Crossing The Chasm: VoIP Opportunities
In Asia Pacific
BY STEVE YEO
In his poem ï¿½The Ballad of the East and West,ï¿½ Rudyard Kipling
wrote, ï¿½East is East and West is West, and never the twain shall meet.ï¿½
Increasingly, this statement is no longer true. For although there is
still a huge chasm culturally between Asia and the West, there is much
more cultural diversity within Asia itself than there is in the West. And,
from an economic and technological perspective, the world is becoming more
uniform at an ever-increasing pace.
Broadly speaking, the same telecommunications technologies that are
popular in North America and Europe will dominate in Asia. However, the
pace of adoption and the specific services derived from the technologies
are different in Asian markets compared to the U.S. market, and this is in
large part due to several key market characteristics unique to the Asian
The Asia-Pacific market characteristics can be summarized as follows:
ï¿½ Asian population demographics are different than those of the U.S. and
Western Europe. The percentage of young people under 21 is much higher in
Asia, particularly in China, India, Indonesia, Vietnam and Thailand. The
percentage of ï¿½retiredï¿½ people over 65 is generally about half of that
in the West. Only Japan and Australia have a population demographics
profile that is similar to the West. Thus the percentage of young people
who increasingly will control the rate of adoption of new technology is
much higher in Asia, and this has significant market implications, since
younger users are quicker to try new applications and technologies.
ï¿½ The average Asian economy is a high-growth economy compared to the
more mature, slower growing U.S. and European economies. According to a
November report to the Chinese National Congress, Chinaï¿½s economy is
forecasted to grow at seven percent per annum over the next decade, while
the economies of many other Asian economies are growing at an average rate
of five to six percent, much higher than the three to four percent average
in the West. For these economies to continue to grow at these rates,
infrastructure build-out -- of which a key component is telecommunications
-- has to proceed at a much faster pace.
ï¿½ The Asian telecommunications infrastructure build-out will
increasingly be based on ï¿½newerï¿½ wireless and IP-based technologies,
as these are perceived to have longer effective lifecycles compared to
circuit-based technologies, and are therefore more logical investments.
This creates problems somewhat unique to Asia, as most service providers
in Asia do not have the resident expertise to implement next-generation
services such as VoIP on their own. Thus in Asia, the role of experienced
systems integrators will be critical in the build-out and adoption of next
generation services such as VoIP. ï¿½Compared to the U.S., the role of the
system integrator has been much more prominent in Asia, because
historically there has been a reduced emphasis from network equipment
providers,ï¿½ said Vincent Lum, Datacraftï¿½s Chief Strategy Officer.
Major Asian telecom system integrators can be categorized as those with a
services focus, such as Datacraft Asia or AsiaInfo, or those with an
equipment and services focus such as IBM, HP, Ericsson, or NTT COMWARE.
In addition to the region-wide market characteristics, within each
market there are unique circumstances that need to be understood for VoIP
to be successful.
China, because of its sheer size, holds special interest. At a forecasted
annual GDP growth of seven percent over the next decade, China will be the
economic engine of growth for Asia. So what are the characteristics of
China that are likely to influence the adoption of VoIP?
ï¿½ With the break-up of the ï¿½oldï¿½ China Telecom, there is a new
competitive landscape. China Telecom is now the incumbent in 21 provinces,
while China Netcom is the incumbent in 10 northern provinces. Together
with China Unicom, China Railcom, and China Mobile, there are now five
operators licensed to provide services nationally. Almost all operators
have either awarded contracts or announced intentions to build IP backbone
ï¿½ A key aspect of the population demographics in Chinese cities is that
a large proportion of city dwellers are not indigenous. This is a result
of the governmentï¿½s past policy of assigning people to jobs throughout
the country. It is now exacerbated by the increased mobility due to the
market economy. Many Chinese marriages were long-distance based, with
parents and in-laws living elsewhere. So the pressure for cheap domestic
long-distance services remains huge. A key VoIP application in China may
be prepaid domestic long-distance accessible from public phones and
Internet cafes as well as private phones.
