Mobile operators cling to the voice-driven model they understand, but the profitable user experience has moved on
By contrast, mobile operators are proclaiming that with VoLTE they will be able to enhance their voice services with IP-based goodies like consolidated mailboxes and multimedia messaging - areas where Facebook will build on WhatsApp too. The operators will be spending many millions of dollars each on the IMS and other platforms to support VoLTE; they support teams of hundreds apiece dedicated to voice; and their collective subscriber base, around 7bn, is within the reach of over-the-top mobile VoIP services (currently numbering 1.5bn users).
Their cost bases are unsustainable in the web world, and however clever the rich communications services (RCS) they manage to layer onto their IP networks, they will not have the consumer impact of WhatsApp (or Skype or Google Voice or whichever new communications app is about to be unleashed by a start-up with two staff and a cost base in six figures not 10). Analysts at Citi estimate that telecom operators in Europe still generate more than 50% of their revenues from voice services, but that calls are worth 97% less if conducted over the internet, making traditional cost bases untenable.
But most cellcos believe that, without voice, they risk becoming dumb data pipes, and so they are adopting VoLTE and RCS because they can't think of anything else to do. So while there may be 35 VoLTE operators and 50m VoLTE users by the end of this year, according to calculations by Infonetics, the carriers will make very little revenue from them (and what revenue they do take will be fragmented between them, unlike WhatsApp's). For consumers, VoLTE will be just another mobile VoIP choice. Even carriers which brand and differentiate successfully will be playing in an unfamiliar market where most services are free and where users can be very fickle (for instance, Japan's Line overtook the mighty Skype to capture about 25% of the world's active mobile VoIP users last year).
One of Line's tactics has been to integrate paid-for apps such as games into its voice and messaging services, and some carriers believe the GSM Association's RCS platform (now branded Joyn) will allow them to do the same (again, ignoring the fact that expensively developed industry platforms are not the issue - firms like Line succeed by being agile, low-cost and understanding consumer behavior). This month, Deutsche Telekom launched Joyn services in Romania and Slovakia, trying to take on OTT providers with a smartphone app which offers one-touch access to video calls and messaging.
The service was developed by US-based Jibe and is delivered over its cloud network, a pattern which could help cellcos to reduce their costs and tap into web-oriented talent. That, rather than the offering itself, shows DT thinking in a more modern way, but it will still have to convince consumers that its services are better - and more fashionable - than WhatsApp and Line. Analysts were downbeat at a recent Sprint event, where the US operator announced HD Voice across its footprint (though it will not introduce VoLTE until 2015 onwards). Credit Suisse's Joseph Mastrogiovanni and Michael Baresich wrote in a client note: "HD Voice is now available across Sprint's network footprint. While the service should provide better voice quality, we do not expect it to set Sprint apart from its peers."
Telekom Austria CTO Gunther Ottendorfer told the recent LTE World Summit that it was important not to get carried away about VoLTE, calling it "a great development" but adding: "We shouldn't overhype and over-promise. At the moment, it's a very basic service with a very good call set-up time. Two to three years in the future, there will be ideas to combine voice with data information that's useful during calls."
Across the pond in the UK, both the largest cellco, EE, and the smallest, 3UK, are experimenting with new voice models and ways to compete with OTT rivals. 3 announced an app called ThreeinTouch, which allows users to talk and text over WiFi when in range. This offloads voice traffic from the cellular network, and may improve experience where cellular coverage is poor, but the minutes and texts are still deducted from the customer's allowance - in marked contrast to 'WiFi-first' approaches, which are being adopted in the US in particular, even by cellcos like Sprint. These similarly offload users onto WiFi when available, but that usage is free.
Just before the 3UK announcement, EE had proclaimed that it was investing £275m in its voice platform, and would enhance quality in congested areas by adding voice over WiFi (and VoLTE from 2015). It insisted that its WiFi voice offering would be of higher quality than OTT alternatives and would harness the native dial function of compatible handsets, rather than a separate application.
The statements reveal, yet again, the gulf of perception between mobile operators and OTT voice providers. MNOs are still talking about the network and how to harness an additional technology, WiFi, to improve quality of experience. Coverage and QoS are important to mobile users, but only insofar as they impact those consumers' experience of WhatsApp (or equivalent). Carriers have to decide whether they really do believe they can offer superior applications to Skype and Line by harnessing RCS, or whether their real power lies in keeping customers loyal to their networks by guaranteeing a good experience for key OTT apps.
The latter plays to their strengths and cultures, and they can use new tools to improve the proposition. Analytics and policy systems allow them, for instance, to identify a subscriber's most important app and offer guaranteed QoS for it (for a fee), or a good deal on data used for that app. Mobile OTT providers are looking for new revenue streams themselves, as they expand, and will be open to creative sharing arrangements with carriers (as seen, in particular, in some emerging markets like India). These are tactics which could keep the cellcos relevant, and require limited outlay, unlike the great red herring of massive VoLTE build-out.