Mobile giants feel the heat from voice over internet

The European Commission's regulation on caps on roaming charges, which may enter into effect next year, will hit major players in the telecoms industry hard.

But, as bitter a pill as these new measures may be to mobile operators, a much bigger threat to their survival lurks just around the corner.

Handset manufacturers and new market entrants are currently gearing up for a new age of internet telephony. VOIP (voice over internet protocol) technology, which allows consumers to place calls for a negligible broadband connection fee over the internet, looks set to shake up the market beyond recognition. "We will see a huge impact on the profitability of mobile operators," says Manish Dabas, an analyst with international research firm Evalueserve. "Most companies didn't consider it a major threat until recently."

The next generation of handsets needed to exploit low-cost VOIP technology is now available on the market. Techie consumers already possess 'smart phones' that enable them to use VOIP services such as Skype, MSN and AOL to place calls in Wi-fi, or wireless, hotspots. "We see the telecoms world converging," says Mikko Salminen, director of fixed-mobile converg-ence marketing at Nokia. "The one key attribute is mobility. We have started to add wireless connectivity to our models so you can use devices on both wireless and cellular networks."

Dabas believes there could be a mass switch to VOIP in as little as two years. "The only bottleneck I see is the Wi-fi connect-ivity," he says. Plans for improved Wi-fi connectivity have already been set in motion in some EU cities. The mayor of Paris submitted plans last week (11 July) to the city council for 400 free Wi-fi hotspots that will effectively create blanket coverage by 2010. London already boasts the EU's largest Wi-fi enabled financial area in Canary Wharf and plans for so-called hotzones covering major urban areas are already well underway. The company rolling out the hotzones in the UK has already struck up partnerships with companies such as Skype.

Currently, operators owning the expensive spectrum needed for mobile communication have a monopoly over the market. But, in the age of internet telephony, the separation between access (broadband) and service provision (VOIP) will provide opportunities for new market entrants to challenge the bigger players such as Vodafone and Orange. "This is where it becomes interesting," says Salminen. "You don't have to own the network to provide the services. Over the next couple of years, we'll see new players. Whether consolidation will happen in three, four or five years, I don't know."

Some companies have already established a prime position in the new order. French broadband provider Neuf Cégétel offers customers a set-top box providing wireless connectivity and a smart phone that automatically switches to VOIP within a certain radius of the home. E-Plus, Germany's third largest mobile phone network, offers a flat-rate subscription with a high bandwidth internet connection and VOIP calling over its existing mobile network, which has almost ten million subscribers. "Now that VOIP has become a commodity, the margins are on broadband," says David McQueen, an analyst at UK research firm Informa Telecoms and Media. "Mobile operators with no fibre optic networks will find themselves striking the deals necessary to maintain their position."

According to Frédéric Pujol, head of the mobile services division at the Paris-based Institut de l'Audiovisuel et des Télécommunications en Europe, there has been a strong debate in Vodafone, which has always had a mobile-only strategy, over which direction to take. Mark Pursey, spokesperson for Vodafone, indicated that the company would be aiming to offer a more versatile package of bundled services. In countries such as Germany, where Vodafone owns a fixed-line business, broadband connections and Wi-fi/cellular mobile services could be provided in-house. Elsewhere, it seems such likely that Vodafone will be making arrangements with other telecoms and IT providers.

In Germany, T-Mobile is looking carefully at its options. Spokesperson Philipp Schindera says: "So far, there is no final decision on VOIP. It's something we're looking into so we can decide if it is a business opportunity or not. Our R&D [research and development] department has VOIP on its radar."

Over the coming few years, it seems there will be little shelter for mobile operators from the icy winds of competition.

Salminen doubts whether VOIP will completely replace cellular communication. "In some countries it will be difficult for wireless to provide sufficient coverage depending on competition, the regulatory situation and the level of development," he points out.

Operators can also console themselves that any future deal-making should be made easier by their ability to gain leverage from their client-bases.

In a fast-moving market that looks set to accelerate even further. But mobile operators still complaining about the Commission's roaming proposals would do well to leave the past behind and look for new opportunities. Profits from

The European Commission's regulation on caps on roaming charges, which may enter into effect next year, will hit major players in the telecoms industry hard.