Monday, April 10, 2006

Freeform Dynamics: Cellular Operators Will Continue To Dominate Mobile Telephony

Dale Vile at Freeform Dynamics writes at about the UK regulatory body Ofcom and mobile call termination charges. The practice "is mobile operators cross charging other networks, e.g. BT and other cellular players, for the privilege of routing calls to their subscribers. These charges are in turn passed on to the person originating the connection, the upshot being that it costs all of us more to call someone on a mobile phone than it does to call a person on the end of a fixed line."

According to Ofcom, "mobile call termination charges generate more than £2 billion per year for operators and account for about half the price of a typical call from a BT fixed-line phone to a mobile." Vile notes there is an argument from both sides whether theses charges are a rip-off, and says Ofcom is involved "to make sure operators don't crank up termination charges to unreasonable rates, as the caller does not have any choice but to pay them if they want to reach a particular mobile phone user."

Vile thinks that "the purpose of Ofcom's latest announcement is to make us aware of its intention to extend regulation in this area both in terms of time and scope, with the latter being broadened to include 3G as well as 2G networks now that a lot of voice traffic is switching over." He wonders "is this additional regulation really necessary when we are hearing so much about Wireless VoIP being set to destroy the cellular market?"

Vile believes "it will be a long time before people have the confidence to give up their cellular service," and the ""the mass market may well move predominantly to Wireless VoIP at some stage, but our bet is that the underlying bearer will still be cellular for the ‘out and about’ style usage as this is inherently the most appropriate infrastructure—and it's already in place."

Vile concludes that:

The world is definitely changing and players like Vodafone are clearly facing some serious challenges. But let's not write off the operators too quickly. We are all dependent on cellular telephony at the moment for both personal and business use and this level of incumbency will take a lot of shifting. Just as in the mobile data space, it's therefore all about how well the operators are able to exploit their position and assets to move into new areas and businesses models as the traditional ones are squeezed tighter.