Is Wireless VoIP A Cellular Killer?

Which would you choose: cellular voice service or wireless VoIP? The answer has the cellular industry very worried.

March 24, 2005

6 Min Read
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A seemingly simple scenario will soon become a reality, and it could dramatically change the cellular industry and how we talk on the phone while we're mobile.

The scenario is this: You're walking down the street talking on your cell phone. When you walk into your office, your phone seamlessly switches from your regular cell carrier to a voice-over-IP (VoIP) provider accessed via your company's wireless LAN.

Mobile phones are starting to appear with both cellular and Wi-Fi capabilities and the technology for seamless hand-offs between the two types of networks isn't far off, most observers agree. But this is far more than a simple matter of new technology. Rather, it means a whole new cast of competitors for current cellular operators. For users, it means more choice and, potentially, lower prices.

"The (wireless) carriers are scrambling to figure out what to do," said Derek Kerton, principal of the Kerton Group, a telecommunications consulting firm.

In other words, whether you are a manager who buys mobile telecom services for your company or an individual consumer, this seemingly simple scenario represents a sea change that will impact how you acquire and use mobile services.A New Cast Of Characters

Until recently, wireless operators as a group had a near-monopoly on voice and data services for mobile users. That started to change with the advent in the last few years of Wi-Fi hotspots. But wireless voice-over-IP enables mobile users to talk on the phone without a constant reliance on cellular operators.

While this already is possible via hotspots, the trend should dramatically pick up steam as hotspots proliferate, as municipalities institute city-wide Wi-Fi coverage and, longer-term, when mobile WiMAX becomes widely available in a couple of years.

This trend has not been lost on Jeff Thompson, COO of wireless ISP TowerStream, which provides pre- WiMAX service to enterprises in five U.S. cities. That company recently launched a pilot wireless VoIP program in New York and, in a recent interview, Thompson referred to TowerStream's being involved in VoIP as a "no-brainer."

Nor has this trend been lost on Jeffrey Citron, CEO of VoIP vendor Vonage. However, Citron insisted in a recent interview that it is in the interest of cellular carriers to work with wireless ISPs and VoIP providers, not to resist them.Citron claimed that wireless operators eventually will partner with companies like Vonage because it will enable those carriers to spend significantly less money on wireless infrastructure even as they lose revenue. The net result, however, will benefit the carriers, Citron said.

"If you're a wireless carrier and you have to buy capacity on a foreign network or in the U.S., you can buy it from Vonage and a Wi-Fi network or buy it from competing cell carriers," Citron said. "The Wi-Fi networks will be far less expensive, so there are economic interests in it for them."

In addition, wireless carriers will potentially gain access to the VoIP provider's customers, Citron insisted.

"We have a large and rapidly growing customer base -- we're adding 15,000 customers a week, 200,000 per quarter," Citron said. "All my customers have cell phones."

However, Kerton didn't agree with Citron's assessment."That's not how wireless carriers work," Kerton said. "Wireless carriers plan networks for peak loads. If they offload traffic to Wi-Fi, that doesn't change their peak load planning. Besides, it will hurt (the carriers) on Wall Street."

A Lack Of Allies

Another problem faced by the cellular companies is that they have few natural allies in their battle against wireless ISPs and wireless VoIP. The wireless ISPs are, in effect, creating their own voice and data network and, as a result, are natural competitors to cellular operators. VoIP vendors such as Skype and Citron's Vonage also offer services that arguably compete against the cellular operators.

Nor are mobile phone vendors -- one of cellular industry's natural allies -- offering the cellcos much support. Virtually all cell phone vendors have committed to adding Wi-Fi to their phones. Nokia, for instance, recently promised promised that every one of its smartphones will have Wi-Fi support within two years.

Unsurprisingly, the Wi-Fi industry is not very sympathetic to the cellular carriers in particular matter. Wi-Fi's already-huge popularity can only increase as wireless VoIP becomes more popular.

"It's shaking up the (cellular) industry and that's good for consumers," said Frank Hanzlik, executive director of the Wi-Fi Alliance, a trade organization of Wi-Fi equipment and service vendors. "Choice is a good thing. You have to innovate or die. This (wireless VoIP) isn't going away."Perhaps the most peculiar non-ally for the cellular companies are the old-line telecom vendors. Their lack of direct support is, initially, peculiar because many of those companies, from the incumbent regional Bell operating companies (RBOCs) to the larger so-called competitive telecom companies, own significant stakes in wireless carriers.

However, wireless operators have taken business away from those companies' traditional landline business. Plus, the landline companies have dived into VoIP, primarily for enterprise users, and also are trying to set up networks of Wi-Fi hotspots that can be used for, among other things, wireless VoIP.

Even more telling, some large telecoms such as Sprint and AT&T have said they will build WiMAX networks. Those WiMAX networks will serve a number of purposes for the telecoms such as providing Internet access to enterprise customers and, perhaps, to consumers. And they also will eventually enable mobile VoIP.

The Cellcos Fight Back

All is not lost for the cellular operators, of course. For now, most operators are quite profitable, giving them the resources to fight back. And nobody expects mobile VoIP to be an immediate threat.

Even Vonage's Citron acknowledged that, even if his scenario of cooperation between wireless carriers and wireless VoIP vendors comes true, it'll take a while."All the (telecom) mergers aren't making things easier -- they're distracting everybody including us," Citron said. "We need to come to a more stable environment first. But it'll happen."

Kerton agreed.

"VoIP is already starting to beat the pants off the fixed-line (telecoms), but it'll take longer with wireless," Kerton said. "In the long-term, (wireless VoIP) is very disruptive -- but it will take three to five years."

Perhaps coincidentally, that's about the same timeframe in which mobile WiMAX is expected to start proliferating. And, in that time, citywide Wi-Fi networks are likely to become common, which will significantly foster the growth of wireless VoIP.

Still, the wireless companies are hardly exuding confidence on this topic."We don't talk about services we don't offer," said a spokesperson for one large operator. The spokesperson was asked to set up an interview with an executive about wireless VoIP but declined.

In the short-term, cellular operators are vigorously trying to offset potential losses in voice revenue by providing new data services. They've been particularly fixated lately with providing multimedia services to consumers, such as Verizon Wireless' V CAST service, which provides streaming video and games, although the success of these services remains far from certain.

Kerton argues that one key weapon that the cellular operators and the old-line telecoms that own them should use is bundling various types of communications capabilities. Some are already doing that. SBC, for instance, has been bundling hotspot access with its DSL access and has said it will add cellular service via Cingular, which it co-owns, to its bundles in the future.

"Bundling services increases loyalty," Kerton said.

While Kerton didn't embrace Citron's vision of cellular operators working in tandem with wireless VoIP providers, he still said that the carriers will need to embrace wireless VoIP in some still undetermined way."If VoIP is the way things are going, the wireless carriers will need to get involved," he said. "They know they have a little time to figure out. But they don't have a lot of time."

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