Out-Law News 1 min. read

Mobile and fixed line telcos challenged by VoIP, says OECD


The growing popularity of internet telephony threatens both the fixed-line revenues of traditional telcos and the profits of mobile operators, according to a new report from the Organisation for Economic Co-operation and Development (OECD).

Published on the same day that Google announced Google Talk its entry into the instant messaging and internet telephony markets the report reveals that in 2003 the number of fixed phone lines fell for the first time in OECD countries.

This, says the report, is a result of a growth in market share in favour of mobile operators – a growth that continued in 2004 and 2005.

But the report also highlights internet telephony, or Voice over Internet Protocol (VoIP), as a serious threat to both mobile and traditional operators.

VoIP is basically the transport of telephone calls over an internet connection. For users already paying for a broadband connection, long distance calls can become free of charge, albeit that VoIP handsets tend to be much more expensive than standard handsets.

This can be seen, according to the OECD report, in a comparison of the costs of calls via Skype, a popular VoIP provider, and via traditional fixed-line carriers in OECD countries. This reveals an average saving of 80% using Skype.

According to the report, increasing competition from this type of platform may require a re-examination of existing regulatory frameworks governing traditional and mobile operators. In particular, regulators may need to review obligations regarding universal telecommunications service as more companies offer telephone services over the internet without having a physical presence in a country.

Looking ahead, the OECD predicts that new service offerings from traditional carriers, such as Wi-Fi hotspots in cities, will provide tougher competition for 3G mobile operators than these had been expecting when they obtained their licenses, in many cases for large sums.

To maximise revenue, the report suggests, 3G operators may need to change their charging policies, for example by persuading customers to sign up for longer term contracts rather than purchasing calling time on an ad hoc basis, as is presently the case for a large percentage of customers relying on pre-paid cards.

The report also predicts that service operators will increasingly offer integrated video, voice and data products in a single service package and that the growing popularity of downloading video from the internet will reduce the time people spend watching free-to-air TV.

This in turn will drive down audience share and advertising revenue for broadcasters and make it harder for public-service broadcasters to meet their social policy objectives, says the report.

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