VoIP will hit Euro telcos hardest

European telecom operators will be hit the hardest by the fast and accelerating uptake of Voice over IP (VoIP) services such as Skype that route voice calls over the internet.

According to a newly published study from research firm Evalueserve, European operators relatively highly exposed because calling and roaming rates, as well as the share of roaming calls, is higher, and local calls are charged by the minute.

In contrast, the study found that the flat monthly telephony fee model prevalent in countries such as the US was less likely to be affected by VoIP providers.

Worldwide, according to the research, the number of regular retail Skype users is likely to be between 140 and 245 million by 2008. It further projects that incumbent telecom operators, combining fixed and mobile networks, are likely to suffer a permanent reduction in overall profitability of at least 22-26 per cent, compounded by reductions in revenue of between 5 and 10 per cent as a direct impact of Skype by 2008.

Marc Vollenweider, CEO and president of Evalueserve said: "Not only will the VoiP solutions offered by incumbents not be able to offset their lost profits, they will also accelerate the cannibalisation of existing profits. In addition to this, it is not even clear whether such VoiP solutions will be competitive against Skype."

The Evalueserve report also warns that fixed-line operators, especially long-distance operators, will be much more exposed than mobile operators in a base case scenario, as a much larger share of the fixed-line traffic will be exposed to VoIP.

However, mobile operators will face more significant exposure, once Skype and other VoiP players offer mobile solutions by reducing roaming fees and mobile voice traffic.

Evalueserve further estimates that revenues from the enterprise segment of these telecom operators will be impacted even more strongly.

"Overall, Skype represents a massive discontinuity in the telecommunications industry, driving the convergence of voice and data much faster than originally anticipated," added Vollenweider.