It don’t mean a thing if it ain’t got that Fring – VoIP  nightmare for mobile operators

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An early adopting reader alerted us last week to the existence of Fring. Is it a bird? Is it a plane? No, it’s free Skype-style client specifically designed for mobile phones. This South African reader had been making use of it to phone friends and business contacts. If the Fring thing catches on – particularly in those African countries with reasonable broadband capacity – then it looks set to put a hole in the revenues of the mobile operators. It does both voice and SMS for the cost of the data use from the mobile provider that is much cheaper than current voice rates. Russell Southwood looks at the coming VoIP challenge for Africa’s new incumbents.

The existence of mobile VoIP clients like Fring pose a significant challenge to mobile operators. It is already possible to use an IP client like Skype to make mobile calls over existing data-enabled networks. Depending on the data capacity enabled, quality will vary from the not very good to the perfectly adequate. African mobile operators are vulnerable on network quality issues in many countries (particularly on international calling) and therefore VoIP-enabled mobile calling will be attractive.

As mobile operators now carry most voice traffic and often operate with low levels of competition, it is not unfair to describe them as having all the characteristics of the new incumbents. And faced with the VoIP threat, a number of operators have reverted to the incumbent’s chosen behaviour: try to close down anything new that threatens revenue. MTN has already announced in South Africa that it has banned Skype and that anyone it catches using it will be charged at its voice rates. This position has neither logic nor past experience behind it.

European operators like T-Mobile announced publicly that it was banning Skype on its network but in late 2006 it said it was reversing the ban and would reach an agreement with Skype. The latter has already announced deals with Hutchinson in several markets and said it was making available a Pocket PC client that would enable wider user of its services.

An example of the Hutchinson deals is 3G mobile operator 3 in the UK. Its pitch gives a clear idea of the shift in thinking required to offer a mobile VoIP service:”Why should you pay per minute, per message, per click, per megabit? In the real world, you buy your PC, pay for broadband and that’s it. Our principle is simple – X-Series customers will only pay a flat access fee on top of their basic subscription and then what’s free to use on the internet should be free to use on mobile broadband (subject to fair usage and international roaming conditions, of course)”.

The other challenge will be Wi-Fi-enabled handsets. By October 2006 10% of hot-spot operator The Cloud’s traffic by kbps was coming from voice. It has achieved this by securing alliances with both traditional players and news entrants including: Net2Phone, Vonage and Skype. Its Ultra Wi-Fi offer allows unlimited use in the UK for US$23.36 a month and it has 7,500 hot-spots across Europe. But as it grows it is also doing business with existing mobile operators. In 2006 it signed an agreement to partner with Vodafone’s German operator D2 to provide WLANs.

So what will African mobile operators do as they come to terms with a mobile VoIP future? At present, they have yet to commit but most do not yet appear to have come to grips with the implications of this challenge.