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Cable Technology Feature Article

July 31, 2009

VoIP 24 percent of Lines, 10 percent of Revenue in Europe

By Gary Kim, Contributing Editor

Voice over IP services, marketed using dual- and triple-play bundles, are reshaping the European fixed-line market, say researchers at TeleGeography (News - Alert). VoIP now accounts for more than 24 percent of fixed-line telephone subscribers in Europe and about 10 percent of voice revenue.
VoIP service revenues of over $5 billion are still dwarfed by the nearly $51 billion generated by traditional switched fixed-line services. And that's the reason incumbent telcos are sober about the pace at which they introduce consumer VoIP or business IP telephony: Swapping a traditional voice line for a VoIP line actually reduces revenue, whereas an attacking provider might be happy enough grabbing an account with lower average revenue per user. 
Irrespective of the actual share changes away from legacy voice and towards VoIP, the additional effect is a change of buyer perception. "What a voice service should cost," and "what the basic service ought to provide," are different once VoIP becomes a significant presence in the market.
Simply, VoIP creates downward pressure on prices. Many European incumbent telephone companies have responded to this pressure by introducing their own discounted VoIP services, essentially cannibalizing their higher-priced legacy voice services.
In other cases incumbents have essentially cut legacy voice prices, essentially disguising the price reductions by marketing voice as one component of dual-play or triple-play bundles of voice, broadband, and video. Buyers are aware they are saving money when buying a bundle, but it is harder to discern the discrete prices for each separate component.
For some service providers, that is an advantage, since buyers find it harder to evaluate competing offers for stand-alone services.
These measures have helped incumbents to defend their market shares, but at the cost of sharply reduced voice revenues. Aggregate revenues from switched and VoIP telephone service have fallen from $69 billion in 2005 to $55 billion in 2008 and are projected to decline to only $36 billion by 2013.
At the end of 2008, 34.6 million consumer VoIP lines were in service in Western Europe, up from 25.9 million at the end of 2007. In 2005 there were just over six million consumer IP telephony customers.
The direction is clear enough: voice remains a key part of the end user value proposition, but voice is losing its position as the key revenue driver.
Fixed-line telephony was the cash cow that allowed incumbents to invest in mobile telephony, broadband, and video services. However, in Europe today, voice is increasingly just a loss leader, used to sell broadband and video services," says TeleGeography analyst Paul Brodsky.
While the aggregate pace of growth across Europe is rapid, trends vary dramatically by country.
Market penetration at the end of 2008 ranged from over 50 percent of households in France to less than three percent in Spain. Growth rates ranged from 11 percent in Norway to 190 percent in Portugal.
Cable service providers are key drivers of VoIP growth in the Netherlands, Belgium, and Portugal, but are almost completely irrelevant in Italy.
France Telecom and Telecom Italia are aggressively marketing VoIP services, while Deutsche Telekom and Belgacom (News - Alert) have largely withdrawn their VoIP services from the market.
Triple play bundles of broadband, VoIP, and video services range from $42 to more than $91 per month, TeleGeography notes.

Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.

Edited by Jessica Kostek