UMA . . . and beyond
March 22, 2006
That great subterranean grinding sound you hear might just be the rocking of the foundations of telephony as we know it.
The not particularly momentous launch of Nokias UMA-enabled 6136 phone at the 3GSM World Congress 2006 in Barcelona last month touched off an interesting, and surprisingly far-reaching, debate among industry provocateurs about the very future of telephony. We take it even further.
Does UMA (Unlicensed Mobile Access), a technology that allows GSM carriers to seamlessly hand off calls between cellular and Wi-Fi networks, spell doom for VoIP service providers such as Vonage and Skype? Do mobile carriers have more to gain or to lose by offering UMA-style fixed-mobile convergence (FMC) services? Will FMC radically alter the telephony landscape? Or are other far more powerful mountain-leveling forces at work?
UMA gives mobile carriers the technological wherewithal to offer multi-domain, converged wireless and wireline services. Subscribers can use a single handset to make VoIP calls using a carrier-provided service over a Wi-Fi network at home or office, and to make wireless calls over the cellular network when mobile. One phone, one bill, service everywhere. And when you move from domain to domain, the phone hands off the call without interruption.
British Telecom has been offering its UMA-based BT Fusion service since the fall of 2005. UK-based Jupiter Research senior analyst Ian Fogg says BT Fusion has already attracted over 30,000 subscribers. Though small in the greater scheme of things, that number is an indication that users see value in this proposition.
Threat or promise?
But while UMA/FMC may be a no-brainer for users, will mobile carriers see the benefit? It's interesting, Fogg notes, that in the UK, it wasn't one of the mobile carriers that embraced UMA first, but BT, primarily a wireline carrier. "Certainly the received wisdom is that mobile operators have most to gain," he says. "But maybe they've actually got more to lose."
In Europe, especially, a small but significant chunk of cellular calls are made from home. So, yes, offering FMC services may help mobile carriers lure customers from wireline service providers, especially VoIP providers. They will gain that additional revenue, but they also stand to lose revenue because subscribers will now be making VoIP calls from home and office instead of cell calls, at much lower per-minute rates.
If you believe mobile carriers will decide that the customer-winning benefits outweigh the revenue-diminishing risksand the expenseof implementing UMA or something similar, it makes sense that VoIP service providers, especially Vonage-style providers, will be in jeopardy. Why would subscribers stay with a Vonage if they could get the same low-cost VoIP service for home from a much better established mobile carrierand get fixed-mobile convergence, and get bill consolidation?
San Francisco-based journalist Andrew Orlowski, riffing in The Register on the introduction of the Nokia 6136, suggested for basically these reasons that UMA spelled lights out for both the Vonages and the Skypes of this world. "Utter bollocks!" retorted UK-based consultant Martin Geddes at his Web site, Telepocalypse. (That's Brit for 'horse feathers,' only less polite.) Not that Geddes sets great store by Vonage, UMA, or even Skype. He has another, much more challenging take on how the telephony world is unfolding and where UMA and FMC fit.
Geddes describes his business as consulting about "the collision of the IP and telecom industries." Clients include handset manufacturers, and more recently, carriers. He helps companies come up with the right business models for long-term success in a rapidly changing world.
"Things like UMA," he says, "are simply perpetuating the old model of vertical integration of network and service."
The old ways not the best ways?
It's a doomed model, he believes. For one thing, in a world in which voice connectivity is no longer scarcewitness Skypeit makes no sense to build a business around charging per minute for connectivity. That model is "slowly unraveling," he saysthough the emphasis, he admits, is probably on slowly. "It's always a long fade-out."
And what will replace the old model? Geddes is less convincingor perhaps just more challengingon this point. He notes that Skype users find more to like about the service than just the free calling: the IM features and the superior audio quality, both of which take advantage of the very flexible (sometimes characterized as "stupid") underlying IP network. (UMA, he notes, with its insistence on maintaining the carrier's "smart" network, doesn't even take advantage of the ability to offer better voice quality.)
"In the new model, economic activity ends when the telephone call is placed," Geddes says. "The money is made before the phone actually ringsfrom the presence filtering and social networking services."
Phone calls no longer the product
His model of a new-order winner: an online dating company that gives away voice connectivity as part of the service. Or how about an online auction company that gives away free voice connectivity to help buyers and sellers communicate? (That's not Geddes, that's me.)
"The transfer of audio bits is a tiny feature," he says. "The idea that moving voice bits is so complicated it needs a separate application and service is a fallacy. It's trivial. It's ten lines of codewell, I exaggerate for effect."
Geddes doesn't say that UMA will be a complete bust. There are enough short-term benefits for users in bill consolidation and handset convergence to make it appealing. And for operators it means subscribers in effect volunteer to carry some of the backhaul over their broadband Internet connections. For carriers in the US especially, that may be a significant enough benefit to warrant investing in UMA infrastructure.
"If you're paying oodles to Qwest or Tower to carry backhaul and the customer volunteers to carry it for you, you'll probably say, 'Yippee!' It'll find its niche," Geddes says of UMA. "As long as the operators understand it's a niche thing, it's not a strategic salvation."
The Vonage vulnerability
He doesn't dispute, meanwhile, that Vonage's long-term future is in jeopardy. But it's not UMA, or not UMA alone, that will do it in, he suggests. Vonage and others like it have a business model that is "indefensible" because there is basically no barrier to entry to its market, except brand. And there are other potential VoIP players with stronger brandscable companies and mobile carriers among them. As the Vonages of the world cause more pain, these stronger players can simply reduce prices and force them out of business.
More to the point, there is ultimately a diminishing pool of profit to be made from selling minutes of connectivity at any price.
Even Skype, he says, is likely to be "a footnote" in the history of the transformation of telephony because it relies too much on metered minutes for revenueSkypeIn, SkypeOutand not enough on exploiting the capabilities of the underlying IP network and synergies with other businesses that have better prospects for continued profitability.
Seeing the light?
How do Telepocalypse clients respond to Geddes mind-bending ideas? The handset manufacturers "nod sagely and say, 'Yes, we know. Thanks for helping us crystallize the issue.'" The carriers are a different matter. Geddes is an ex-Sprint employee and in that environment until very recently, he says, talking about fundamental business model changes resulting from the impact of the Internet was "like swearing in public."
That is changing now. Carriers that have retained him are typically experiencing deep internal turmoil. Some employees understand the transformation that is happening while others are resisting it. "No telco yetfixed or mobilehas rearranged all the furniture around the concept of an open all-IP network," Geddes says. "They're all still clinging on to the old life buoys."
The question is, how much economic activity will the clinging generate and for how long? And what will happen when the buoys lose their buoyancy?