|Topic:||The evolution of VoIP – the challenge and business case|
|Author:||Cees de Jong|
|Title:||Senior Vice President|
|Organisation:||Global Telecom Marketing, Atos Origin|
Cees de Jong is Atos Origin’s Senior Vice President, Global Telecom Marketing operations. He is responsible for global sales, marketing and strategy and strategic partnerships as well as internal and external marketing communications. Prior to joining Atos Origin, Mr de Jong held several managerial positions with the Dutch telecom operator KPN, where he started his career as a project manager in the IT department. Most recently, he was Managing Director of KPN Datacenter, which later outsourced its IT operations to Atos Origin. Cees de Jong holds a Technical Degree from the HTS Electrical Engineering in Leeuwarden, as well as an MBA from the Rotterdam School of Management.
Low cost voice calling over the Internet is transforming communications in the developing world, in businesses everywhere, and threatening established operators. Voice over IP, VoIP, is forcing operators worldwide to re-think their business. VoIP has grown together with the rapid growth of broadband access, often wireless, throughout the world. Household names such as Google will soon join VoIP providers such as Skype and Vonage in the marketplace. This will accelerate both the competition and the growth of the market.
Voice over IP, VoIP, has been much hyped over the past few years, but the last two years have seen telecoms operators accept that the benefits of VoIP to the consumer and business user mean that investment in VoIP infrastructure and services is necessary. The result has been widespread adoption and acceptance of the technology in many territories throughout the world; it has been a whirlwind 18 months. Fears over reliability, security and cost have been allayed as network transport and quality standards have improved dramatically – and look set to continue to do so. Broadband take-up has rocketed, almost reaching saturation among enterprises, leading to greatly improved quality of Internet calls. The packet nature of VoIP has shown itself actually to improve, intrinsically, the security of voice communications at the transport layer, although it still presents security challenges at the application layer and requires businesses to apply the same security management policies they use for critical data services. The cost of VoIP provides another advantage; VoIP greatly reduces the cost of calls, particularly for heavy phone users such as call centres or international businesses. The business case The benefits for businesses are there for everyone to see. VoIP provides lower, often almost free, calling, long-term lower infrastructure costs, and advanced management and reporting tools. VoIP can combine voice with video and offer a long series of features such as, for example, ‘follow me’ single user numbers for mobile workers, and businesses that no longer need traditional public branch exchange, PBX, equipment in their offices. With all these features and facilities, VoIP is becoming not just a viable option for businesses but an inevitable one. Nevertheless, I think there are several critical questions businesses ought to ask themselves before rushing to make the switch to VoIP. Is there a real business case to convert from existing systems? How will the process be managed? Who should provide the service? Is it truly necessary to integrate data, video or voice? The change from PBX to VoIP is likely to be a slow one. Managing the change will call for a short-term increase in ‘half-and-half’ solutions – applications that connect the old and new environments – that ease the evolutionary path to a fully IP-based solution. The impact on consumers and home users Consumers do not care about the platform that manages their calls. They buy services, not technology. Will it work? Will my calls be cheaper? Can I pick up the phone and see the person I’m calling? ‘How does it work?’ is the last question most consumers will ask. New entrants to the VoIP market include names, such as Google and eBay, that even the most uninformed Internet users have heard of, so it seems unlikely that any of us will be untouched by VoIP. It is just a matter of time. With the future of VoIP a ‘given’ in consumer-land, the service providers’ priority in a saturated market will no doubt be to keep their customers loyal. Sticky, value-added services will be the order of the day, but more about this later. The impact on operators Application-based providers are entering the market to compete with traditional operators, such as Skype (recently acquired by eBay) and Vonage, which rely on peer-to-peer technology routing calls directly between the computers of two, or more, users. Skype in particular has built a loyal base of customers that adopt an almost evangelical promotion of its services: “I’ll Skype you.” has become a part of everyday language for avid converts. Microsoft announced as far back as 2001 that it was planning to embed session initiation protocol, SIP (the most popular VoIP standard), into Windows XP. ISPs are rapidly developing VoIP services to complement their broadband Internet offering. Even Google is getting in on the act, having recently announced its intention to