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.