volte strategy from mavenir

Mobile Ecosystem, 2012 Underwritten by Mavenir Systems -1-

Mobile Voice Strategies How Mobile Operators Can Harness the Transformation towards

VoLTE and Converged Multimedia Services

A White Paper Prepared by

Mark Lowenstein

Managing Director, Mobile Ecosystem

January, 2012

[email protected]

www.m-ecosystem.com

@marklowenstein


Mobile Voice Strategies

How Mobile Operators Can Harness the Transformation towards VoLTE

and Converged Multimedia Services

I. Introduction

It is time to start thinking about the next generation of wireless voice services, given the rapid

innovation in smartphones and acceleration of LTE deployments. Amidst all the attention to data over

the past several years, there has been relatively little innovation with respect to the $600+ billion market

for wireless voice services, which still represent some 70% of global wireless revenue. Some say that

voice services are a commodity, and that their importance will diminish with the growth of data and rich

media over robust mobile broadband networks. Others believe voice will always be an important form of

mobile communication. And operators have a unique opportunity to both ensure that voice remains a

key part of their revenue and profitability stream, and a strategic asset that can be leveraged into a richer

suite of communication services that cements the relevance of the operator in the customer relationship.

There are four primary catalysts that make a discussion about the evolution of voice services, in the

2012-15 era particularly relevant.

First is a technology catalyst. The evolution to LTE brings with it the migration to IMS and an all-IP

network. This invites discussion of how voice services are offered on LTE networks and also opens up

the opportunity to incorporate a suite of enhanced voice offerings over Wi-Fi enabled smartphones that

represent a source of competitive differentiation and potential revenue enhancement.

Second is a market and competitive catalyst. Data services, in part text and e-mail but increasingly

private social networking networks, such as BBM, WhatsApp, iMessage, Facebook, and so on, are

substituting for core operators services such as voice, SMS, and MMS. The operators benefit in part through the growth of subscriptions to data plans, but in the aggregate data services are both less

profitable and diminish the operators role in the customer relationship. Additionally, 4G networks provide even greater opportunity for competitive, over the top services, such as Skype, Google Voice, FaceTime, and Fring to compete more directly with core operator voice offerings.

Third is a business model catalyst. Voice over IP networks is measurably less expensive to deliver on a per bit basis and delivering opex savings all especially important in an era where faster-growing data services are dampening margins. Migrating to VoLTE provides operators the opportunity to

refresh their suite of voice and messaging services with new, enhanced offerings and a more agile model for developing new concepts. This is not a part of their business that should be lost to OTT

players. Operators preserve a core element of their value proposition, while freeing up network

resources for more bandwidth-consumptive applications.

Fourth, and perhaps most importantly, the user is a catalyst. Communication patterns are changing, as

social collaboration replaces traditional value-added services such as voicemail and certain forms of

messaging. And users want access to these services across multiple devices and clients, presented in a

convenient, integrated, and intuitive fashion.


We also have to be thinking forward to what the business framework might look like in an IP-centric

world. It is likely that some operators will migrate from todays silod voice/text/data plan structure to a more all-inclusive gigabyte per month plan that incorporates numerous services into one bucket, accessible from multiple fixed and mobile devices.

In this report, we will discuss how the operators can harness the next generation of voice services. After

a brief overview of how the technology ingredients are falling into place, we will: discuss the market

and competitive catalysts driving the conversation; describe what some of these enhanced services might

look like; review some of the most progressive operator VoLTE offerings currently in the market;

examine the business model implications; and provide some recommendations for effective go-to-

market strategies.

II. Technology Pieces Falling into Place

Remember the term PSTN? Well, we might consider the current state of mobile voice services to be the PSWN. Voice services have become a bit of an orphan child since the acceleration of smartphone penetration and data growth began in earnest about five years ago. Voice service reliability and quality,

which had been steadily improving over the past years, saw deterioration in some markets because of

data capacity requirements. Data has also been the focus of innovation--- the core voice value

proposition for customers has remained essentially unchanged for several years. Concomitantly, due to

changing demographics, substitute services, and higher penetration at the low end of the market, we

have started to see declines in voice usage and voice revenues in most developed country wireless

markets. In the United States, for example, average monthly voice usage peaked at 850 MOU in 2008

and was 801 MOU in the most recent quarter.1 We believe this is caused by the growth of alternative

forms of communication, including messaging, social-collaboration oriented services, and peer-to-peer

networks.

