Understanding Business Drivers for VoLTE: Dialable VoIP and VAS vs. OTT Voice Services

With increasing awareness of IP as a cheap source of transport, more people are aware of VoIP and OTT alternatives

There are many reasons for justifying Voice over LTE (VoLTE) beyond the obvious efficiencies for voice services.  Some of the business case drivers include:

  • Revenue retention
  • Preparation/foundation for RCS
  • HDTV and HD voice services
  • Next Generation Apps (Augmented Reality and others)
  • Small carrier opportunities (roamers and vacation spots)

Arguably, the biggest driver is simply “Dialable VoIP”.

What is “non-dialable” VoIP?  It is an application, such as Google Voice, which is downloaded to a smartphone and only requires data access (3G is good enough) for usage.  In this example, Google is the so called “Over-the-Top” (OTT) service provider as they are arms-length with respect to the wireless carrier.

The incumbent carriers must deal with the threat of these “dial around” voice over wireless IP (or VoIP over Wireless OTT) providers by offering their own “dialable” VoIP.  We mean “dialable” in the sense that the end-user does not have to download, and subsequently open a separate program every time they want to make a call (or in the case of Google Voice, hit an extra button that says “Use Google Voice”).  While many of these OTT VoIP providers have a way to “wake up” the application within the smart phone OS for incoming calls, all outgoing calls require a few more steps than is the case with simply dialing from the keypad.

There is downward price pressure on voice services and even basic data service.  This is driven by a variety of factors including increasingly greater wireless capacity, which will become even more of a supply-side factor with LTE.  On the demand side, bearer* services, particularly data, continues to grow at a healthy pace, but there are limits to grow in bearer service for consumer and even enterprise usage.  In addition, there is an increasing awareness of Internet Protocol (IP) being cheap source of transport, and hence more people becoming aware of VoIP, and therefore Over the Top (OTT) VoIP alternatives.

*Bearer services are defined as those services that merely act as the carriage for something else.  Traditional voice is just circuit-switched for audio exchange between people (or person and machine in the case of IVR) and data can carry almost anything.   

There is a big migration underway from traditional voice to data.  This is not to mean that voice goes away in favor of only non-voice services.  What this really means is that traditional circuit-switched (bearer) is going away and thus traditional voice calling plans.  This means there will be a propensity to have the cheapest plan (or prepaid) for voice and to use cheap, unlimited data for all calls with competitors to incumbents.

Challenges to carrier business as a result of the aforementioned developments include existing concerns, such as Over-the-Top (OTT) service providers, as well as emerging threats such as Direct (Peer-to-Peer) Communications, which shall ironically be enabled via LTE.  With the marginalization of bearer services, there will be a growing dependence on Value-added Service (VAS) applications for initially top line revenue growth (as data growth tapers off and margins are squeezed) and then for margin growth as bearer services become a cost-plus commodity.

There are certain things that mobile network operators must do in the face of challenges from OTT players and applications.  Carriers must revise their service strategies for their core voice and messaging services.  Incumbent carriers must recognize that core bearer based revenues will go down over time.  They must leverage LTE infrastructure and capabilities to offer their own differentiating capabilities including premium-priced VAS applications.  Network operators must deal with the threat of these “dial around” voice over wireless IP (or VoIP over Wireless OTT) OTT service providers by offering their own “dialable” VoIP.

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