Skype's voice over IP products are currently triggering a market disruption that is about to unsettle the mobile telephony universe. Skype is leading the way to a new business model by offering free telephony with new internet possibilities now expanding to mobile phones. Mobile Service Providers, who have long been enjoying higher prices than those of fixed telephony, are most threatened.
Skype started in 2003 by offering software that enables free phone calls between PCs. Even though it gives away the software for free, the company generates revenues with "Skype In" and "Skype Out" services that enable users to establish phone calls with non-Skype users. Moreover, Skype's market approach is not a short-lived, isolated phenomenon. Indeed other service providers have launched or announced similar offers, such as Wengo by Neuf Telecom, Livecom by France Telecom and "Internet Phone Service" by AOL.
Skype's business model brings a market disruption causing massive pressure on both fixed and mobile phone call prices. Voice over IP is not new in fixed telephony: service provider's products and prices have already integrated the effects of this new technology. The market of mobile telephony will be hit most since, unlike fixed telephony, it has never suffered significant competitive pressure on retail prices. Jean-Patrick Théveny, director of TMT Consulting, specialized in telecommunications, points out that "mobile phones such as last generation PDAs (Personal Digital Assistant) and smartphones can easily execute Skype software and access the Internet to establish Voice over IP communications through, for instance, a Wifi connection. Mobile phone manufacturers such as Motorola have already included Skype in some of their products."
If Voice over IP was to be a major success in the mobile phone market, revenues generated by outgoing calls are threatened. Mobile Service Providers' financial results can crumble. How can they react? For the last three years, they have tried to counter the threat by applying a classical move of introducing new value added services. However, today such services generate much less revenues than voice communications.
In the face of such a severe market disruption, the best strategic response often resides in innovating around ill-served customers' needs. Convergent strategies announced by different players are a good illustration. The idea is simple: current solutions poorly fulfil users' desire for voice communications accompanied with Internet access through a single terminal, at a competitive price, available anywhere and anytime. For telecommunications service providers, the purpose of fixed, mobile and high bandwidth convergence is to provide all of these services with clarity to the user. A good example is the "Next" program that France Telecom has just announced. It covers an ambitious set of new convergent services targeted to multiple usages, such as telephony, music, video surveillance, etc. Other competitors have similar offers: in the UK, BT Fusion launched by British Telecom in partnership with Vodafone; in Germany, Genion offered by O2. The key point of convergence strategies is that they focus on real customer needs. They stay away from the downward price spiral trap dictated by Voice over IP.
Up to what point will a convergence strategy make up for revenue losses induced by Voice over IP? In Jean-Patrick Théveny's opinion, "this will be true if customers' acceptance of new added value brought by convergence services spreads faster than the value destruction caused by Voice over IP services. The bet is huge. If it succeeds, it will give an advantage to integrated Telecom Operators that own both fixed and mobile networks and provide Internet access, such as France Telecom, Telecom Italia or Deutsche Telekom."
If the bet fails, Mobile Telecom Operators, who have provided sustained growth to the telecom industry for the last 10 years, can suffer a brutal revenue collapse with serious effects on the overall industry.
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