The evolution to 4G LTE wireless networks provides a rare opportunity to re-energize the voice services

market segment, which has been stalled from a growth and innovation standpoint for several years. It is also a unique opportunity for the operators to be at the center of that innovation, and to continue to

play a vital role in the customer relationship. We are in an accelerated stage of LTE deployment. In the

United States, as of December 2011:

Verizon Wireless covers about 160 million POPs with LTE, with plans to cover the vast majority of its footprint by the end of 2012

AT&T has launched LTE in a number of major cities, and will be steadily adding markets by YE 2012

Metro PCS has rolled out LTE in most of its major markets.

Sprint will be rolling out LTE beginning in 2012

Other operators such as Leap and US Cellular have also announced plans to deploy LTE

1 UBS Wireless 411 Report, Q2 2011


Alongside the deployment of LTE, a GSMA standard called VoLTE addresses voice and SMS services

over LTE networks. VoLTE provides the ability to offer a true voice over IP (VOIP) service over

cellular networks, for the first time. In a Greenfield LTE environment, this will allow operators to offer

voice services alongside LTE data. For operators also offering 3G services, VoLTE allows for a

migration path to wireless VoIP, with the option of using circuit switched fall back (CSFB). The vast

majority of operators are deploying IMS as the migration path to VoLTE. According to a study by

Infonetics Research, 94% of operators who are planning to migrate voice will deploy IMS for VoLTE.

And 39% of operators say they plan to move to VoLTE within a year of their LTE launch.2 Over the

next several months, we will see the first commercial VoLTE service launches, likely from MetroPCS

and Verizon Wireless.

The handset OEMs are also putting together the necessary ingredients. Apples FaceTime is SIP-based. SIP is built into Android Versions 2.2 and later. It is also likely that LTE chipsets introduced in 2012

will have an IMS core embedded.

Improvements to data services, such as higher throughput, lower latency, and increased capacity, are

often cited as the prime benefit of LTE to consumers. Somewhat overlooked, however, are the potential

improvements to voice services. Wireless VoIP over 3G networks has been a niche service of last resort, used mainly for international calls to avoid onerous roaming charges. 4G and VoLTE represents the first time we can have a serious discussion about delivering quality VoIP over the wide area

(cellular) wireless network, rather than through Wi-Fi, which has been the primary bearer until now.

For example, NTT DoCoMo reports that their LTE network in Japan is realizing the latency of their

3G network, which would likely mean good quality of service for VoLTE. Mobile Ecosystem believes

quality voice services can be delivered when latency is below 100 ms.

The baseline expectation for VoLTE is service parity with existing 2G/3G offerings. But the most

exciting aspects of VoLTE, however, are the possibilities for a suite of new and enhanced voice, video,

and messaging services leveraging the unique capability of LTE, and the opportunities to be thinking

about new and innovative service concepts to accommodate a multi-device world. Key areas of

opportunity include:

Enhanced voice services. Some service concepts that operators have been considering for a number of years, such as one number or unified communication services, are much easier and cheaper to deploy in a VoLTE environment, with many more opportunities for

feature development and customization. Unified communications takes on a more

significant meaning when subscribers own multiple connected devices.

New services incorporating voice, such as HD voice, mobile video chat and conferencing, multimedia, and integrated social networking.

An ability to support voice services on multiple connected devices, even fixed-line phones and mobile computing products, such as tablets, where voice might represent an

important add-on capability.

2 Source: LTE by the Numbers: A Statistical Analysis of Deployment Plans, October 2010


Incidentally, VoLTE also provides the path for legacy CDMA operators to offer simultaneous voice and

data, which has been a competitive disadvantage for them compared to GSM-based networks.

Economics are another key factor. The growth of data has been a double-edged sword. Although data

has been driving operator revenue growth, it is having an impact on margins. A study by Ofcom in

Europe, using an index of Q4 2007=100, shows that data volumes grew from 100 to 2,334 Q4 2007 to

Q4 2009, while data revenues only grew from 100 to 190. This is the scissor effect now becoming a key issue in operator projections for data.

