Disruptive Threat or Innovative Opportunity?
November 2011
Scenarios for Mobile Voice OTT

In this Viewpoint, Arthur D. Little identifies the key trends in the OTT sector with a focus on mVoIP, its primary challenges and key success factors in order to assess three OTT development scenarios. Depending on the scenario, Arthur D. Little expects mobile voice OTT market size to range between $14-100 billion in 2016, accounting for between 2 - 20 percent of total voice revenues. Whichever the scenario, it is clear that operators must develop strategies to respond to a world with mobile voice OTT presence.

OTT players lead the second phase of VoIP innovation

The high cost of voice calls has long provided incentives for new players to find ways to market by offering lower cost services. With its launch in the mid-1990s, VoIP was hyped as the greatest threat to traditional telecom revenue. Yet initial efforts by players, such as cable and VoBB (Voice over Broadband) providers, had limited success in challenging operators’ market positions. Hence, until recently both telecom companies and experts regarded the threat from OTT as negligent. Such perception is now changing as the emerging second phase of VoIP innovation, led by highly sophisticated and innovative companies, is demonstrating a potential to cause a major impact on the traditional voice market. In this new phase of VoIP innovation, voice players are providing value beyond free and lower call rates by offering many convenient and consumer sweet-spot features, which have led to increased consumer demand for OTT. Several providers, such as Fring, Tru and Mig33, focus largely or exclusively on mobile VoIP (mVoIP). Others, such as Skype, Google Voice, Jajah, Rebtel and Raketu offer mVoIP as part of their broader web-activated business. The mobile connectivity component is getting further accentuated through mVoice apps on iPhone and Android smartphones. Several ambitious OTT players have already had an impact on mVoIP growth and on the total voice market. Skype, for instance, already represents over 25 percent of cross-border international call minutes. The company, which has been disruptive since its launch, is now focusing on business users, in addition to mobile users and HD voice. Microsoft’s acquisition of Skype can lead to voice becoming just another application on your smart device. Microsoft is expected to integrate Skype more deeply into Lync, Outlook, Xbox Live, Hotmail and Messenger. The company can also enable the same service on various devices powered by Windows, including Nokia smartphones, computers and tablets. As an investor in Facebook, Microsoft is expected to fully utilize the social network with Skype-powered video calling on Facebook’s mobile application, bringing mVoIP to the mainstream. The effective combination of these efforts may enable Skype to have a stronger impact on the market. Google Voice, together with Skype, is likely the most powerful disruptive force, integrating several applications and services. Google Voice’s services have the potential to impact both OTT players like Skype, as well as traditional telecom business. As seen in the partnership with Sprint in US, Google Voice can enable both challengers and incumbents to preserve their market positions, as well as advance its own business. Google Voice is also backed by a financially strong company, which has repeatedly demonstrated its determination to disrupt various markets and sectors. Other players with strong brand capability and financial strength to cause powerful disruption, such as Apple, have already turned their attention to this market. In particular, Apple has pushed the so-called soft SIM, which could further drive the development of alternative mVoIP services and a continued commoditization of mobile voice; with the development of soft SIMs, traditional players may, in the long run, lose the direct customer relationship altogether to the advantage of OTT players or third parties. Although mVoIP represents a threat to the traditional telecom value chain, it could also provide opportunities for market players, through partnerships between mobile operators, handset vendors and mobile voice OTT providers. Going forward, telecoms are expected to move away from blocking or penalizing the usage of VoIP services, in order to avoid the risk of alienating a significant portion of their customer base and increasing churn. Operators can use partnerships as opportunities to establish themselves as innovators and gain market share through cost-efficient customer acquisition. Handset vendors may use partnerships as an opportunity to increase revenues by expanding their footprint in the value chain and increase end-user exposure. Voice OTT providers will consider partnerships as a chance to monetize their existing user base and accelerate the number of mVoIP users by getting access to operators’ customer base.