Living with VoIP

IP-based telephony has long been anathema for many Middle East operators. But according to delegates at VoIP World 2008, regional operators also stand to gain from the technology they fear. Roger Field reports.

To people outside the telecom sector, the decision the stage VoIP World 2008 in the UAE, where such services are blocked, appeared unusual. But for industry insiders, it made perfect sense. With pent-up demand for cheaper international calls, and growing liberalisation across the region, the Middle East and Africa presents a huge opportunity for VoIP.

As CEO of Fusion Telecom, a US-based provider of IP-based voice and data services, Matthew Rosen has a clear view of how VoIP is changing the telecom sector around the world and in the MENA region.

Rosen, who introduced VoIP World 2008 in Dubai in June, has no doubts that VoIP has already started to change the global telecom sector fundamentally. "In less than two decades, VoIP has evolved from a technology embraced only by a few computer enthusiasts to a widely recognised agent of change significantly altering the communications landscape," he said.

"It is no longer a question of ‘if' VoIP but ‘when - and how'. By fourth quarter 2009, it is expected that there will be over 135 million consumers using VoIP, a global market that just last year neared US$200 billion."

He added that international VoIP minutes already accounted for 21% of total international minutes in 2006, and it is anticipated that by the year 2010, VoIP minutes will have surpassed circuit switched minutes with over 50% of the total. "Considering that as recently as 2004, VoIP was still illegal in 24 countries and restricted in another 37, the growth has been nothing short of phenomenal," he said.

And while some industry insiders questioned the merit of staging a conference about VoIP in the Middle East, where most countries impose some form of restriction on VoIP services, Rosen views the region as a potentially lucrative market for telecom companies, whether they are incumbent operators or IP-based players.

"There's more reason to continue to be very optimistic about the VoIP opportunity, especially here in the Middle East," he says. "Between 2000 and 2007, growth in the number of worldwide internet users exceeded 266%, with growth in the Middle East well over 920%.  There were similar rates of growth in the emerging markets of Africa, at over 880%, Latin America at almost 600% and Asia at almost 350%."

He added that this level of growth is accompanied by huge opportunities that invite liberalisation. "Already many countries have introduced competition such as Bahrain, Jordan, Turkey, Palestine, and Algeria. A number of other countries are working on their plans for deregulation," he says. "With continuing pressure to allow competition, I would fully expect that the trend of deregulation will continue and most likely accelerate," he added.

Reaping the rewards

Rashid Al-Snan, CEO, Etisalcom, a Bahrain-based operator that provides VoIP and other next generation services, is just one company that is reaping the rewards of VoIP, rather than losing revenue as a result of it.

Al-Snan has been keeping a close eye on VoIP trends globally, and he is convinced that the technology will continue to grow strongly. "During the last 2.5 years VoIP has captured 60% of international minutes in the Bahrain market and about 40% of revenue," he said.

He added that in terms of minutes, VoIP has grown by about 100% in the past couple of years, while revenue has grown by about 20%. "Our business is all IP and internet so we tend to provide total solutions especially for corporates. Our very first product was an international calling card using VoIP technology but now we are of course providing beyond that, because we provide fixed-line services using VoIP technology."

VoIP services have an immediate advantage of cost savings compared with services being delivered using legacy technology, according to Al-Snan. He adds that by offering VoIP services, incumbent operators can also help mitigate potential losses in a fully liberalised market. Indeed, they will save by using a less labour intensive technology, and they can also leverage the potential of their existing customer base.

"The problem today with legacy equipment is that you need a lot of people to maintain it, and the cost is high - around 20% of the original capital value to maintain such systems. IP reduces operational cost and they [incumbent operators] will be able to compete against the newcomer," Al-Snan says.

"Definitely they will have an advantage because of their strength they already have in the market. All they have to do is provide customers the VoIP services, which will allow them to keep their customers. We know that VoIP services and technology is a lot cheaper than legacy, so they will be able to pass some of those savings on to the end user."

Despite this, the transition to VoIP, particularly in a market that has been protected, can be painful for an incumbent operator. Batelco has lost about 60% of its market share for international calls, and 40% in terms of revenue, Al-Snan says, referring to a recent study.

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But VoIP can also bring other, sometimes unforeseen, challenges. With less labour required to maintain VoIP infrastructure, Batelco has been forced to make some of its staff redundant recently, and this in turn led to protests from unions and activists angered by the job losses. "It needs to be managed in a proper way so it does not create an ill feeling between the company and the community," Al-Snan said.

