With roaming revenues coming under threat from both legislation and VoIP technology alike, Abraham Joseph, md of Inteligentis, looks at how operators can respond to change
Mobile operators generate over $60 billion in roaming revenues annually and make over 20% of their profits from roaming. Indeed, Inteligentis has heard of operators generating over 85% of earnings from roaming. Whatever the actual values, it is clear that in Europe especially, their ‘jewel in the crown’ is under threat on two major fronts: regulators are demanding reductions in roaming charges; and an increasing number of new entrants – many using low-cost VoIP technologies – are entering the market.
Threat of Regulation
After several warnings to Europe’s mobile operators to lower international roaming charges, on 28 March the EU’s Information Society and Media Commissioner outlined proposals for EU regulation (see News, page 14). The proposals could be adopted as early as June 2006. However any regulation will need the approval of the European Parliament and the Council of ministers and will need to be implemented by member states.
In an interview conducted prior to the commissioner’s announcement, David Smithwhite, head of roaming at Vodafone suggested that prices were already on their way down due to initiatives such as ‘VodafoneWorld’ and ‘Passport’ and that competitors were beginning to offer similar zoned pricing. ‘VodafoneWorld’ breaks the world into zones and offers a fixed price within and between zones, while the ‘Passport’ offers roamers the option of paying a fixed connection fee (75p in the case of a UK subscriber) plus charges equivalent to those on their home networks.
If the commissioner’s proposals are adopted, Vodafone will need to scrap the connection charge because a key requirement will be that international roaming charges are not higher than national levels.
The threat of VoIP
However, arguably the biggest threat to roaming revenues and profits is the growing number of low-cost VoIP services. “Some operators will lose out as their customers use WiFi more and more to call over the Internet,” says Oscar Derrer, CEO of Comfone, a Swiss roaming platform and VoIP service provider.
“I think the big guys are going to lag behind in the market”, says Hans-Arne L’orange, CEO of Tower PLC, a UK based VoIP service provider. “They have invested in expensive spectrum, and have huge investments in legacy technology.” He goes on to say that despite the number of roaming minutes continuing to increase as prices fall, incumbents’ market shares are still likely to decrease as the market becomes increasingly fragmented and new players take market share.
Roamers are important to operators
Although only between 1% and 5% of subscribers roam, roamers are extremely important to operators because they are an extremely valuable segment.
“Roaming revenues are extremely high margin” says Jeff Popoff, vice president of business development at Redknee, a mobile infrastructure solution vendor with a heritage in real-time rating. “The cost of delivering a call to a roamer is as little as one cent more than delivering a domestic call, but prices can be over 200% of domestic rates.” Redknee’s solutions are implemented in a number of the European operators, including Orange, Vodafone, O2, and Mobilcom Austria.
Given the importance of roamers, it is not surprising that operators are employing a range of strategies to defend and grow their roaming businesses. They include:
• Forming alliances to address the needs of roaming customers more cost-effectively
• Growing their roaming market by extending roaming to new customer segments (for example prepaid)
• Making a broader range of traditional voice services available to customers when they roam
• Offering new data services to roamers
• Reducing their costs, using techniques such as call redirection and least cost routing
For operators like Vodafone with large footprints, making the services on home networks available to subscribers when they travel is a key focus. And, given Vodafone’s coverage, it is not surprising that smaller European operators have found it useful to form alliances. The Freemove Alliance formed by Orange, Telefonica Moviles, Telecom Italia Mobile and T-Mobile in 2003, was recently joined by TeliaSonera. This alliance now has 230 million subscribers in Europe. However, Telefonica will be required to withdraw from this alliance if its merger with O2 goes ahead. The Starmap Mobile Alliance, also formed in 2003, has eleven members and a subscriber base of more than 65 million.
Pre-paid Roaming
Pre-paid roaming represents a low-cost market development opportunity for many operators. Although the service has been in operation in many networks for some time, the emphasis now is on ensuring that subscribers are aware of it and can use it easily. “We have done extensive research that shows that within three days of landing in a foreign destination over 70% of prepaid subscribers run out of credit and are unable to use their phones for the remainder of their vocation,” says Alan Graham, group director, international business at Alphyra, an Irish settlement services company.
Alphyra runs a payment network that includes 125,000 merchants across 19 European countries and was chosen in February of this year by the Starmap Mobile Alliance to provide a roaming recharge broker solution that would allow alliance members’ subscribers to top up their mobile phones via vouchers purchased in the local currency at any retail outlet that offers a top-up services in any member country.
Roaming services beyond basic voice
For most operators the roaming problem has been solved for voice and the challenge is to support other services such as SMS, MMS, data and e-mail. “Prepaid charging has been driving the adoption of the CAMEL standard, but now that the standard is in place in many networks, it is being used for things like voice VPN services,” says Graham Cobb, director of IMS product strategy at Telcordia. “We see this as a very important market because it will drive a lot of roaming business.”