The cost to carry voice is up to 20x cheaper over 4G than 2G, and provides a 2-3x cost advantage even

over HSPA.3 A flatter, IP-based network (upon which IMS VoLTE service is based) also delivers opex

savings: fewer data centers, power savings, and so on. Given the smaller margins of bandwidth-

intensive data services, the encroachment of OTT and substitute services, and the ongoing intensive

capex needed to accommodate the demand for data, the potential cost savings of VoLTE should not be

overlooked. Additionally, moving voice traffic to LTE potentially frees up spectrum for data.

III. Market and Competitive Catalysts

We are at an important crossroads. Individuals, particularly in key demographics, are using fewer

wireless voice MOU and are starting to use alternative, and competing voice services, cutting into

operators core area of revenue. Services such as Skype on mobile devices, once an outlier used mainly over Wi-Fi and for international calls to avoid excessive roaming charges, are starting to be used for

more mainstream purposes. With the capabilities of 4G, it is likely that the use of VoIP over cellular will

become more commonplace, with call quality comparable to circuit switched cellular or fixed-line VoIP.

A. People are Communicating Differently

We are starting to see some fundamental change in the way individuals are communicating in wireless.

Average voice MOU is declining, due to substitute forms of communication particularly in the youth segment. Nielsen reports that voice MOU in the U.S. decreased

12% between 2009 and 2011, across all age segments.4

The rate of growth in text messaging is declining in the U.S., due in large part to substitute OTT services. In some countries (such as the Netherlands and South Korea),

there have been substantial, documented drops in text messaging revenue.

Mobile e-mail, with the exception of enterprise Blackberry, is no longer marketed and sold as a distinct service. Rather, it is incorporated into data plans and is as commonplace a service as voice mail and text.

In the aggregate, time spent on mobile devices has been increasing, but the allocation of that time is shifting. According to a recent Kleiner Perkins report on mobile internet trends, only 32% of time spent on mobile devices is for traditional operator services such as voice and text messaging.5

3 Source: Mavenir

4 http://voiceoverlte.typepad.com/

5 Kleiner Perkins, Top Ten Mobile Internet Trends Report, February 2011


Most importantly, subscribers dont see voice, text, and e-mail services in the same silos as they used to be. Look at a typical subscriber, say in the under-30 demographic. Communication with their

friends or contacts is through a combination of voice, text, and private social networks such as BBM and Facebook, the latter two incorporating capabilities such as presence and location. The

communication is less driven by the type of bearer (SMS, MMS, e-mail), and more on the individuals social network infrastructure (Facebook Google+), or a device-oriented network (BBM, iMessage).

The OEMs have recognized this trend and as part of their market differentiation have attempted to

integrate various messaging and social networking services into the device UI on Samsungs BADA, HTC Sense, and Windows Mobile 7.5 (Mango), to varying degrees of success.

B. Substitutive Services

Until recently, substitution has mainly stayed in the family, so to speak, with the shift from voice revenues to data revenues. But substitution to over the top (OTT) services is starting to become real. These OTT services include:

Wireless VoIP services. These include Skype, Google Talk, Fring, and several others.

Video services. Skype video, FaceTime, Oovoo.

Private messaging networks, such as Blackberry Messenger, Facebook, WhatsApp, and Google +. Some of these networks also include VoIP as an application or a feature within their private networks.

Other substitute services. These are harder to categorize and quantify, but include applications such as voice search (substitutes for wireless 411), and SIRI.

Historically, fixed broadband (using Wi-Fi) was required for a reasonable wireless VoIP and video

calling experience. However, since robust 3G services such as HSPA+, and especially 4G WiMax and

LTE can now deliver a good experience over cellular, we can expect these applications to be used across

a much broader suite of contexts.

Another related aspect of the growth in data services is that users are going to start looking at their

overall mobile spend the core voice/text/data plan model, plus mobile broadband from other connected devices such as the iPad, plus applications across multiple connected devices. Even though operator

ARPU numbers have held steady, most of the growth is coming from data plans and connected devices.

Subscribers are going to start taking a more holistic view of their wireless spend, across devices, which

could affect their plan mix. I assume that the per-subscriber spend will not go up more than about 10% over the next three years, inflation-adjusted. This means there will be greater allocation to data

services as part of the budget, in the form of a higher gigabyte per month bucket and adding tablets to data plans. I believe users will be looking to lower their proportionate spend on voice and text in order to

fund data and applications, meaning they would be more open to substitute applications if they offer a measurable cost savings, even if there is a modest quality tradeoff.


