The report, Voice Communications: from Public Service to Private Application, from telecoms consultancy firm Analysys, warns telcos that by 2008 over 50 million broadband users in Western Europe could be using private VoIP applications (PVAs).
Voice over Internet Protocol – or VoIP – is the transport of telephone calls over an internet connection. For users already paying for a broadband connection, long distance calls can become free of charge, albeit that VoIP handsets tend to be much more expensive than standard handsets.
Although VoIP has existed as a technology for much of the last 10 years, the mass market for broadband connections and the recent emergence of IP telephony-enabling protocols have revolutionised the sector.
"The recent rapid take-up of one PVA variant – peer-to-peer VoIP using free downloadable software from providers such as Skype – raises the possibility of the appearance of a critical mass of PVA users that could unleash a significant structural change in the voice market by the removal of a large proportion of PSTN [public switched telephone network] revenues," warned the report's co-author Stephen Sale.
"In the residential market, PVAs are typically used to make longer calls to friends and family, the core telephony business of fixed-line incumbents. In combination with increased mobile usage, this could render the PSTN subscription worthless for many broadband users. Fixed-line voice would face not only mobile substitution, but PVA substitution as well," he explained.
According to the report, the rapid adoption of PVAs could generate direct revenues of over €3.5 billion, the bulk (about 85%) stemming from subscriptions, not call charges. This emphasises, says Analysys, the huge importance that the subscription element will have in a future multi-service mix and in establishing PVAs in the mass market.
In revenue terms, the impact on incumbents of such a shift in subscriptions from PSTN to PVAs would be great.
According to the report, in a worst-case scenario, incumbents could potentially lose over €3.3 billion of subscription revenues in 2008, and cumulatively about €6.4 billion over the period 2004-2008.
Overall, the total revenues (subscriptions and calls) lost by incumbent PSTN providers could reach as much as 13% of the voice market in Western Europe in 2008 – a big increase on previous predictions which, according to Reuters, were around the 5% mark.
The expectation, said Sale, was that PVAs would increase the trend towards service convergence, lower prices and a focus on communities, segments and brands.
"In the short-to-medium term," he continued, "the voice market could even expand as innovative applications provide opportunities for increased usage, slowing the current decline in revenues. In the longer term, however, PVAs are likely to further decrease voice revenues. But they will also help tie those voice revenues to other communications services, thus offering voice players routes to potential new revenue streams."