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September 24, 2012

TeliaSonera Decides Not to Charge Extra for Use of Over the Top VoIP

By Gary Kim, Contributing Editor

As telco and cable service providers struggle to align revenue and costs for providing ever-faster broadband access services, they are bound to make mistakes, from time to time. The institution of usage caps provides one obvious example. Time Warner (News - Alert) Cable and Comcast have run into significant end user opposition to earlier attempts to cap unlimited usage.

AT&T has gotten backlash from its new efforts to charge for use of Apple FaceTime (News - Alert) on the Long Term Evolution network, though usage does not count against usage caps, nor incur additional fees, when users are on Wi-Fi networks.

Now Swedish telecommunications company TeliaSonera has reversed an earlier decision to implement an additional fee plan for its customers who want to use over the top VoIP services, choosing instead to simply raise mobile data plan rates across the board.

TeliaSonera (News - Alert) first announced plans to charge for use of over the top mobile VoIP apps in February 2012, a plan similar to one it had already implemented in Spain.

 There, subscribers pay EUR6 a month for 100 megabytes worth of VoIP calls, equivalent to between five and 10 hours of talk time.

The problem is that VoIP "is likely to replace traditional phone calls," according to TeliaSonera chief executive Lars Nyberg. "Eventually, all voice calls will be made over IP."

"If all our customers suddenly decided to switch over to VoIP, and we charged them only for the data traffic usage, we would lose about 70 percent of our revenue," Nyberg said.

That's an obvious observation, as all service providers ultimately will face the diminution of the traditional voice calling revenue stream, at current levels of gross revenue and profit margin. The issue is how to transition to "data access" revenue models most elegantly.

Lots of observers would note that charging extra for use of some apps is not elegant. In this case, TeliaSonera probably has chosen the better approach, namely simply matching value to pricing.

In the absence of some unexpected large new revenue stream, big enough to replace half or more of current voice revenue, service providers will not have much choice where it comes to pricing for the new core service.

If you assume the fixed network and mobile networks must be paid for, from some combination of revenue sources, then the potential loss of half to all of the current voice revenue, which historically has represented 70 percent of total revenue, will have to be made up somewhere.

Networks are expensive undertakings. And since everybody assumes almost-continual increases in the supply of bandwidth will be required, those investments must be matched by new revenue.

That would be true under the best of all possible circumstances, where voice revenue was stable or growing. But networks now operate under decidedly non-optimal conditions where new revenue sources are needed just to stay in place.

Even where the practice is lawful, consumer resentment is bound to occur when a lawful app cannot be used as part of the basic broadband subscription the customer already has paid for.


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Edited by Brooke Neuman
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