We are starting to see some examples of substitution affecting the market. In 2007, SMS represented

about 75% of data revenues in North America. By the end of 2011, that figure is only about 50%, as

subscribers spend a greater percentage of their time and mobile budget on general data access plans and

mobile applications. What is occurring in text could be a proxy for voice services, rather soon:

KPN in the Netherlands issued a profit warning in April 2011, citing material impact from smartphone-enabled messaging applications such as WhatsApp and BBM. The

company cited penetration of WhatsApp among Android subscribers of its brand targeted

at youth subscribers went from zero to 85% in just nine months. SMS traffic declined

from +13% Y/Y in Q1 2010 to -8% in Q1 2011. In response, KPN announced plans to

charge mobile phone users separate fees for using voice-over-IP (VoIP) services like

Skype, instant messaging programs, and streaming video.

Blackberry Messenger has become a major alternative to SMS in some countries, especially where text pricing indexes high and/or is unbundled.

Pinger, an alternative text messaging service, claims 19 million subscribers in the United States.

We have not yet started to see meaningful substitution for wireless voice services from VoIP in the

United States. However, most wireless operators believe that it is inevitable. A November 2011 survey

of mobile operators conducted by MobileSquared shows that 1/3 of operators believe traffic for voice,

messaging, and video will fall 11-20%, while nearly 30% believe it will drop by 30% or more.6 A report

by analyst firm Informa forecasts that VoIP calls will grow from about 10% of all minutes in 2010 to

45% in 2015.

Higher risk of IP cannibalization is linked to several variables:

Smartphone penetration. Substitutive applications are developed for smartphones, and nearly all smartphone users have a data plan, which is required for IP-based services.

3G/4G penetration is also higher among smartphone users.

Youth market. Many operators report that 20% subscribers under the age of 25, who comprise about 20% of their base, represent 40-50% of text messaging use. These

subscribers are more price sensitive, are likelier to experiment with a new app or UI, and

skew higher with existing OTT services such as Facebook which offer substitutive

services (directly or indirectly). For this market segment, their Facebook ID is more

important than their phone number.

Unbundled services. Subscribers on a bundled rate plan, for example a data plan that includes text messaging, are less likely to consider a substitute service. Research by JP

Morgan indicates that operators citing higher instances of IP cannibalization have a

higher percentage of subscribers in un-bundled plans.

6 The Future of the Rich Communications Suite, report by MobileSquared.


C. Competitive Forces

Applications we would consider to be directly competitive with cellular voice include Skype, Fring, and

other VoIP and video calling services. Initially, these services were PC-based and substituted for

landline voice services, especially international calls. Increasingly, however, we are seeing these

services being downloaded as apps on smartphones and other connected devices. The most common use

case has been to displace expensive international outbound calling and international roaming. And the

vast majority of these calls until recently have been carried over Wi-Fi, since call quality over anything

less than an HSPA+ network is generally not acceptable for mainstream calling.

As users become more budget-conscious, and take a more holistic view of their overall communication

spend, we believe applications such as Skype will move from niche to mainstream, and be used across a

greater range of contexts. This will be especially true with the deployment of 4G networks, where VoIP

call quality will be comparable to todays circuit-switched cellular. This follows a similar trajectory to what we have seen with online video calling, which surged with broadband penetration and the entry by

mainstream firms such as Skype, Google, and Apple.

The barriers to entry for a plain vanilla, VoIP offering, downloaded as an app to a PC or phone and using primarily broadband networks, are relatively low. There are in excess of 50 VoIP-related apps

available in the Apple App Store, for example. Major OTT players are making significant investments in

expanding their offerings in mobile, which we would consider a direct run at the mobile operators.

Examples:

Skype. Fresh off the $8.5 billion acquisition by Microsoft, acquired group messaging provider GroupMe and video sharing service QiK. The market leader, with some 600-700

million accounts, Skype has moved aggressively of late to develop applications for all

smartphone OSs, including a tablet app. Skype also has partnerships with select wireless

operators such as Verizon for circuit-switched voice.

Google. Acquired Grand Central in 2007, which formed the foundation for Google Voice. Since then, has moved aggressively to offer SMS in Google Voice and chat

through Gmail. It has also worked to provide a more integrated and feature-rich suite for

Android, such as a native dialer and address book integration on all Android phones.

