VoIP over Wireless Parasitic Disruption or Geeky Market Niche? Stagg Newman McKinsey & Company Business Implications of VoIP CITI Workshop May 25, 2004 0
THE VISION VoIP + Broadband Wireless = Disruption Wireless WANS (e.g. WiMax) Broadscale coverage IP Friendly Limited Mobility Hype will out in front of market reality Best of all worlds Broad coverage High bandwidth Single billing relationship WiFi offering High bandwidth (up to 5.5 Mbps real-life) IP Friendly Low coverage due to limited range Is there is a Pony in there somewhere! VoIP over Broadband 1
So why is Broadband Voice (aka VoIP) spreading now in the telecom industry? 1. IP telephony quality is improving and is getting cheap 2. Adjacent technology adoption (PC, Broadband, P2P, WLAN) 3. Low prices, based on lean business model and arbitrages 2
BB Voice is thriving in Japan Domestic call prices Yen, 3 min calls IP Phone lines development Thousands 80 45% of BB households 11% of all households 11900 15400 18800 8.5-90 % 8 On-net calls are for free 5200 8600 300 1300 Local call National call Incumbent BB VoIP off-net call (with Yahoo Broadband) 01 02 03F 04F 05F 06F The Japanese regulator has created a new area code 050 for the BB VoIP 07F Source: NTT; Yahoo Research Institute;Team analysis 3
because its CHEAP!!! and easy to use Voice quality of IP telephony Reasons for using IP telephony service Multiple answer As good as cellular Worse than cellular 7.9 6.7 Better than fixed phone 3.7 Cheap calls Free calls to IP users Quality is good 21.5 67.4 92.4 Between fixed and cellular phone 28.0 53.6 050 numbers Is reliable Is easy to use 20.0 11.4 10.0 As good as fixed phone Good after service Others 1.8 2.5 Source: NTT Communications (February 2003) 4
The next wave of parasite model innovation will be to attack wireless $$s with VoIP over wireless technology VoWiFi handsets sold today, dual handsets (VoWiFi and GSM) are recently available WLAN IP VoIP Breakdown of mobile voice calls* Percent Other Car 14 2 Home 18 84% of mobile calls are made from a area potentially covered by WiFi Threat to mobile as well as fixed line revenues So what has to happen for WoIP over wireless to be cheap and easy to use? Other indoor locations** 43 23 Office * Japan example ** other office, friends place, restaurant, hotel, shop, etc. Source: Fortune; InStat/MDR; Nomura; McKinsey 5
VoWLAN - KEY QUESTIONS AND INTIAL HYPOTHESIS Key questions Initial hypothesis 1 2 3 4 What is the value proposition of VoWLAN? What market segments can take advantage of VoWLAN value proposition? Which players may lead the VoWLAN roll-out? What are the major barriers to making VoWLAN a reality? Users of VoWLAN will be able to reduce their mobile telephony expenses by 23-38% Additional benefits include higher new multimedia services that take advantage of higher throughput Enterprise sponsored users that make a significant portion of their calls from their own offices will be the first segment to capture savings High spend tech savvy residential users, particular corporate employed users will migrate to dual mode. Enterprises will reduce their mobile telephone bills Fixed line operators, mobile operators without significant 3G investments and mobile operators from other geographies will attack cellular revenues or defend wireline revenues Equipment manufacturers (PDA, wireless networking gear, chipsets) will little will see this as a growth opportunity Preliminary findings suggest dual mode phone technology is or will be ready within the year Traditional handset manufacturers will be reluctant to roll- 6
WHAT IS THE VALUE PROPOSITION OF VoWLAN? FRANCE EXAMPLE Call breakdown by origination location Percent; 100% = 119 MOU/month Mobile telephony cost analysis EUR/month Other locations 35-23-38% Car 14 12 23 Work 6-12 23-29 30 21 Home Other indoor Calls taken over WiFi 100% of at work calls 50% of at other indoor calls Monthly bill with traditional phone VoWLAN call savings Monthly bill with dual mode phone Source: ART; Team Analysis 7
WHAT MARKET SEGMENTS WILL BE ABLE TO TAKE ADVANTAGE OF VoWLAN VALUE PROPOSITION? FRANCE EXAMPLE Percent of total MOU; 100% = 51 billion MOU Who pays the mobile bill? Enterprise Residential Where does the mobile call originate? Own office Someone else s office 10 Indoor (other) 14 13 16 At home In car and other 9 12 12 Total 45 14 55 Primary Secondary User examples Corporate billed mobile phones Corporate users with individual contracts that bill to firm Total 23 30 21 26 100 Location example Corporate wireless LAN Central business district networks Business parks Professional hotspots Malls Restaurants Transportation networks Stadiums Petrol stations Single family Apartment Dorm Car Freeways Source: Percentages from Japanese data; Team analysis 8
WHICH PLAYERS WILL LEAD THE VoWLAN ROLL- OUT? Likely proponents Who has nothing to lose? Will not cannibalize investments in current technology (eg 3G) Will can leverage unused network capacity (eg excess backbone to be used for back-haul) Will build a WiFi network for other applications in addition to voice Operators Hotspot and WISPs Handset manufacturers Network infrastructure providers Second and third tier players and players from other geographies Fixed line players with no mobile offering or with threatened wireline revenues Players will little 3G investments at stake High traffic hotspot owners Stand-alone broadband operators that want to compliment their current BB offering PDA manufacturers - Manufacturers looking for an entry point into the mobile handset market Second tier manufactures with low market share in concerned geographies Players with large WiFi equipment sales (eg access points, billing and roaming software providers, etc.) Players with little incumbent sales in concerned geographies Enterprises Enterprises with high mobile voice expenditures occurring in few locations Enterprises that will be building out WiFi networks regardless of voice applications 9
What are the major barriers to making VoIP over wireless a reality? Technology Barriers to entry Availability of handsets (dual mode WiFi/GSM) with battery life, high QOS, robust to noise. Ability of handsets to do AAA without browser I/F Willingness to jeopardize current relationships (voice MOUS, handset distributors, SIMs) Ability to overcome barrier Initial hypothesis Technology is maturing Working standards not available Willingness to distribute and support is questionable Easy Medium Hard Network management Roaming and billing software not yet developed Standards for roaming and interconnect Who will be the players connecting all of the WLAN networks? High QOS on WLANs Development of centralized clearinghouse or significant bilateral agreements missing Consolidation required to gain network scale WiFi network quality lacking today Security Ability to allow foreign users in your network without jeopardizing security (ie how to allow a guest in your office to utilize your WiFi network for voice only) Ability to operate unlicensed spectrum (i.e., how to deal with overlapping networks) Security issues likely to be resolved Consolidation required to increase network reliability Coverage Limited and unpredictable coverage of WiFi Lack of high performance, low latency, low jitter, low error rate Wireless Wide Area Networks Inability to handoff between cellular and WiFi network which causes dropped calls WiFi is spreading well Cellular networks will deploy slowly and WiMax several years away CPE and customer will solve 10
THE VISION VoIP + Broadband Wireless = Disruption The Pony Needs Endurance! Wireless WANS (e.g. WiMax) Broadscale coverage IP Friendly Limited Mobility Hype will out in front of market reality Best of all worlds Broad coverage High bandwidth Single billing relationship WiFi offering High bandwidth (up to 5.5 Mbps real-life) IP Friendly Low coverage due to limited range Is there is a Pony in there somewhere! VoIP over Broadband 11