By Jesse Kopelman
What these technologies have in common, besides a lot of capitalized letters, is vastly improved performance, in terms of latency and data rate, over what has previously been available with wide-area wireless networks. A side effect of this increased performance is that the mobile wireless connection can now support high quality VoIP. It seems a certainty that this capability will change the mobile telephony industry forever.
The $80/month that carriers charge for standalone unlimited data plans sounds pretty good for an industry where many struggle to break an ARPU of $60/month, but it suddenly doesn’t look so good when one considers that high end voice plans can get upwards of $200/month. It would be a huge blow to carrier profitability to have the rate plan ceiling so drastically lowered.
Meanwhile, they are caught between the hammer and anvil, as they can’t raise data prices without hurting uptake there and data use has become a significant revenue source. The situation will get worse over time thanks to two factors: First, over the next two to three years T-Mobile, Clearwire, and Sprint WiMAX will all emerge as players in the nationwide mobile broadband market. Second, improved devices in the PDA and smart phone form-factor will allow for VoIP without compromising the expected phone look and feel.
In the end, traditional mobile carriers are powerless to protect their voice margins from the threat of VoIP. They could try blocking VoIP, but how well will that fly when they’ve got compete with both a T-Mobile eager to gain market share to recoup their 3G spending and WiMAX carriers with no legacy voice revenue to protect?
Also, do Verizon and AT&T really want to fight yet another Net Neutrality battle? Sprint Nextel is an especially interesting case, as the only way for its WiMAX efforts to succeed is at the expense of its legacy operations and vice versa. Another tack would be to market the circuit-switched service as having superior quality to any third party VoIP offering. This could be quite compelling to high end users who are often business people, but is largely undercut by years of scraping by with a service that is markedly inferior to landline.
To make the argument stick, they’ll have to invest considerably in improving the network and that will be a losing game as pressure from VoIP will only hasten the pre-existing downward pricing trend. Perhaps, since they can’t beat them they ought to join them – shut down their circuit-switched networks and go completely packet based.
A carrier’s own VoIP service will always have an inherent advantage over that of a third party – it doesn’t have to go over the Internet. It’s debatable that going VoIP will make it less expensive for a carrier to offer voice than their current highly optimized circuit-switched networks, but there is no doubt that only having to operate a single packet based network for all services will save money.
This is the direction they are heading with IMS, already. The point is that competition, especially competition from third party VoIP, is going to force them to move faster than they might like. Meanwhile, the cash cow of legacy voice may not have as much milk left in her as they thought.
Jesse Kopelman is a long time GigaOM reader and an expert in wireless technologies, who has been involved with many wireless network builds. This is his first contribution to a new feature on our site called Conversations, where we will invite folks whose comments we have enjoyed to share their thoughts on topics that interest our community of readers.