"If you look at our company and the amount of lines we have, the amount of calling cards we handle and the amount of people we have on board, it is nothing compared to an incumbent," Al-Snan added. "Our operational efficiency is a lot better because of that. So it is going to be difficult for incumbents to compete unless they go through this phase of redeploying people on the front, and trying to reduce their operational costs."

Furthermore, Al-Snan had harsh words for operators in the region that are keen to avoid having to accept VoIP. "They have to start offering VoIP, they cannot avoid this. I know maybe the regulators help them to delay things but the end result is that VoIP is going to come, whether they like it or not."

Al-Snan believes that 2009 will be a defining year for VoIP in the region, when most operators are forced to deploy their own service. He also said that operators can benefit from establishing VoIP services as early as possible.

"Competition will eat up most of their international business and most likely will enter some of their national business. "The sooner operators get started on this, then the migration will become a lot easier. It should be a lot easier for them to do it now while they are in a relaxed position rather than having to do it once they are in a tense position when the competition heats up," he added.

Operators should also avoid relying on regulators in their home countries maintaining blocks on VoIP. As Al-Snan pointed out, with free trade agreements, it is likely to become increasingly difficult for countries to maintain blocks on international services such as Skype. "It is really a matter of facing up to these challenges and opening competition. The end result of competition is always that you become more efficient and there will be a lot of savings that you can pass down to the end user."

Value for operators

With many traditional voice operators in the region fearing the emergence VoIP, Fusion's Matthew Rosen is keen to remind them that they can benefit from VoIP - by leveraging their cash resources and large customer bases. For Rosen, it is important for larger operators to ensure that when they enter the VoIP arena, they work to differentiate their offering.

"In this environment, larger, more established players with significant investment in infrastructure who are committed to building long-term, sustainable business must focus on marketing strategies that develop brand loyalty through the key differentiators of quality, reliability and customer service, as well as the introduction of value added services and content," he said. "As VoIP continues its evolution, and quality continues to converge with that expected in traditional TDM networks, the more established carriers will be able to reach out with advanced IP-based solutions for the most demanding corporate customers."

Rosen added that many smaller VoIP players that lack the resources to cater to discerning business customer have neglected this segment "leaving open a less crowded competitive field" marked by a more loyal customer base."

"The business customer comes in many shapes and sizes with multiple solution requirements as well as varying levels of sophistication in the VoIP environment.  As Fusion has learned, offering a comprehensive portfolio of advanced, IP-based voice and data services designed to suit the needs of companies of every type and size is a winning strategy," he added.

Accepting VoIP

Bahrain, where VoIP is permitted, is a market that other Gulf states are watching carefully. The country shares much in common with other countries where VoIP services are blocked, including a large population of expatriates. This is significant, as expatriates tend to provide a significant source of revenue by making international calls, and where VoIP services can be accessed, this revenue is likely to diminish.

This has certainly been the case for Bahraini incumbent Batelco. "If you look at Batelco, VoIP is predominantly used over international routes," said Rob Middlehurst, director of market and competition at Bahrain's TRA. "You can see the change in international traffic and revenues. VoIP has certainly had an impact on it.

"We know from information in the public domain that Batelco has lost significant international volume, but if you look at the revenue share of Batelco for international it has lost 50%-60% of traffic but still has 50% or 60% of the revenue. So clearly if you look at the overall market in Bahrain, we know that the market is still growing, so there is still revenue to be made out there."

He added that quality of service is an important factor when it comes to regulating VoIP. "There is a quality impact which we have to consider. Providing traffic is sent out on routes that are recognised, then quality at a certain level is maintained and there are international standards for 150 mili-second delay in VoIP on international calls, which is acceptable, but if they start using grey or black routes, public internet for example, as a means to cuts costs then that does create problems."

The importance of regulating VoIP becomes greater as telecom services and infrastructure move increasingly to Next Generation Networks. "We've got to migrate lots of the services that the consumers use but also the inter-operator services into an IP world and that does come down to the quality measures you place against it. If VoIP is voice and technology neutral then there are existing quality measures in place regarding delay, echo, and they have to be managed the same in the IP world as they are today. From a consumer perspective we wouldn't want to see a degradation in that service," he said.