The deal struck by Verizon Wireless with the internet calling service provider Skype is a landmark deal in itself. This is also the starting of a new era of internet revolution in to the mobile space. For the last two decades internet has changed the way people share data and information with each other using computers. Now internet is set to change the way you communicate or talk over the phone.
At some point of time, like how internet transformed many businesses over time it is all set to transform the communication industry. Many people describes it has the start of the end of traditional phone business where powerful operators with their closed network dictated terms and conditions on how you talk and what applications you will have over their network. Yes it is slowly happening the “Internet is killing the traditional Phone business”.
Did Apple & AT&T underestimate IPhone?
It all started in 2007 when AT&T secured the exclusive right to support the Apple’s IPhone on its wireless network. In fact in 2007 I would say both Apple and AT&T underestimated IPhones real potential. IPhone really changed the way we look at mobile phones. Before IPhone, a mobile device is something which is exclusively used for communication with a camera built in to it to take some occasional photos. All applications inside the phones where built by the OEM’s which nobody really used. (In fact the most popular application inside a phone used to be the snake game :-))
IPhone reinvented this thought process and opened up IPhone which enabled millions of developers to write applications for IPhone. And more importantly all these applications were allowed to access internet and transfer data over AT&T’s 3G wireless network. Initially AT&T thought it was a win-win deal for both of them because from an AT&T point of view with 3G they have found additional revenue stream ie Data. And IPhone’s data intensive applications were a perfect choice for them. AT&T thought at least some of the media savvy and data greedy customers of IPhone will opt for higher data package from AT&T which will eventually benefit them. However it turned out to be bigger than that from an initial estimate of 10million user’s 25million users in 2009 alone bought IPhone there by capturing 14% of the global Smartphone market.
AT&T never thought that their competitor in their traditional voice business will come from inside. Smart developers creating applications for IPhone had already created VoIP applications which will just transfer voice over internet. Initially Apple and AT&T had an agreement which will ban applications that would let IPhone users to make VOIP calls using 3G data connection. This was done mainly to prevent these cheap calls cutting in to AT&T’s profit. However it still allowed VOIP over a Wi-Fi network. AT&T by itself did not ban any applications that will allow users to make VOIP calls. This was done using Apple’s IStore the only place where IPhone users can install applications in to their IPhone. So any application that will enable users to make VOIP calls will simply not get permission to IStore.
This agreement was revealed when in 2009 the powerful FCC (Federal Communications Commission) asked both Apple & AT&T why Google’s Voice app was rejected for IPhone store.
AT&T slowly realized that it is going to get in to more trouble by not opening its 3G network to internet telephony apps. In October 2009 AT&T relented and said it will open its 3G network to applications that enables users to make calls over the internet. Apple followed the suite and in Jan 2010 it updated the IPhone SDK to allow internet telephony apps to work on the 3G network.
The Verizon Skype Deal
So what prompted Verizon now to allow Skype to its network? What else it is the fear of competition. If Verizon or any other wireless operators does not allow this they will simply cease to exist in the future. Eventually they will loose to their competitors who allow internet calling over their network.
Also there is another realization that is giving push to this shift.”Voice is not the cash cow it used to be, Data is the new revenue stream”. So the transition time has started which will change all the so called wireless service providers to mere broadband providers. The current mobile operators can get reduced to network providers or simply cease to exist.
The future
It is difficult to predict what will happen in the future. The entry of smart phones has completely changed the rules of the business. The current wireless service providers are seeing this strategic shift and some are reacting to it. The introduction of 3G and 4G will provide more push to the data services by allowing much faster data transfer. This is very good news for VOIP providers as this will improve their voice clarity.
Also the network providers will have to invest in their networks more to avoid network congestion. And the developers will have to create smarter applications which will simplify the way you communicate. Who knows this deal if accepted by the consumers can be the last nail in the coffin for your traditional phone business.
The Indian scenario
India is a huge market when it comes to mobile communication and is mostly dominated by traditional telecom service providers like Bharti, Reliance,Idea and Vodaphone. 3G is not popular here. However this scenario can change after government opens up 3G spectrum sometime this year. There is a high possibility that many new players will enter the Indian market and will bid for 3G spectrum from the government. I think for some of these new players to compete with the existing new players will have to open their 3G networks for VOIP providers like Skype, Geodesic etc.
If that happens the existing players will really start to feel the heat. With ARPU's already heading to south this will create aditional pressure in their margins. But companies who has the technology know how of this new internet platform and know how to converge many services like data,voice,media and entertainment will greately benifit from this shift and will emerge the winner.
You can read about a one such company here (Geodesic Ltd)
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