GAME OVER

However, mobile VOIP is emerging as a very realistic threat to these companies. Will the trend towards voice over mobile IP networks (like 3G, HSDPA WiMAX and WiFi) signal the end of these massive profits? Will mobile VOIP derail this African cellular gravy train?

Africa Analysis MD Andre Wills has been watching telecoms developments on the continent for some time. "Don`t forget that voice still constitutes 80% - 95% of core revenue among telecoms operators," he points out.

So, it seems there is a lot to lose, if the cellular operators lose their voice revenues, that is.

THE ISSUE

Brian Seligmann, senior manager of data and messaging at MTN, is most concerned about the potential bottom-line impact of VOIP carried over mobile data networks. As senior manager of data and messaging, he has developed MTN`s data business to a R2-billion-a-year business - which might sound impressive, but is really just a drop in the above-mentioned annual R52 billion ocean.

He says there are many challenges facing MTN and the other African cellular operators - the same threats bearing down on GSM giants around the world. In fact, he lists seven areas of great concern (see box 1). The darkest threat, though, is that of VOIP.

Seligmann`s gentle demeanour no doubt fools many. In fact, he`s as hard as they come - the kind of man you`d want when it comes to protecting your revenue, and he prefers not to mince his words. "We`ve actually sat back and said that we know VOIP is going to happen but we will deal with it later."

"The threat is great. Voice constitutes 75% to 95% of our revenue. We need to protect it, or find a way to supplement any loss of that revenue." Problem is: how does one deal with it?

ARGUMENTS

Firstly, MTN has managed to convince ICASA to allow differential tariffing - where VOIP packets are charged at far higher rates than ordinary data download packets.

Seligmann argues that this discouragement of VOIP is because MTN`s network isn`t optimised for it yet. "The reasons that we have been sticky and controversial is because we need to make sure that [with any VOIP offering] the user needs to have good service quality, and we need to be able to make money out of it."

Attorney Lisa Thornton says in theory it is legal for a cell operator to charge far more for VOIP packets than ordinary data packets. "MCTS new tariffs are not regulated in terms of the EC Act. However, this could be seen to be an anti-competitive action, which might be illegal under chapter 10 of the EC Act, or the Competition Act."

Allowing VOIP service providers to offer low-rate calls over HSDPA networks could mean more traffic for the cellular operators, she says, adding: "but they probably won`t think that way."

Storm Telecom`s Dave Gale says VOIP providers can encrypt traffic with mechanisms like IPSec, and use non-standard ports - so that operators are unable to tell which packets are VOIP and which are not. In practice, that is.

"Deep packet inspection is theoretically possible given enough processor power, the right tools and knowledge of exactly which traffic streams you want to interrogate, but it is so ridiculously tortuous."

In the longer term, Seligmann says that users should be able to expect different VOIP offerings from the network operators - one of high quality for business customers, and one at a lower (or even free) price for those who can tolerate slightly poorer quality.

HIT FROM ALL ANGLES

Gale agrees that the mobile network operators face big problems. He says voice over High Speed Uplink Packet Access (the next stage in 3G enhancements) will offer excellent call quality.

"But what is far more of a threat to the network operators is voice over WiFi, using access points in the office and home zones with backhaul over DSL. I have had good quality on tests here."

Africa Analysis` Wills believes that issues like the growth of wireless hotspots, and VOIP handset availability will be important in determining the degree to which VOIP eats into the GSM market. It`s encouraging to see other players (like MWEB and Altech) building their own telecoms infrastructure, he says. Most important, though, is the need for a fair interconnect regime, and a successful implementation of the ECA.

But VOIP might not be as simple as some would make out, he cautions, saying: "whenever someone describes anything as the solution to all things, that`s usually the time you should head for the hills"

FLIP SIDE

BCT Global`s director of business operations Sadiq Malik also takes a conservative outlook on the subject of revenue cannibalisation.

"There`s already some revenue leakage from VOIP calls - with Skype type applications, for instance - and in the long run the revenue leakage will hardly matter. VOIP as a mobile voice offering will be a very profitable business for cellular operators because their networks are ready technologically."

Emerging standards like Session Initiation Protocol and the IP Multimedia Subsystem (IMS) will allow for mobility and interoperability across networks, and by expanding their coverage by supporting wireless LAN access points, operators will be able to offer richer communications services to their users, Malik notes.

It looks, therefore, that the network operators do have one or two tricks up their sleeve when it comes to fending off the surging trend to VOIP.

"VOIP is also a key enabler of the triple- or quadruple-play (voice, data, video, and mobility) scenario, and a combined mobile VOIP offering could drive mobile voice penetration and usage while reducing costs," Malik suggests.

Finally, he says mobile VOIP will allow cellular operators to penetrate further into the enterprise, by selling mobile subscriptions integrated with wireless LAN IP-PBX systems that better answer the needs of mobile enterprise users.

MOVING FORWARD

The likes of MTN and Vodacom had a choice. They decided to offer mobile broadband services that could conceivably be used against them.

"They`re as hungry as the next capitalist," says Gale, "in wanting broadband revenue without the risks, and yes, IP is the common bearer of the future - not because it is better at doing voice, but because it is ubiquitous, flexible, and cheap."

For the network giants, it`s no longer a case of sitting back and pretending that mobile VOIP is still a long way away, as Seligmann says.

As a groundswell of new VOIP-based companies grows, it seems operators will have to be more creative with their service offerings if they want to hang on to their pieces of the pie.