After a slow initial start, European consumers have adopted IP-based voice service at a blistering pace, say researchers at TeleGeography Research. At year-end 2007, 25.3 million consumer voice-over-IP (VoIP) lines were in service in Europe, up from 15 million in 2006.
At the end of 2004, only 1.9 million VoIP lines were in service, equivalent to just over one percent of European households. By the end of 2007, VoIP subscribers accounted for 17 percent of households.
All those lines are of the “replacement for legacy voice lines” sort, and do not count client-based VoIP applications such as Skype.
The VoIP subscriber growth rate has slowed in recent quarters, but net subscriber growth remains very high, TeleGeography says. The number of quarterly subscriber additions grew from approximately one million subscribers per quarter throughout most of 2005 to two million subscribers in much of 2006, and averaged 2.6 million subscribers per quarter in 2007.
Revenues from VoIP services have grown at a comparable pace. Annual revenues from consumer VoIP services were €640 million in 2005, €1.6 billion in 2006, and €2.9 billion in 2007, TeleGeography says.
Given current growth patterns, VoIP revenues should top €3.9 billion in 2008, TeleGeography predicts.
Given their rapid growth in the past three years, European VoIP providers have emerged as a powerful force in the European fixed-line market, TeleGeography researchers note. VoIP subscribers accounted for 20 percent of aggregate (switched and VoIP) residential fixed-line subscribers and eight percent of revenues from residential fixed lines in 2007.
TeleGeography projects that VoIP subscribers in Western Europe will grow from 25.3 million at the end of 2007 to 37.6 million by the end of 2008, and will reach 58 million by 2012.
This growth would drive VoIP penetration from 17 percent of households at year-end 2007 to 37 percent of households by year-end 2012.
Growth rates vary fairly dramatically between countries in Europe, though. VoIP growth in France has been particularly spectacular: at year-end 2007, France had 10.8 million IP telephony subscribers, comparable to the total number of subscribers in Germany, the U.K., the Netherlands, and Italy combined.
France accounted for 43 percent of Europe’s 25.3 million IP telephony subscribers at the end of 2007.
That isn’t the case everywhere, though. Only three percent of Austrian households and less than two percent of Spanish households had VoIP service at the end of 2007.
TeleGeography distinguishes between four types of companies offering a replacement for switched telephone services in Europe: incumbent fixed-line operators, competitive digital subscriber line (DSL) service providers, cable TV operators, and network-independent service providers.
And as you might expect, incumbents have had to react to very-strong pressure from upstart competitors.
DSL providers are the largest category of VoIP service provider, accounting for 49 percent of European VoIP subscribers at year-end 2007. Competitive DSL providers account for the majority of consumer VoIP subscribers in France and Germany, the two largest European VoIP markets, and have strong footholds in many other markets.
In other markets, it is cable operators who have provided the challenge. In Switzerland and Belgium, for example, 88 percent and 87 percent of VoIP subscribers, respectively, obtain their service from cable companies.
In Norway and Denmark, network-independent service providers have a meaningful share of the VoIP market.
As a result, a growing number of European incumbent operators have responded to the challenge by introducing their own VoIP services, both in their home countries and in neighboring countries.
Among the most aggressive incumbents are France Telecom, BT, KPN, and Telecom Italia. By the end of 2007, France Telecom was the largest VoIP service provider in Europe, and incumbents accounted for 33 percent of all European VoIP subscribers.
Skype, additionally, is quite popular in Europe and claims more users than POTS-replacement VoIP services. But the revenues and traffic volumes generated by Skype’s subscribers are far more modest than is garnered by POTS-replacement services.
TeleGeography estimates that Skype’s European subscribers generated 19 billion minutes of total (PC-to-PC and PC-to-phone) traffic in 2007, compared to 89 billion minutes of traffic generated by handset-based service providers.
Since VoIP service providers charge far less for their service than traditional operators, they generate less revenue than their switched counterparts. Western European VoIP service providers generated approximately €2.9 billion in 2007, a sum that is projected to increase to €5.9 billion in 2012.
Compared to revenues from traditional, fixed-line phone services, VoIP revenues are quite small.
But the impact of VoIP services on the fixed network market will be out of proportion to VoIP revenues, due to the impact of VoIP services on voice service pricing in Europe. In other words, the big impact is on the overall price expectations that VoIP creates.
That is one reason U.S. telephone companies have been so cautious about introducing VoIP services on a mass scale, and so careful about pricing for VoIP: VoIP’s real impact is that it resets customer expectations about what a voice service should cost, and what features a voice service should include.
Many VoIP subscribers use inexpensive VoIP services as a replacement for more expensive switched telephone services, of course. Incumbents in many European countries have responded by offering low-cost VoIP services themselves, or by slashing the price of their switched telephone services. In most cases, they have done both.
That is a precedent U.S. service providers will have to face at some point, but it obviously makes sense for them to delay that shift as long as possible. The reasons are obvious.
Where European incumbents have been forced to compete vigorously in the VoIP market, they have had declining voice revenues, in part because of revenue lost to VoIP services, and in part because pricing on legacy services have been reduced as well.
TeleGeography projects revenues from residential switched telephone services in Europe will decline from €33.6 billion in 2007 to €15.7 billion in 2012 as a result.
So far, VoIP has not had that trajectory. Both markets experienced similar growth patterns over the first few years of development, but began to diverge in 2006, as pricing, regulatory incentives and incumbent business strategies have been more favorable to VoIP in Europe, compared to the United States.
European dual-play and triple-play services are generally priced more aggressively than in the United States; much more aggressively. The median price for a triple-play bundle was €48, approximately 40 percent less than triple-play packages in the United States. That makes VoIP a much more attractive proposition than in the U.S. market, at least when purchased from an incumbent telephone company.
Competitive service providers in Europe also have easy access to incumbent local copper loops at regulated rates, due to a regulatory environment that is shaped by the relative weakness of cable competition in most countries as well as a belief that capital is not available to fund duplicate broadband facilities.
In the U.S. market, regulators surveying a landscape with strong cable company alternative facilities have decided to rely on a robust competition between rival cable and telco broadband access networks.
As a result, European consumers can choose between multiple broadband and VoIP service providers, who have low-cost access to local loop facilities in a way not matched in the U.S. market. In the United States, cable companies, who own their facilities, are the primary providers of VoIP services.
The other key differences are the business strategies of incumbents. As a result of regulatory policies favorable to competitors as well as retail pricing levels, incumbents have been forced to compete in the VoIP market, unlike their U.S. counterparts.
In Europe, incumbent service providers accounted for 33 percent of VoIP subscribers. Many incumbents, including Telefonica, France Telecom, and Swisscom, also compete actively in neighboring countries.
In contrast, U.S. incumbents have thus far remained largely on the sidelines. Assuming that these factors will remain in place, we project that European consumer adoption will continue to outpace U.S. adoption of IP telephony services, TeleGeography
researchers say.
Based on current market trends, TeleGeography projects that 37 percent of European households will have VoIP phone service by 2012, compared with less than 20 percent of U.S. households.
If those projections prove accurate, it is unlikely U.S. phone companies will conclude the time has come for an aggressive VoIP rollout. That should continue to create an umbrella under which cable companies and independent providers can continue to grow without facing a direct clash with the telcos.
Source: http://www.ipbusinessmag.com/departments/article/id/453/euro-voip-grows-at-blistering-pace