Tuesday, August 03, 2004

Daiwa EuroTelcoblog No. 64: Tuesday 3rd August 2004 - No-nonsense VoIP

Sometimes it's easy to get carried away with the more futuristic and technical enablers of VoIP adoption (softphone clients, 802.11b handsets, embedded solutions, P2P architectures, alternative broadband access technologies) and lose sight of the fact that some of the most compelling applications may in fact be very simple from the consumer's point of view. The always excellent VoIP Watch (http://andyabramson.blogs.com/voipwatch/) alerted me to the existence of a new service called Planet ZivVa, which is an interesting case in point (https://secure.zivva.com/). Planet ZivVa allows users to map a "virtual" number in their home country (a SIP gateway) to a number in the US or Canada, thereby allowing friends and relatives in those countries to make unlimited calls to North America for the price of a local call. The service plan is priced at $29.99 per month, though a free trial is currently underway in the UK for a couple of weeks, or until the management is happy with the standard of service.

This product is very much US-centric at the moment, targeted at people from abroad who are living and working in North America. However, I signed up for the free trial here in London and basically used it in reverse, i.e., I mapped my parents' phone number in Memphis, Tennessee to a virtual UK number so that I could call them. The number I was assigned is in the standard 11-digit UK numbering plan format for London, but with the fourth through eighth numbers as zeros (020-0000-0xxx). It took three attempts to make a connection, but when I did we talked for 63 minutes with perfect quality and only the slightest hint of an occasional echo.

This is not the sort of VoIP-on-steroids product which we usually like writing about, and in many respects is merely a variation on what the calling card industry has been doing for years. However, it is simple, it works, and it plays havoc with the traditional rules of telecom as well as an exposed weakness in incumbent telco pricing strategies. In an attempt to retain customers and limit their exposure to revenue volatility, we have seen a growing emphasis on discounted calling packages across the European incumbents, which at their most extreme (e.g., the all-you-can-eat variants of BT Together, Carphone Warehouse's Talktalk and similar offerings from the cable players) offer unlimited national calling on an unmetered basis at any time of day or night (provided that an individual call does not exceed a defined length, commonly 60 - 70 minutes). It was probably not their intention in doing so to leave their international calling businesses open to cannibalization, but that is exactly what this sort of solution allows. Under Talk3 from Carphone Warehouse for example, my 63-minute call to the States using Planet ZivVa would cost me exactly zero, which is significantly better than any conventional Friends-and-Family scheme I have ever come across, and also cheaper than the very impressive SkypeOut.

In the interest of equal time, we have already seen some other interesting numbering-based arbitrage strategies in the VoIP market. One example is Stanaphone (www.stanaphone.com), which issues qualifying users (i.e., people with a credit card) anywhere in the world a North American number and 100 free outgoing minutes in the North American market plus a $2.00 monthly credit for international calling, as well as unlimited incoming calls. The Stanaphone business model seems to rest on "overage" charges, i.e., it assumes that users will overshoot their inclusive calling credits. Another example is the glophone from Voiceglo (http://www.voiceglo.com/webphone), which we wrote about some months back, wherein users receive a North American number plus four-digit extension. The glophone Platinum plan offers unlimited calling within North America and incoming calls for $24.99 per month, while the Gold plan allows free incoming calls for $3.99 per month. What seems to distinguish the Planet ZivVa approach is that it borrows the concept and reverses it, but does not assume that the user will have access to a computer, let alone a broadband connection (required for Stanaphone, optional for glophone).

Personally, while I am impressed with Planet ZivVa, I think I am unlikely to pay the $29.99 monthly fee once the service goes live, simply because I am unlikely to ever generate enough traffic to justify the expenditure, and will probably carry on using a combination of the PSTN and SkypeOut until my parents migrate to broadband. However, as Andy Abramson over at VoIP Watch rightly points out, this is the sort of product which could be really appealing to friends and relatives back in countries which are the source of immigrants, exchange students or migrant laborers into North America, who probably would stand to save a considerable amount of money from such a service. It also represents an economical way for small businesses in North America to have a presence on foreign soil, albeit a virtual one. Where it gets really interesting is when the number-play is not just one way, in other words, when I in London have a Memphis, TN phone number and my parents in Memphis have a London number, both on the same service (substitute Lima and Chicago, Hanoi and Boston, Tunis and Paris as appropriate).

Again, for those of us lucky enough to have access to broadband connections, softphones, and other whizz-bang technology, this may not be a hugely attractive service as it stands now, but we have to remember that broadband population penetration globally stood at only 1.9% in Q1, and the ITU's 2003 figures estimate that global teledensity is still only 18.8%. A lot of humanity spends time queueing up to make calls to, or receive calls from, relatives abroad, paying extortionate rates in the process. Services like this are yet another potential source of deflationary pressure for the European incumbents at the margin, though the implications for incumbents in emerging markets should be considerably greater. With this and all the other sources of pressure working in tandem, we ponder how long it may be before an incumbent in Europe decides that, rather than track the steady erosion of its traditional business, it's time to stand up and embrace something radical, such as a P2P telephony solution, and effectively write off its existing business in favor of a longer term survival strategy.

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