By Aaron Blazar (ablazar@atlantic-acm.com)

Background: 

At the 2010 Mobile World Congress in Barcelona, Verizon Wireless and Skype announced plans to make Skype Mobile available on Verizon smartphone devices.   The announcement paves the way for the broader adoption of mobile VoIP among wireless end users and will effectively drive changes throughout the telecom ecosystem.

Analysis:  

Skype's announced partnership with Verizon is not a game changer but it will help to launch greater availability of VoIP services on mobile handsets.  In the near future, increased availability will drive changes in voice services demand among mobile end users as well mobile carrier's needs for supporting their networks.  With the increased penetration of mobile VoIP applications, three distinct trends will emerge: 

• Further verification of voice as an application. Until Verizon's announcement with Skype mobile, the only mobile VoIP applications that used mobile data networks were primarily considered fringe applications. The availability of mobile VoIP apps or clients consisted of apps such as Fring, iCall, Truphone and Raketu. The degree of usability varied by mobile providers as some providers only allow WiFi to be used for VoIP calling and not their 3G data networks. Although there were rumors that Google Nexus One, released in conjunction with T-Mobile, would be a VoIP-only data phone, this has not come to fruition. Verizon's announcement in conjunction with Skype will deliver greater momentum to the movement of voice as an application over mobile devices by placing two large brands behind VoIP-based mobile calling and insuring the ability to use VoIP apps over the mobile provider's 3G data network. ATLANTIC-ACM expects that, in the coming year, other U.S. mobile players will follow in Verizon's tracks, allowing voice-as-an-application options to be used on their carrier data networks.
  
• Increased cannibalization of traditional mobile voice business. With Verizon and Skype's partnership and the future availability of mobile VoIP solutions, it is expected that mobile voice revenues will come under greater pressure from VoIP-based services. Although international mobile usage is relatively small compared to total voice revenue, this will shift with the adoption of Skype and other mobile VoIP applications. In the future, the greatest form of cannibalization will come in the form of the usage of VoIP applications to call to domestic wireline and wireless numbers. This will cut non-IP mobile voice minutes of use, allowing consumers to buy lower-priced voice plans, or eliminate the need for voice plans altogether. This is a long term prospect and will not have major implications on the market in the near term. ATLANTIC-ACM estimates that the declining demand for mobile voice services will drive postpaid voice revenue to decline by a CAGR of 1.8 percent from 2008 to 2014, driven by increased voice pricing pressure combined with the substitution of mobile VoIP offerings.
  
• Increased prevalence of mobile VoIP applications will drive greater demand for wholesale VoIP services. The Verizon and Skype partnership will drive increased near term demand for VoIP termination services by Skype, which currently has wholesale termination deals with many carriers around the world. With increased traffic from Verizon's mobile users, Skype will require greater VoIP termination capacity. More importantly, the acceptance and greater penetration of mobile VoIP services will, in the long term, drive greater demand for wholesale VoIP termination services. In the U.S., this means new wholesale VoIP business opportunities for players such as Level 3, Global Crossing, XO, Qwest, Verizon and AT&T, who all offer VoIP termination services. More importantly, as a greater number of mobile voice application providers emerge to offer voice as an application, they will require wholesale voice termination as well as other wholesale VoIP services. ATLANTIC-ACM believes that, in wholesale, VoIP services represent one of the few remaining growth opportunities for wholesale providers in the next five years. Even more importantly, as wireless traffic moves to IP and usage grows VoIP peering services will move closer to the forefront of the minds of mobile players. Currently, European mobile players are actively working with GSMA and Neustar to ramp up Pathfinder, a mobile peering platform that will allow for the exchange of traffic between mobile providers. If and when mobile VoIP becomes a reality in the U.S. expect, ATLANTIC-ACM expects that U.S. mobile and voice applications providers will embrace VoIP peering in an effort to cut the costs of managing VoIP calls while ensuring call quality. ATLANTIC-ACM expects that VoIP's broader acceptance on mobile devices will help to launch several new opportunities for wholesale players in the coming years.

The Bottom Line: 

Verizon's partnership with Skype represents the early beginning of the acceptance of voice as an application as a reality for the mobile industry, thus providing an opportunity for further integration of voice into mobile interfaces.  Although the acceptance of voice as an application on mobile data networks will eventually cannibalize the traditional mobile voice business, it also presents new opportunities for growth among the players that support both voice applications providers and the mobile players themselves.