The majority of carrier employees earn a living today from selling services away from what is considered the traditional voice market. Yet tell them the traditional voice market is dead and they instantly pull a face like they’ve just chomped into a raw onion.

If it is a universally accepted fact that traditional voice market revenues are declining, what is it then that causes such great discomfort among the carrier community when anyone suggests that one day it could be dead?

Well for all the headlines, facts and figures, voice is still here. The questions are for whom and for how much longer?

“Get bigger, get better, or get out,” bluntly states Catherine Haslam, chief analyst at Ovum. It’s as simple as that: “The voice market is highly competitive, it has undeniable decreasing margins and there is an increasing downward pricing curve. It’s now time for carriers to address this.”

Is getting bigger even an option? Not according to Level 3 which is aggressively pushing a campaign advising customers to cut their losses and ‘dump the deskphone’ as promptly as possible.

But as even one Level 3 insider accepts: “It is very easy to predict how quickly new services can develop - inaccurately”.

The worker sums up the conundrum perfectly - traditional voice decline is a reality. But how fast it will sink in to oblivion still remains to be seen.

The OTT players, in particular Skype, are perceived to be accelerating the traditional voice market’s demise. The company has assumed this role largely because mobile operators view Skype as a competitor rather than a value-added application.

In fact, when Skype initially launched in 2003 it was less a case of embracing the concept of video calling over IP, more a case of avoiding it all together. It wasn’t even just the carriers. The access providers too stuck their thumbs firmly in their ears.The accusation that Skype is indeed causing, or at the very least aiding the ‘death of voice’ has been levelled consistently against the company by the largest players of the telecoms ecosystem.

The internet phenomenon maintains, however, that it exists as a possible partner, not a competitor. “People that believe Skype has led to revenue erosion for voice are mistaken,” says Jean Jacques Sahal, director of government and regulation, EMEA at Skype. “There has simply been a shift in the way people communicate, meaning they use traditional voice telephony and more versatile communication tools.”

Sahal rejects any accusations that OTT players are the cause of falling voice revenues, countering that they have actually been in decline for over thirty years. “Liberalisation and parallel increases in competition have significantly led to eroding prices, not Skype.”

A fair point, but one that neglects to mention Skype’s profound impact on the market says Jonathan Shmukler, director of product marketing at solutions software company Amdocs. “Skype literally took the market by storm,” he says. “It’s a classic OTT provider as it doesn’t need to make agreements with service providers. Mobile operators were severely trumped when it came out and an initial knee jerk reaction was to attempt to block the service on cellular networks.”

Skype may be easy to access and cheap, but what it really has over the traditional voice market is youth appeal: “It’s a progression that is generational,” says Gert Jan Huizer, VP product management and marketing at iBasis. “Even when considering our own operation, of which the core is international voice, I will profess that the market value is going down and that’s a fact. In some ways it’s not even a case of going bigger in terms of volume because volume is simply absorbed by Skypealites.”

For telcos, the brand popularity of the likes of Skype, Facebook and the rapidly emerging Google Plus is something they simply cannot compete with. The generational divide beyond traditional voice services is now so vast that even ease of accessibility can take a back seat in the mindset of the ‘x-generation’. “Because of brand and loyalty, OTT has established a platform in which users will happily use messaging services on these platforms, instead of SMS,” says Shmukler. “This begs the question: will they be happy to click on a friend and make a voice call? Probably.”

Perhaps a large part of Skype’s success stems from the fact the company aimed low, and subsequently achieved big. It uses a low cost model to make use of publically available capacity, in effect, avoiding the high priced infrastructure costs it could have paid had it chosen to partner with carriers.

If indeed, the erosion from fixed minutes to data minutes continues at the present rate, stability and maintenance, even provisions of quality could be a factor that OTT players must take in to account. “For the operators, getting in to bed with OTT players now will mean they are simply providing bits and bytes, and again not generating voice revenue.

The dumb pipe scenario, and the telco fear of it, becomes that much more apparent with relation to voice services,” says Shmukler.

For the traditional voice carriers, ignorance is no longer bliss. “Getting bigger, getting better, or getting out” is their only realistic option. “This is the message we are taking to the global wholesale market,” says Haslam. “You could almost say to a carrier, if you are not carrying 20 billion minutes, you are falling off the radar as being a truly global player.” Enter the carrier voice market’s chief protagonist – Tata Communications. And if traditional voice truly is dying, this company’s voice solution segment does not need a funeral just yet.

The big statistic »  2010: 27.0  2016: 17.9  CAGR: -6.6%

North America international      wholesale minutes (billions)      2010 vs 2016 estimate

Source: Ovum

Tata boasts it is actually beating the industry curve, growing its international minutes by 11%, 7% up from the static market rate of 4%. The company further claims to generate $1.4 billion of top line revenues in voice alone, accounting for 50% of top line revenue in the group’s wider operations. The irony behind Tata’s growing success in the voice market lies with the man now charged with heading up the segment. If Michel Guyot, president, global voice solutions at the company had believed what he heard 12 years ago, after Bell Canada acquired Teleglobe for $7 billion, it is unlikely he would still find himself in the role he serves today.

