VoIP no salvation from Telstra: Budde

Voice over Internet Protocol (VoIP) technology may be viewed as a potential redeemer for telecommunications competition by various industry bodies, but veteran analyst Paul Budde said yesterday VoIP may not present as much of a threat to Telstra's dominance as others may think.

Voice over Internet Protocol (VoIP) technology may be viewed as a potential redeemer for telecommunications competition by various industry bodies, but veteran analyst Paul Budde said yesterday VoIP may not present as much of a threat to Telstra's dominance as others may think.

The Australian Competition and Consumer Commission said in the Australian Telecommunications Summit in July that technology development, such as VoIP, offered the prospect of a "serious challenge to Telstra's dominance and opportunities for Telstra's competitors".

However, an analysis posted by Budde on his Web site yesterday - VoIP: Evolution, Rather Than Revolution - said that while the main driver for VoIP applications is the promise of cheaper calls, further investigation of pricing reveals "there are no compelling advantages".

"Free on-net calls is fine, but as soon as you need to call via mobile networks, or need international connections, that price advantage is gone," he said. "A significant number of businesses with branch offices have already negotiated prices that allow them to operate very cheap inter-branch telephone calls, so VoIP would only offer them marginally better savings.

Budde adds that "even in corporate organisations where VoIP is installed there is still a relatively low level of usage".

"Most phones are still linked to the switched telephone service and only a handful of companies have made the full transition to VoIP - which requires new handsets, a fact that further complicates any large-scale switch-over," he said.

According to Budde there are few reasons for customers to "get excited" about VoIP, and as such advancement of the technology will have to be driven by the providers.

"Telstra realises this and has lowered its margins for its wholesalers for Telstra's switched voice services in an attempt to discourage those companies from offering their own VoIP services," said Budde, echoing sentiments he previously aired regarding Telstra cheap access negotiations with Optus.

In early July, Budde said Telstra's agreement on pricing for PSTN (Public Switched Telephone Network) access was designed to protect its "ageing network" from becoming obsolete. The comment provoked response from Telstra that Budde "never lets the facts get in the way of a nonsensical comment".

Yet, Budde still maintains that Telstra "has been very successful with this strategy" in keeping VoIP development to a minimum, as he said the bottom line is "customers don't mind how voice services are delivered...if it can be done over the existing network, at lower prices, then that's fine with them".

"Many of the second and third tier telcos (Telstra's wholesale customers) have substantial voice resale business, which could constitute up to 75 percent of their total revenue, so they are reluctant to cannibalise that business," he said.

However, Budde said despite VoIP lacking mass appeal, it does present attractive options in certain niche markets.

"VoIP does become an interesting option for broadband operators that don't have an incumbent voice resale operation," he said. "They can add VoIP to an existing broadband connection and only charge for the calls - the customer saves on access line connection."

Budde adds that the new line sharing prices set by the ACCC will "further stimulate these developments".

Yet, he admits this option also has its drawbacks.

"Many customers are attached to their current telephone number, they are reluctant to give it up, and so this might work for second lines, but not for first lines," he said.

Budde concedes that there is "no doubt that VoIP will be the dominant technology for telephone calls by the end of this decade" but he said deployment will be a "gradual" process, and as such, traditional telecommunications providers will have ample time to get up to speed.

"Telstra and the other telcos will have time to adjust their business plans and rebalance their product offerings to take these changes into account," he said

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