Has Mobile VoIP Hit a Tipping Point?

Voice over IP (VoIP) has long been a problem area for telecom carriers. Since VoIP allows voice calls to be routed over the Internet, it bypasses the carrier's PSTN network and any revenue they might otherwise receive. Carriers took a first step by supporting landline VoIP service to homes, small businesses and enterprises offering all the cool features made possible with a packet-based voice solution (e.g., combined high-speed Internet access, TV and voice service, click to call from your TV, PC-based management of voice mails and call preferences). AT&T's U-verse Voice and Verizon's FiOS are two examples of VoIP offerings.

Mobile VoIP extends IP-based voice service to mobile phones. And here's where the conflict for carriers gets interesting. Wireless revenues are growing while landline voice revenues are shrinking. As a result, carriers have not been too eager to offer mobile VoIP service that could cannibalize a lucrative and growing wireless market. In a related development, the cable companies and large Internet services like Google and EBay started a discussion around "net neutrality" in 2005 after the FCC phased out rules requiring traditional telecom carriers to share their broadband networks with competitors. That same year, the FCC approved four informal net neutrality principles, but broadband provider Comcast, in a lawsuit, has challenged the FCC's authority to enforce those principles. Just last week, the FCC decided to open the rule making process around net neutrality, inviting industry comments around a new net neutrality proposal (Reuters, Oct 22). Under the FCC proposal, wireless broadband services would be included in the net neutrality rules. The idea being that such rules would preserve the innovation and openness that has allowed the Internet to be successful.

With the threat of FCC action in the background, it's been interesting to watch the flurry of announcements coming from carriers recently:

Oct 6: Verizon announces strategic partnership with Google. Although not in the press release, the plan is for Verizon to support Google Voice, Googles VoIP app, on the new Verizon Android devices.

Oct 6: AT&T extends VoIP to 3G network on iPhone. AT&T has provided VoIP support on iPhone but only on Wi-Fi networks. Other devices have had VoIP support on AT&T's 2G, 3G and Wi-Fi networks for some time. This announcement opens VoIP access to millions of iPhone users.

Oct 12: Sprint offers VoIP solution to wholesale customers. Allows VoIP providers to leverage Sprint's IP network for delivery of enterprise-class VoIP services.



Businesses certainly see the benefit of mobile VoIP solutions, likely from a cost-reduction standpoint. Below is a chart from IDC's report "The Importance of Security in Corporate Mobility Solutions" (February, 2009). In a survey of CIOs, mobile VoIP ranks 4th as a key reason for investment in mobility solutions.






Around the world we're starting to see other carriers open their networks to mobile VoIP. Telefonica's O2 Germany announced support of VoIP on mobile phones August 17 in a move that puts pressure on resistant local leader Deutsche Telekom.



With continued pressure from VoIP players and device vendors, as well a cost-conscious public, we can expect that more mobile operators will open their networks to VoIP. The deployment of 4G networks such as WiMAX and LTE, which hold the promise of greater bandwidth and richer services, will only increase the attractiveness of such services, making continued mobile VoIP restrictions a challenging long-term strategy.

SI Consolidation Continues

Consolidation in the system integrator market seems to be on a roll again. On September 21, Dell announced the acquisition of Perot Systems. One week later, Xerox buys ACS. Of course, these deals have been in the works for quite sometime but it does point to a trend. Established companies seeking to expand beyond their core products are buying up services firms as a means to do so. That's a reasonable choice given the growth and margins in this business.

Let's take a quick look at who's still out there. The top 10 SIs by revenue are IBM Global Services, Fujitsu, Accenture, HP (EDS), CSC, Capgemini, Lockheed Martin, ACS (soon to be Xerox), Tata Consultancy Services and Wipro. Combined, these companies represent over $180B in annual revenue and 1.4 million employees. You can take a few of these companies off the acquisition list right away. Nobody is buying IBM, Fujitsu, HP or Lockheed. Tata and Wipro are based in India, are growing like a weed (30%+/yr) and have high ambitions themselves to continue that growth. Capgemini is based in France making a U.S. based acquisition unlikely. That leaves CSC with 2008 revenues of $16.7B and 92,000 employees. Sure there are hundreds of other local, niche SIs that are growing nicely, but this is a quick cut at the biggest targets remaining.

So here's my wild forecast for 2010: Continuing their string of large acquisitions, Oracle decides to enter the SI fray and acquires CSC. An SI arm within Oracle would complement nicely their enterprise software assets (databases, ERP, CRM, middleware, etc.) and help grow a new hardware business assuming the Sun Microsystems acquisition is successful. By the way, my second runner-up is CGI. But at a mere $3.7B in revenue and 26,000 employees it's likely too modest a start for Oracle these days.