Internet is challenging traditional telcos

25 Aug 2005

While the communications industry has returned to profitability, developments in internet technology are challenging the role and business model of traditional telcos, according to the Organisation for Economic Co-operation and Development (OECD).

In particular, the OECD claims, the growing popularity of voice over internet protocol (VoIP) threatens the fixed-line revenues of traditional carriers, especially in the market for international calls.

VoIP also presents a challenge to mobile phones, which in many countries are now more numerous than fixed-line connections.

In 2003, for the first time ever, the number of fixed phone lines fell in OECD countries, with mobile operators gaining market share at the expense of the traditional telecom companies, a trend that continued in 2004 and 2005.

The OECD compared the cost of calls via Skype, a provider of VoIP services, and traditional fixed-line carriers and revealed an average saving of 80pc using Skype. On a per capita basis, Denmark, Poland and the Netherlands are the largest users of Skype.

The OECD predicts new service offerings from traditional carriers, such as Wi-Fi hotspots in cities, will provide tougher competition for 3G mobile operators than these companies had been expecting when they originally obtained their licenses – in many cases for exorbitant sums.

To maximise revenue, the OECD recommends that 3G operators may need to change their charging policies, for example, by persuading customers to sign up for longer term contracts rather than purchasing calling time on an ad-hoc basis, as is currently the case for a large percentage of customers relying on prepaid cards.

The report also forecasts that service operators will increasingly offer integrated video, voice and data products in a single service package.

It predicts the growing popularity of downloading video from the internet will reduce the time people spend watching free-to-air TV, driving down audience share and advertising revenue for broadcasters and making it harder for public service broadcasters to meet their social policy objectives.

Increasing competition from new platforms, particularly the internet, with traditional broadcast or telecoms providers may require a re-examination of existing regulatory frameworks.

In particular, regulators may need to review obligations regarding universal telecoms service as more companies offer telephone services over the internet without having a physical presence in a country.

By John Kennedy