VoIP wars – The battle moves closer to the mobile operators

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Grey market voice operators have been feeling the heat in the last twelve months as operators have dropped their international calling prices. Also increasingly, mainstream operators like MWeb are taking advantage of VoIP liberalisation to offer cheaper calling rates. This week it announced this service in five countries over its VSAT platform. However, new software for making IP calls from mobile phones (currently only on Nokia) threatens to rip a large gash in the hull of the major mobile operators. Russell Southwood looks at how the VoIP wars are changing as rates come down.

A number of changes have been taking place in international voice calling rates have been taking place that are changing the shape of the grey market and how VoIP voice services are offered:

- International calling rates continue to fall. For example, MTN rates from Benin to other subscribers on their network in Africa are now down to FCFA80 (US19.2 cents) a minute. MTN Benin calls to anywhere in the world are now down to FCFA120 (US28.8 cents). This “anywhere in the world” approach to charging means that the grey market operator is uncompetitive for all but the more popular destinations. In Nigeria, rates are even lower at between US16-25 cents. In the main, the increased volume of use has more than compensated for the loss of revenue through price reductions.

- Fixed and mobile international voice rates are converging. Whereas it was always assumed that mobile charged a premium for mobility, this premium is being eliminated as rates are either exactly the same or very close. For example in Sudan, calls to worldwide destinations have come down from US90 cents two years ago to US49 cents and these rates are broadly similar across the four main operators. Nevertheless, rates at this level still leave plenty of room for grey market operators who are offering calls at US10 cents a minute. Furthermore licensed VoIP service providers are coming into the market to compete at this rate (see the bottom of this story).

- If grey market operators are buying at US3-4 cents, the lower the rate charged by licensed operators, the harder it is for them to make a living because grey market operators by their nature tend to be small in order to operate “below the radar”. But it is not just the rate per minute that will decide whether someone uses a grey market operator. Most operate out of cyber-cafes using PCs and head-sets and the closer the rates come to their prices, the more people will be attracted by the convenience of using their mobile phone to make the call at a place and time they find comfortable.

But there is something on the horizon that threatens to destabilise Africa’s mobile operators. One VoIP operator Vyke is offering software that allows phone users to make IP calls from their mobile if their network is data-enabled. At present, the software only works on Nokia’s Symbian operating system but Vyke’s VP Sales – Africa says:”We are planning to extend it to a broader range of platforms. Our strategy is to be the leading mobile IP voice provider.” Last year Vyke bought Callserve, a UK based VoiP provider active in the African market.

Obviously if the Vyke user can only make calls to other Vyke subscribers then the damage to mobile operators will be limited. However, there is nothing to stop it adopting a Skype Out strategy where it charges cheaply for minutes and connects into PSTN numbers. And this is something that can be achieved fairly easily both into and out of Africa.

The limiting factors will be network quality and the cost of data. Depending on the Codex, VoIP calling can be bandwidth hungry if you want quality. Therefore it’s unclear whether the burgeoning 3G and HSDPA networks across the continent will be able to handle the traffic, particularly during peak periods. Currently charging for data on mobiles is largely on a premium basis so what you save on the call you may lose in download charges. But in those places where fixed and mobile prices have converged, it may prove to be an attractive route for “free” (cheaper) calling. Also there’s nothing to stop street vendors who currently offer mobiles for calling to upgrade their service to offer international calls.

Meanwhile in the run up to MWeb being auctioned to a new owner, the company is not resting on its haunches. It will launch a new VoIP voice service over its VSAT platform in five countries (Botswana, DRC, Angola, Sudan and Rwanda). The service will be sold using resellers who are appropriately licensed.

These resellers buy credits online from MWeb and get a billing system: in other words an operation that is not unlike that provided by the multitude of grey market voice minute sellers from outside the continent. The service promises calls for as little as US10 cents a minute and for free to other MWeb subscribers. MWeb is aiming the solution at both consumers and corporates who will buy its VSAT package with the VoIP voice service bundled in. It has bandwidth specially provisioned for the voice service to deal with quality concerns about voice over satellite.

The VSAT service is currently offered in 14 countries and it is looking at how it can expand the VoIP voice service into all of these countries. Part of this expansion will see it launch the service in East Africa using WiMAX instead of VSAT as the end-user delivery system. For any information on MWEB Africa’s VoIP service in sub-Sahara Africa, outside of South Africa, contact Pierre De Brandt or Saras Chinsamy on 00 2721 596 8238