June 05, 2012

Rethinking Voice and SMS Profits in an All-Data World


Over the years, there has been "wisdom" built up around voice based on old models where every voice minute was a billable minute. These old-wives beliefs continue to be carried around despite a continued migration to flat-rate voice plans. All-IP, all-data LTE networks totally upend traditional thinking of voice and data with the forthcoming deployment of VoLTE (Voice over LTE). Since LTE is the bow wave in a decade-long migration from TDM to IP for traditional phone companies, LTE offers a model for how service providers will run voice over broadband when the PSTN (Public Switch Telephone Network) is finally retired.

PSTN Think:  Declining voice minutes bad. IP Think:  It's all data, who cares?

Mobile and PSTN service providers have faced declining profits on voice for years, first as they offered "free" calls on network and then moving to bundles and unlimited minutes of voice.   The only way to make money on voice on a per-minutes basis is either via pre-paid plan when the user goes over and has to "recharge" or on international calls. 

Skype has been kept afloat all these years as a "free" service because of the profits it makes on international voice calling. The only companies truly hurt in the long run by declining voice minutes are entities like Skype where its only major source of revenue has been from arbitraged international calling. Most companies trying to out-Skype end up having shaky finances because they don't have the economies of scale the Microsoft-owned division has with all the minutes it moves.

PSTN Think: More voice goodIP Think: More data is good, but…

In the data world, voice is a streaming application, so the longer people talk, the longer they are moving packets and adding up plans to max out their data plans

Adding HD voice means more data packets per call in a mobile environment -- maybe 24 Kbps as compared to 8 to 12 Kbps or less, depending on the codec supported. In a broadband environment where data caps are much higher and harder to exceed, HD voice calls are noise compared to streaming HD movies from Netflix and video calls.

However, everyone -- consumers and service providers -- have become accustom to thinking about voice on either a per-minute or flat unlimited plan. It isn't clear if LTE customers will be offered a bundle of free voice "minutes" (packets) that doesn't count against a monthly mobile data quota. AT&T has hinted at the prospect of certain "free" apps within its data plan, with someone else effectively paying the bill.

PSTN Think: SMS is our cash cowIP Think:  It's all data, email and OTT messaging data contribute towards a cellular data cap

Unlimited $5/month SMS text messaging plans have been in vogue for a while, so there's likely some loss of revenue as consumers favor email and third-party over-the-top (OTT) services for convenience and clarity in communications. Each transaction in email and OTT adds a little bit to a cellular data cap, so "free" third-party services like Apple Messages running over a cellular data connection add to the cap.




Edited by Amanda Ciccatelli



Related Tags

Microsoft    Apple    Broadband
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