VoIP rings death knell for traditional telephony

Private VoIP applications such as Skype threaten the core business of traditional telephony operators and could take as much as 13 per cent, representing €6.4bn, of the western European residential voice market by 2008, newly published market research has predicted.

According to the latest report from UK research firm Analysys, over 50 million broadband users in the region could be using private VoIP by 2008.

"The recent rapid take-up of one VoIP application variant -ð peer-to-peer VoIP using free downloadable software from providers such as Skype -ð raises the possibility of the appearance of a critical mass of private VoIP users that could unleash a significant structural change in the voice market by the removal of a large proportion of PSTN revenues," said report co-author Stephen Sale.

The report found that home users are increasingly turning to VoIP for longer calls to friends and family, the core telephony business of fixed-line incumbents.

"In combination with increased mobile usage, this could render the PSTN subscription worthless for many broadband users. Fixed-line voice would face not only mobile substitution, but private VoIP applications substitution as well," Sale warned.

The study predicted that, given favourable future regulatory and other conditions, the rapid adoption of private VoIP applications could generate direct revenues of over €3.5bn, the bulk (about 85 per cent) stemming from subscriptions, not call charges.

Analysys expects that, in revenue terms, the impact on incumbent telcos of such a shift in subscriptions from PSTN to private VoIP applications would be great.

In a worst-case scenario, incumbents could potentially lose over €3.3bn of subscription revenues in 2008, and cumulatively about €6.4bn over the period 2004-ð8.

Overall, the total revenues (subscriptions and calls) lost by incumbent PSTN providers could reach as much as 13 per cent of the voice market in western Europe in 2008, the study estimates.

"Private VoIP applications will contribute to an acceleration of existing trends, including a stronger horizontal industry realignment around communities, segments and brands, with lower prices and increased service convergence," explained Sale.

"In the short to medium term, the voice market could even expand as innovative applications provide opportunities for increased usage, slowing the current decline in revenues.

"In the longer term, however, private VoIP applications are likely to further decrease voice revenues. But they will also help tie those voice revenues to other communications services, thus offering voice players routes to potential new revenue streams."