enter the VoIP market. Unexpected competition means that traditional telecoms service providers have had to take note of an inexorable trend towards cheaper or streamlined communications that could cut out a serious chunk of their revenues. Many incumbent operators are investing heavily in VoIP platforms. Most operators are facing the fact that revenues from voice calls are declining and the big opportunity for them now lies in converged networks. KPN in the Netherlands, for example, is investing in IP equipment and sees itself becoming a market leader in broadband services, not just voice. This kind of dramatic shift in business by operators requires a significant change in infrastructure and IT systems, as well as updating billing and provisioning systems to meet the new demand, but the cost of not competing at all is far greater. Into the future It is hard, in my opinion, to overestimate the impact that VoIP will have on the telecoms market in both the developed and developing worlds. When the Internet started to support voice, telecommunications tradition was shattered. All at once, distance, location and time suddenly became immaterial, as did the regulatory conventions that governed the traditional telecoms landscape. The low cost of voice calls over the Internet is transforming the developing world and business everywhere. All of a sudden, people and businesses who could not communicate before, could not afford it, can now speak to each other. The advent of inexpensive laptops means that VoIP will be used potentially by millions more people that could never have afforded to use a phone. VoIP not only is a wonderful productivity booster for corporations and a cost saver for consumers, it is now the definitive technology enabling the less fortunate throughout our world to communicate like the rest of us. In the developed world, over the last 12 months, the market has moved on swiftly – the technology has been accepted and its adoption is accelerating. The value of VoIP is no longer in doubt. Now, the discussion has moved on to one of value and customer demand – how to use the technology to keep valuable customers. The customer-centric environment What is clear is that, for telecoms companies, 2006 will see the emergence of the customer-centric environment. With the adoption of VoIP, service providers and operators will gain greater insight into customer behaviour. In my opinion, they must use this information to provide services and applications that will keep customers inspired and loyal. Operators will focus on creating a single customer view that will help them understand the needs and desires of each individual. The buzz phrase will be ‘excellence in customer service’, and the market will see the emergence of smarter service models, including consolidated billing systems, that will tie offerings together and make buying services quick and easy. The Future – hosted voice solutions The opportunity for future voice services lies in hosted IP applications that combine traditional network operations and new-enhanced IP services. These services range from simple video conferencing to contact centre applications. Future demand for these types of bundled packages will be derived principally from educational efforts on the part of service providers, and the overall growth of IP connectivity in each of the Western European countries. As IP VPNs and IP voice services become more prevalent, demand for applications that connect old and new environments and improve network security and efficiency will also grow. Large global corporations, like Heinz (the food manufacturer) for example, have deployed IP networks at their UK and overseas office sites and are using basic IP voice services. In Germany, Lufthansa is also starting to integrate IP voice services at many of its branch office sites. Summary The huge changes that are taking place within the market are exciting and daunting in equal measure. The telecom companies that have survived the instability of the past few years are watching the market open up before their very eyes. The opportunities to create much needed revenue streams from the VoIP revolution are incredible, but the competitive landscape is becoming more and more complex. Traditional operators will need to be aware of the emergence of a new breed of service providers, some of whom will come from less traditional beginnings. Software companies like Microsoft, which are placing bets on the success of IPTV, ISPs like Yahoo!, and content providers/Internet companies like Google are all preparing themselves to take advantage of telecoms convergence to become the telecoms companies of the future. The year 2006 is the year of the customer. Telecoms organisations will focus on making their offerings compelling and ‘sticky’ by giving their customers a rewarding experience. Companies will have to gain a real understanding of what customers want and need, so that they know how to keep them interested whilst they are bombarded with offers from competitors. Technologically, innovation is this year’s watchword. Exciting new technologies inspired and facilitated by convergence will revolutionise the way that people consume information and will open the doors for operators to once again generate real revenue.