“Serving the global voice market back then was very different. We at Teleglobe had invested a fair deal in voice up until this point, and our new manager from Bell walked in and proclaimed: ‘voice is dead’,” he reflects. “This significantly defocussed our operation and we began to invest in other markets. In 2002 Teleglobe filed for Chapter 11 bankruptcy protection.”

The moral of Guyot’s story may have factored in Tata’s commitment to the international voice market. Many of the larger international carriers have dragged their heels in making the transition from legacy and TDM to IP, while others are now relying on outsourcing contracts to address decreasing voice requirements. Verizon, once the biggest wholesaler of international minutes, has significantly curbed its operations in the market because of the damage declining voice revenues was having on its group margin. It too, is now looking to develop separate OTT solutions and has partnered with Skype for LTE access.

“There has been a significant shift in power,” says Haslam. “The US was once the greatest originator of voice services, and now it is Asia. The stronghold of carrying bulk minutes to and from the home market is fading fast, particularly with the larger US carriers. Companies like Tata and BICs are in turn getting bigger and more efficient because they have integrated voice within a wider IT product set.”

While Tata’s position seems enviable to those struggling in the voice market, it is important to note that achieving adequate margins through a standalone voice business is only an option for a carrier capable of carrying high traffic volumes.?Consolidation is now inevitable, according to Haslam, and national carriers have had to outsource international termination to international wholesalers, further squeezing margins. “In three to five years, there will be a fundamental shift towards end-to-end IP for telephony services. This is the biggest challenge to hit telephony since its inception,” she says.

Consolidation and outsourcing will benefit only a finite number of global carriers. This is certainly an acceptable paradigm for the wholesale market, but in retail, the overriding strategy for achieving growth is very different. IDT, one of the largest prepaid international calling card providers in the world, operates a trading platform in which it buys minutes at a set rate, with the aim of selling on a higher price.

“Ultimately, we don’t just rely on trading margins to make a profit,” says Nick Ford, president, carrier services at IDT telecom. “The better rates we get in the wholesale market for our retail routing means generating more retail minutes for us. The more we can then offer to our wholesale partners, the better rates we generate.”

Just like with international wholesale, the retail value of voice minutes and price per minute is also only decreasing. The difference according to Ford is the increases in volume; the company experienced a 13% year-on-year growth in the last quarter and an 8% increase in revenue. “It’s transforming and moving, not shrinking and falling,” he says defiantly.

“Operators do need to realise that, when IP is fully rolled out, infrastructure and interconnection is what makes telecoms work. There is simply no incentive for suppliers to carry competitors’ traffic for free – even in OTT, why should Google terminate traffic from Facebook for nothing?” More of bit pipe than a dumb one then. 

Whether it is from solutions company Amdocs, technology innovator Level 3, global carrier Tata, internet sensation Skype or voice carriers IDT and iBasis, one overriding message is clear: the evolution from TDM to IP is now fundamental to all of these companies.

An all-IP network is becoming ever more essential, and any maintenance of TDM is a strategy undertaken to eventually exit the voice market. VoIP, as it stands, opens up the market significantly for unified communications, and with a growing commitment from both carriers and mobile operators to IPX, the stage is set for VoIP to be the mainstream voice communication platform.

And while it may appear the OTT players are best positioned to benefit from this, there are still question marks over whether the present OTT business model, largely generating money through advertising, has long term sustainability. “With Skype, for example, you get an indication of how good your voice call is when measured on network quality,” says Shmukler. “The next step for OTT could be offering premium Skype services to guarantee a better experience. The opportunity for the service providers, then, is how to enable this.”

An opportunity that Tata would be more than willing to take up, says Guyot. “They need us, they need interoperability. We may well be the company to bridge the Google Island or the Skype Island. No-one can predict what will happen in such a flat market, with few players, and few revenue generating opportunities - we may even be the last man standing.” 

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While the progression from TDM to IP appears inevitable, market watchers have always expressed questions over the actual quality of a voice call delivered over the internet. The advent of HD voice, being developed by mobile operators globally has been billed as the service to give users something materially different to fixed.

HD voice, most recently introduced to the market by Sprint on its HTC device, gives voice services its biggest upgrade in years. “HD voice can be seen as the trump card in the migration from fixed to mobile,” says Gert Jan Huizer, VP product management and marketing at iBasis. “It cannot be delivered over traditional networks, meaning it has to go through IP. HD voice is actually a big step for mobile networks, and finally provides a viable reason as to why you get a better customer experience on IP rather than fixed. It’s all about perception.”

HD voice can presently be experienced through voice platforms like Skype over a voice over LTE network but mobile operators remain limited in developing it on Skype because it is not a conventional telephony system. It can, however, be introduced in voice calls on both digital cellular and satellite communications, when VoIP platforms are rolled out over fibre packet technology. Enabling the retail network, through IP, which is a prerequisite for HD voice, does require substantial investment, and a full IP infrastructure. Michel Guyot, president, global voice solutions at Tata, still doubts the impact such a service will have on declining revenues.

“I doubt companies will generate revenue from HD. It will run as an enhancement to an existing service,” he says. “It is certainly interesting, and there is widely held view that better quality will mean an average call will last longer. It could provide a completely different experience to voice calls.”