Data services for roamers
“Voice is the big part of the business for the moment but customers are very keen on using SMS when they go roaming,” says Smithwhite. “We look forward to seeing growth in our MMS business, and clearly MMS lends itself very well to the holiday situation.” He adds that looking forward, Vodafone sees growth in use of data services. “Our consumers are beginning to use Vodafone Live! when they are roaming, and on the business side, we have email devices and data cards for computers that customers can use when they are roaming.”
Vodafone has implemented a virtual home environment (VHE) based on the Starhome platform. With this, Vodafone plans to offer customers the same services abroad as they have at home. The company is also rolling out other roaming services such as intelligent call assistant (based on platforms from both Starhome and Roamware) that would route calls appropriately, even when they are dialled incorrectly, for example, with the home country code omitted.
Han Weegink, director marketing, Logica CMG cautions that implementing roaming for data services may not be as simple as many expect. “Going beyond voice creates a number of complexities,” He says. “If we take the case of WAP for example, if I roam to France and log on to an Orange network, there are a range of issues associated with authentication, provisioning, getting the right settings on the phone and of course settling the billing.”
Embracing the VoIP opportunity
VoIP technologies need not only represent a threat to mobile operators. For those that embrace it, it can offer significant opportunities.
“What we are offering to mobile operators is a service that allows their customers to be reached on VoIP using their mobile numbers,” says Comfone’s Derrer. “Similarly, customers call out over WiFi and the called party can see their mobile numbers. These calls over WiFi are costed at an interconnect level and so are very cheap.”
Comfone’s core offering is its roaming platform, Key2roam, aimed at both small and large operators. For large operators, it enables them to gain access to a large number of smaller markets very cost-effectively. For small operators – and even third and fourth operators in larger markets – it enables them to gain access to larger markets, a task that would otherwise be difficult or impossible for them to accomplish independently.
But why would an operator want to offer a service such as Comfone’s VoIP service? Derrer suggests they will, simply because the alternative is that they will lose customers to a VoIP provider. He goes on to say that once one operator goes down this route, the others will have no choice but to follow. After 3 UK’s decision last month to co-market Skype services with its 3G data card, it will be interesting to see how long it takes the other UK operators to respond.
Roaming and Next Generation Networks
A range of opportunities and challenges face operators as they evolve their networks. “Increasingly, operators are looking at how they will make new services work in a roaming environment as they move towards IMS” says Telcordia’s Cobb. He suggests that challenges arise because standards are not very mature in areas like IMS and that, as operators move to video and multimedia services, they need to address not only how to control these services, but also how to deliver them in a cost-effective way.
A number of vendors are hard at work developing technologies that would enable customers to roam seamlessly across different access technologies. “We are working on enabling roaming between WiFi and 3G and then taking that into roaming between mobile WiMax and 3G,” says Genady Sirota, vice president of product management and marketing at Starent Networks, a vendor of next-generation networking technologies. He goes on to say that security is a huge part of offering such services. “For a number of the carriers that we are working with, security is their number one concern,” he says. “This is especially important in the corporate market, because corporations would not sign up for VPN-type services if the pipe is not secure all the way to the access point.” He points out that 3G carriers can guarantee this and therefore corporations are expecting it.
“Fixed line operators are putting mobility into their networks,” says Keith Miller, CEO of Appium, a Swedish vendor of next-generation networking technologies that is also working on seamless cross-technology roaming. “The interesting point will come when mobile WiMAX arrives in 2007 or 2008.” He suggests that at that point, fixed network operators would pose an even greater threat to mobile operators.
Rising to the challenge
It is clear that, in the short to medium-term, a number of factors will lead to a reduction in international roaming charges. Just what impact this will have on mobile operators’ revenues and profits will depend on the operators’ strategies.
VoIP players are threatening not only roaming revenues and margins, but also those of basic voice services, SMS and the next generation of data services the operators are planning to deploy. But VoIP technologies also offer rays of hope for mobile operators. Services and technologies provided by the companies discussed in this article, and numerous others, enable operators to offer new attractive services from the convenience of existing devices. Operators are also free to embrace the new breed of WiFi-capable devices to offer enhanced services at lower prices and still achieve good margins.
Despite the doom and gloom, it may be premature to write down European mobile operators’ prospects in the short term. They still command a powerful position by virtue of their billing relationship with customers, control of a critical component of the communications infrastructure – the SIM – and the plethora of information they have or can easily obtain about their customers’ behaviour and location. Given the importance of roamers, it is unlikely that they will give up this valuable segment without a fight.