MVNO and VoIP developments show changing shape of Europe’s mobile landscape

Posted by Gareth Willmer Friday, January 29th, 2010

Add a comment

Several developments in recent months reflect the changing shape of Europe’s mobile industry and show how operators are adapting to new market realities. They specifically concern the shifting relationship between mobile operators and partners in the MVNO and VoIP arenas.

Two new deals in particular illustrate the changing landscape and show how operators are further opening up to new partnerships. First, Telefonica recently completed the acquisition of VoIP provider Jajah for €145 million (US$205.2 million), after the deal received formal approval from the Spanish Competition Authority.

Second, Vodafone UK struck a deal with Truphone, allowing the VoIP and international-call provider to run as an MVNO over its network.

The first deal represents the European mobile industry’s next step into the VoIP market. Until recently, operators have been reluctant to form close relationships with VoIP providers or launch their own services because of the potential cannibalization of their voice revenues.

However, there have been signs in the past year or so that the market is opening up. Last May, 3 UK started allowing any customer with a compatible handset to make unlimited Skype-to-Skype calls free, with no data charges. The operator followed the move up in June by offering a contract that included free Skype with no monthly charge.

Mobilkom Austria has also struck deals with IP players Fring and Nimbuzz, and other European operators have made moves to open up to the VoIP market. Last year German players O2, Vodafone and T-Mobile all started allowing VoIP on their mobile networks, even though some of their moves into the market were tentative.

Ori Soen, vice president of products at Jajah, said last year that one of the triggers of increased activity was the launch of Google’s revamped VoIP service, Google Voice, last March. According to Soen, some operators registered the move by a major Internet player as one that really threatened to disrupt the market and have sought mobile VoIP partnerships as a defensive maneuver.

Telefonica has now taken the step of purchasing a VoIP provider in the form of Jajah, with plans to initially offer the provider’s services in its European markets. The acquisition could be seen as a move by the operator to defend itself against the presence of VoIP providers by taking control of one such player.

However, it is also a strategy that will prepare the company for the future, as operators move toward LTE networks and the provision of “rich” communications, with enhanced voice, messaging and presence services. In addition, the move goes hand-in-hand with increased levels of social-networking and smartphone activity and could help the company introduce cheap international-calling plans.

Last year, Soen said that Jajah expected deals with several global operators, and according to reports the Telefonica agreement does not mean that the VoIP provider will confine itself to that operator.

MVNO deal

Truphone’s separate MVNO deal with Vodafone UK has certain parallels with the agreement between Telefonica and Jajah, in that the move breaks new ground in its particular arena and that Truphone is a VoIP provider offering cheap international calls.

The company is not combining its MVNO and VoIP services now but expects them to converge at some point. This would be the ultimate combination between the two types of provider.

Truphone’s model represents the next step in the MVNO sector, after the success of ethnic providers that offer cheap international calls and the further acceptance of MVNEs. Truphone is offering low-cost roaming, in addition to cut-price international calls from the home market.

The company’s UK wholesale deal and another with an undisclosed US operator will help it roll out its newly launched Local Anywhere offering, a global SIM-based service that provides customers with local rates in countries where Truphone has wholesale partnerships. For instance, a UK traveler can obtain prices of just £0.10 (US$0.16) a minute to make calls home from the US.

The company is ultimately looking to strike 20-24 wholesale deals worldwide and also offers lower rates in countries where it does not have a deal.

Roaming revenues have been a source of significant revenue for mobile operators, so an MVNO that offers cheap calls when users are traveling could initially be viewed as a significant threat.

However, Geraldine Wilson, CEO of Truphone, says that Truphone’s service is a niche offering aimed specifically at frequent travelers, which she estimates constitute about one-fifth of the UK population. And Truphone is charging £7.99 a month to sign up to cheaper rates in the first place, a factor that pitches the company at dedicated travelers.

Wilson also points out that more than half of mobile customers switch their phones off when traveling abroad, so operators are losing that revenue anyway. In addition, operators have already faced falling revenues caused by EU regulation.

Taking these factors into account, operators could seek to gain customers and incremental revenues on their networks by opening up to such partnerships. Operators have also been seeking methods for targeting new market segments.

These latest deals in the VoIP and MVNO areas show how players are opening up to new partnerships and breaking down previous barriers. It will be interesting to see how other operators react to these latest moves and how the next phases of development will unfold.