japan are vying to introduce the VoIP service as well, which pushes up another surge of VoIP. On the other hand, the low fee rate is further driving down the revenue.

Imaginably, the service has created heavy pressures on traditional telecom operators. Witnessing VoIP's erosion into the revenue of conventional phone services, Chunghwa Telecom, which is the largest telecom operator in Taiwan, has been reluctant to enter this sector. Other fixed line operators, due to their inherent vulnerabilities, are even less willing to launch the service, which will eventually kill their golden goose.

Therefore, the ones most enthusiastic about this new service are Type II telecom operators. For example, SaveCom already introduced its VoIP service in the last year; Seednet is planning to launch its VoIP service at the end of this year. Taipei Computer Association (TCA) has even established an alliance with 10 Type II operators called IP Phone Open Exchange (IPOX) to launch the VoIP service with phone numbers headed by 070.

Traditionally, telecom operators have regarded the Internet access service as a value added service, as the phone line is used mainly to make phone calls and Internet accessing is considered as a secondary application. In addition, the revenue from the voice service has been always higher than that from the Internet service. Therefore, the Internet service has been considered as an accessory service to telephone.

As ADSL infiltrates into more homes and offices, and Internet accessing becomes an important application, the latter itself is generating a lot of value added services, for example, email, online gaming and audio/video playing, etc. What is interesting is that making phone calls has become a value added service to the Internet.

See the following figure for the concepts:

If a fast success could be achieved by VoIP, section C in the above figure would expand rapidly. As many families in Taiwan have ADSL lines, which indicates section B is already very large, it is highly possible that section C would grow fast.
However, we should not ignore another possibility. Currently, one reason for most families to subscribe new telephone lines is to use it as an ADSL connection to the Internet. The line is directly connected with their computer and never used to make phone calls. See the following figure:

If we compare the two figures, we can see that the expansion of section E in Figure 2 would make it easier to promote the VoIP service. This also explains the reason of Yahoo!BB's success in Japan. By binding VoIP with ADSL, it is able to expand section E rapidly.

Another thing that the figures tell us is that it is impossible in the foreseeable future for either section C or section E to outgrow section A, unless section D could outgrow section A, which is too big for any other section to outgrow at present.

Many families already have their telephones, some even have two or three. What makes you want to install another telephone at home? To save the phone bill might be a good reason. Otherwise, with today's saturation rate, the market would be hard for any players to access.

Currently, many VoIP operators in Taiwan are planning to introduce packages that allow free phone calls within the same network (the subscribers only have to pay the basic monthly fee), and lower fee rates for calls to conventional fixed line or mobile phone numbers. This is a destruction that the Internet has made to the old price structure, as well as a subject that all operators have to face seriously. (
2003/12/07 - By Digitalwall.com - Way to
China Internet/Telecom )