How Vodacom, MTN can kill mobile VoIP

Voice over IP (VoIP) services such as Skype are a great way to save money on your cellphone bill, even if you use them over a mobile broadband connection.

Because of this, VoIP providers that run on mobile phones pose one of the biggest threats to the revenues of mobile operators.

They compete with an operator’s biggest source of revenue, voice, by offering a free service that runs on that operators own data network.

While existing players such as Skype, Viber, and BBM Voice haven’t (yet?) taken a significant bite out of Vodacom and MTN’s voice revenues, WhatsApp’s announcement of a free voice calling feature has many operators worried.

The threat of WhatsApp

This is because of the combination of WhatsApp’s tremendous user base and the fact that it runs not only on high-end smartphones, but feature phones as well. The increased availability of cheap Android smartphones that can run WhatsApp is a further concern for operators.

MTN Group CEO Sifiso Dabengwa has acknowledged WhatsApp’s planned voice service as a “game changer”.

Vodacom, on the other hand, said that given the minimal impact mobile VoIP has had on usage patterns they aren’t too worried.

In fact, Vodacom believes WhatsApp’s voice service will be good for them as it will separate the operators who have invested heavily in data networks from those that haven’t.

However, considering the savings that VoIP offers, and as mobile VoIP applications become more ubiquitous it is difficult to see why many people would not switch. Especially if the quality were comparable with regular cellular voice calls.

The table below shows what the per-minute cost of VoIP calls may be based on the bandwidth requirements posted by Skype and Viber, and a number of different data tariffs.

For the sake of comparison, it also assumes that the recommended bandwidth (both upload and download) is fully utilised all the time:

VoIP service Viber Skype (minimum) Skype (recommended)
Recommended bandwidth 240KB per minute, 14MB per hour 30kbps up, 30kbps down (60kbps total) 100kbps up, 100kbps down (200kbps total)
15c/MB (e.g. Cell C, Vodacom 1GB prepaid promo) 4c/minute 19c/minute 22c/minute
99c/MB (e.g. Cell C, 8ta more ad-hoc) 23c/minute 44c/minute R1.45/minute
R2/MB (e.g. Vodacom, MTN ad-hoc) 47c/minute 88c/minute R2.93/minute

Pre-emptive strike against mobile VoIP services

It is interesting to note that MTN and Vodacom have both filed separate, higher rates with the Independent Communications Authority of South Africa (Icasa) for VoIP traffic.

MTN and Vodacom therefore reserved the right to charge different rates for VoIP traffic in their terms and conditions.

MTN has filed the rate of R25 per Megabyte (MB) for VoIP traffic, while Vodacom has filed a rate of R10/MB.

When previously asked for feedback on the matter, Vodacom said that they have “no current plans” to charge differently for VoIP. MTN has not yet provided feedback on the matter.

As the table below shows, if MTN and Vodacom decided to implement the higher rates they filed with Icasa they could effectively kill the value proposition of third-party VoIP applications that rely on their mobile networks:

VoIP service Viber Skype (minimum) Skype (recommended)
Recommended bandwidth 240KB per minute, 14MB per hour 30kbps up, 30kbps down (60kbps total) 100kbps up, 100kbps down (200kbps total)
R10/MB (Vodacom VoIP) R2.34/minute R4.39/minute R14.65/minute
R25/MB (MTN VoIP) R5.86/minute R10.99/minute R36.62/minute

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How Vodacom, MTN can kill mobile VoIP