Posts Tagged ‘skype’

Why the iPhone won’t have VOIP

February 2nd, 2007 No comments

There’s been some discussion in the blogosphere about the lack of VOIP features on the iPhone when it has WiFi built-in. I suppose the iPhone is more than capable of running a Skype client (or similar software) but I would say that VOIP is never going to happen on the iPhone for the next 5 years.

Why?, you ask. Well, because that’s the term of Apple’s exclusive agreement with AT&T (nee Cingular). I have a little insight into the issue because AT&T Wireless was a client of mine, once upon a time. This was before they were acquired by merged with Cingular. At the time, AT&T Wireless spent over $1 Billion every year just to maintain their wired network connecting all of their cell site towers (which is why they hired me and a small team to try and figure out how to save 5-10% on network costs). It’s a hidden cost, but each cell tower requires backhaul to the network backbone which is usually accomplished with leased lines like T1’s and T3’s. Sometimes microwave is used, but this is more rare. This $1B+ number didn’t necessarily include all the capex money going into improving the network for 3G services. When we look at the new AT&T, these numbers get even bigger.

When you give a CEO a fixed cost in the billions to operate a network, he’s going to want to find ways to pay for that. The value proposition for wireless carriers is largely based on the coverage of their network and the services provided by that network (hence those “can you hear me now?” and “raise the bar” commercials). There used to be value tied to the number but wireless number portability (I also did consulting work on WNP) changed that significantly (to the benefit of consumers). But today, the carriers compete based on coverage, data services, and plan pricing.

If AT&T allowed the iPhone to use a Skype client that would discourage people from using the network that they spend billions to operate, you would choose a cheaper voice plan with fewer minutes in that scenario. Their ARPU (average revenue per user) would go down and their stock price would tank.

But I think there is still an opportunity here and that AT&T should actually embrace the VOIP trend. The key here is that 21st century carriers can turn the value proposition around and make the phone number valuable again. What they need to do is integrate your wireless number with VOIP services so that you can bounce back and forth from 3G, GSM, and WiFi networks while always being accessible at your personal number. This requires a significant amount of engineering in the handsets and throughout the network (both in the backbone and out at the nodes) to enable seemless network hopping. Still, if AT&T would integrate their wireless service with their inherited VOIP service (from the pre-SBC AT&T) they could offer customers the best of both worlds. Cheap calls when in range of WiFi and great coverage when travelling or driving down the road.

Still, when you have are spending billions every year, it’s scary to look at technologies that could disrupt your business. But I think that this is an opportunity for AT&T to actually develop stronger relationships with their customers by offering choice and flexibility. They just need to come up with a way to bill for VOIP usage (at a much lower rate) and have it appear on your regular phone bill.

I can’t help myself from making one more industry insider comment. Most suprisingly to those outside of the telecom industry, modifying the billing systems is usually the hardest part in offering new services.