Thursday, 29 October 2009

The Future of Interconnection, or why we continue to pay for Voice

My second presentation at Emerging Communications Europe 2009 (Ecomm2009). The outline is: One would expect that because of the rise of data we wouldn’t have to pay for voice anymore, this won’t happen because:
  • With data overtaking voice even on mobile networks, one would expect that soon we don’t pay for voice anymore
  • We accept paying by the minute because voice is highly valued and it is a familiar way of billing
  • The way voice interconnection is paid for in Europe is the reason we are stuck with paying by the minute
  • Only when the current interconnection model is removed will voice be ‘free’


  1. Rudolf, will that be a good thing ? (and for whom)

  2. (I mean "free" voice, access flat rate)

  3. I think it will be good for people in general as it will increase the ability to have voice communications easily everywhere. Even for Telco's it will be good as they will be able to get beyond the traditional voice model.

  4. I'd say that, if we'd start from scratch, it would be a good thing.
    But we're not starting from scratch, we have telcos with huge debts "justified" by a growth in their traditional business.
    Take skype, successful as it is, they have worldwide revenues which are less than 1/10 of traffic revenues of telecom italia fixed voice in italy alone.

    If you increase the access fees, in order to be able to keep repaying the debt, you could easily determine a reduction in fixed subscriptions (switching to mobile), something that is already happening here and there.

    and, as fixed network costs are essentially fixed, that implies that almost all of revenue loss in fixed access is ebitda loss.

    of course we could argue "who cares ? it's their responsibility having piled up a huge debt on longterm unsustainable basis. But, with some notable exceptions like the netherlands, there's only one network in place and that's the incumbents'. (not to mention the social impact of layoffs and the poor maintenance of the copper network).

    we must bear in mind that, sombody from the financial community explained me, more than 1/3 of european corporate bonds are emitted by telcos, and a failure to repay the debt would cause much broader consequences than just the telco sector.

    I think we need to reduce debt, invest in fibre networks in order to reduce opex for the future, do it over a period of time to have a softlanding of occupation.

    In my view, a possible area of future services for telcos (they failed most of what they tried), is to leverage their billing relationship with customers and the e-money directive goes in that direction. (Banks, which are relevant shareholders of telcos would try to slow the process down).

    But if we move to B&K, the first reaction of small altnets, would be to get rid of variable billing and move to flat rate; they would be followed by incumbents; altnets would buy flat rate ULL and being very efficient they would accelerate the erosion in margins of incumbents, de facto blocking investments in fibre which is what we need in order to reduce opex.

    In my view we would need to work out and implement quickly other options of variable billing, different than voice and invest in opening the billing systems, not shutting them down, as moving to flat rate voice , I think, would quickly cause.

    It's a tricky situation which, in the end, comes down to the fact that, with some notable exceptions, telco access is a natural monopoly that needs to be somehow a state regulated business, imposing some non-avoidable pricing sufficient to remunerat long-term-oriented investment with short term customer behaviours.

  5. Stefano,

    That is one of the most scary comments I have read in a while. I also had a similar one here on how hard it is to make money on data on mobile networks. So we might end up in a difficult place where the telco's are left with nothing.

    However ARPU in the US is much higher then ARPU in Europe and they are on a different interconnection model. I do think that data is priced low at the moment because voice is priced so high. Voice is supporting data and it should be the other way round. How are we going to do that transition smoothly is the question. In the end every mobile and fixed network will have to have an ARPU of between 30 and 50 euro, regardless of the contents of the bits

  6. I completely agree with you; we are selling cheap something much more expensive of what we are selling expensively (data vs. voice).

    furthermore, we are selling cheaply a costly infrastructure (fixed) (replacement cost) and selling expensively a cheap infrastructure. (wireless) (expensive because of the tax toll payed to govs.). In what terms (price and means) should voice-only customers of wireless operators contribute their bit to the fixed network ? I don't know.

    I agree to your end of the game situation.

    here we say that, once you pull out the toothpaste from the tube, it's very difficult to put it back in.

    moving from where we are now to where we should be, giving the present EU regulations and the heterogeneouty of countries' situations will be quite a challenge.


Note: only a member of this blog may post a comment.