ï¿½ More than half of Chinaï¿½s 56 million Internet users access it from
Internet Cafes. Indications are that PC penetration will continue to grow,
however. Due to the prevalence of one-child families, parents are focused
on providing the best education for their only child, and PCs are viewed
as a key differentiator for obtaining academic opportunities. So VoIP
applications centered on the PC may well take off, particularly if the
call rates are cheaper than wireless call rates.
Having said that, cell-phone usage has exploded in China, with wireless
penetration keeping pace with wireline penetration. For the professional
or the small entrepreneur, the cell-phone is increasingly the voice device
of choice. It forms an integral part of the mobile office. Needless to
say, every professional or entrepreneur also has a PC as part of his
office. What we in the U.S. do not normally realize is that because of the
lifestyle differences, the Asian executive/entrepreneur spends much more
of his time outside of his office than his counterpart in the West. So
VoIP services that enable one to stay connected to the office take on a
higher significance than in the U.S.
South Korea is another interesting market. With a population of 47 million
and a per capita GDP of nearly U.S. $10,000 growing at six percent
annually, the South Korea market is effectively a third of the size of the
China market, six times the size of the Hong Kong market, or 10 times the
size of the Singapore market. Some characteristics of the South Korean
market that make it a unique market for VoIP are:
ï¿½ A broadband penetration rate of nearly 50 percent of households,
largely as a result of government-driven initiatives. South Korea had 10
million broadband connections as of September 2002, of which nearly eight
million are DSL connections. This means there are at least 10 million
household PCs, and growing. It is interesting to note that 60 percent of
South Koreans live in apartments. So VoIP services centered round PCs,
possibly a cheap second line service, may well gain traction.
ï¿½ A wireless penetration of more than 50 percent, with over 60 percent
of these cell phones having some sort of data handling capability. This
compares with only 15 percent of U.S. cell-phones having data capability.
Given these penetration rates, it would be logical to speculate that most
South Korean teenagers have a cell phone as well as a PC. Thus VoIP
services that integrate PCs with cell phones would make sense.
By contrast, the Japanese market more closely resembles its Western
counterparts. It has an older population demographic, a high per capita
income of U.S. $36,000, and a more fully built-out telecommunications
infrastructure. What has contributed toward Japanï¿½s movement toward VoIP
ï¿½ Incumbent operators have made the commitment to an IP infrastructure.
In April of 2002, NTT announced that it was effectively ceasing
development of analog phone networks to concentrate on developing IP
networks. Incumbent support of VoIP is critical for faster adoption
because incumbents have larger capital budgets, and more extensive
customer marketing capabilities.
ï¿½ Smaller competitors, such as Fusion Communications and Yahoo
Broadband, also have been offering aggressively priced nationwide VoIP
ï¿½ Finally, there is a cultural fascination with ï¿½gadgetsï¿½ and a bias
toward innovation. A case in point is the rapid adoption of the NTT DoCoMo
i-mode service. There are 50 million Japanese wireless data service users
-- more than in the rest of the world combined. If services can be
developed that effectively combine mobility applications with VoIP, itï¿½s
reasonable to expect Japanese market adoption.
Japan appears poised to lead in VoIP application deployments, according to
Hideki Sasaki, Manager, NTT COMWARE. ï¿½Weï¿½ve already seen VoIP
penetrate the network cores with toll bypass, and now weï¿½re seeing the
start of VoIP in access networking, in applications such as IP Centrex, IP
PBX, and even as a voice service for DSL and cable operators.ï¿½
These examples provide a perspective that success in each market in Asia
requires a thorough understanding of the factors unique to that market.
VoIP services and applications that achieve traction and success in the
U.S. or Europe may not be repeatable in Asian markets. The market in Asia
is much more diverse that the U.S. or Europe, and the secret to success
lies in taking the time to understand each market, and to develop business
strategies specific to that market.
Steve Yeo is Director of Market Development, Asia-Pacific for VocalData, Inc., a leading provider of
integrated voice and enhanced network applications that enable service
providers to reliably deliver next-generation IP telephony services.
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