Facebook. Acquired private messaging service provider Beluga, in March 2011. Launched Facebook Messenger in August 2011, an app for iPhone and Android allowing

messaging between mobile devices. Also has a Facebook VoIP application, bundled into

its smartphone offerings, for calling between Facebook users. Its video chat client for

Mac is already supplanting Skype due to a superior UI.

These activities are part of a broader mobile strategy by major OTT players, who envision offering a

suite of integrated, feature-rich voice, video, and messaging services, either through a built-in device

client or as a downloadable app. Since these are software-based services for the most part, the pace of

innovation and feature enhancement is at Internet speed, not telco speed. This is attributable in part to the willingness of the OTT providers to offer new service features for a limited time or as beta, and not as completely nailed from a QOS perspective, to test the market.


The operators come from a different heritage, of course, and to be fair, start with a base of millions of

subscribers, regulatory scrutiny, and other loaded costs, such as billing and customer care.

VoIP-based applications offer some advantages over current cellular voice, such as:

Unique features, such as video calling, chat, and presence

Available on multiple connected devices. Skype, for example, makes possible voice calling on an iPad. This could substitute for circuit switched cellular calls, and could also

result in lower likelihood of a user opting for cellular connectivity on tablets.

Many of these VoIP applications simply look fresher, with a more contemporary UI a not insubstantial consideration for certain types of customers. An apt comparison is the

richer WhatsApp experience on smartphones compared to SMS.

By comparison, some of the operator services are starting to look dated. They need the refresh that visual voicemail gave to voicemail services when the iPhone was introduced.

Even the distinction between TDM and VoIP-based voice could get blurrier over time. Take Apples iMessage as an example. The service enables chat/IM between all iOS devices, similar to BBM from

BlackBerry. However, rather than a separate application such as WhatsApp, it is built right into the SMS client on the iPhone. If you are messaging another iOS subscriber, the phone automatically uses

Apples messaging service and is practically invisible to the user.

Exhibit 1: Sample OTT Offerings

Competitor Service

Skype Reportedly 600-700m accounts. Mobile forays have included partnerships with select operators such as Verizon where Skype is run over circuit

switched cellular. Acquired by Microsoft for $8.5 billion. Used for desktop

calling and also SkypeOut from phones. Integrated VoIP offering on

Windows Mobile devices likely. New Facebook integration of Skype as well

as Android, iPhone and iPad apps (uses Wi-Fi or cellular) Has acquired group

messaging provider GroupMe and mobile video sharing service Qik.

Fring One of the more popular VoIP services, competes with Skype. Primarily an app for smartphones. Also recently introduced video calling.

Facebook Acquired Beluga in March 2011. Launched Facebook Messenger in August 2011, an app for iPhone and Android allowing messaging between mobile

devices. Also has a Facebook VoIP application, bundled into its smartphone

offerings, for calling between Facebook users. Its video chat client for Mac is

already supplanting Skype due to a superior UI. The Facebook Messenger app

is essentially an extension of Facebook messages, so all of your texts, chats,

emails and message history are all within one place synced across mobile and web. The app can be used to send messages to groups or individuals, and

messages can include location information and attachments such as photos.

Google Voice PC-to-PC voice and video calling service. Also offered as Android and iOS apps. Offers free SMS sending and receiving, which Skype does not.

Available only in the U.S. Video through Chat function in Gmail. Android

has a native dialer that comes with the OS. Google has presence native in the

address book on all Android phones.


iMessage/FaceTime Currently allows SMS between iOS devices, built into messaging app, thereby bypassing operator-based SMS. Extends to other iOS devices that are not

cellular-enabled, such as iPad and iPod Touch.

FaceTime is built on open protocols like XMPP and SIP. Apple has promised

to eventually open the standard to others, multiple apps and devices could

someday support FaceTime calling.

Rebtel 13 million users. Key new feature is KeepTalking, which allows users to choose how they want to connect calls (Wi-Fi, mobile, voice plan) and also

allows users to switch to carrier voice service when VoIP degrades

Oovoo Popular video calling/conferencing service among youth subscribers

IV. What These Services Might Look Like

There are several key reasons wireless operators should be accelerating their push to next-generation

voice. First is a combination of new valued-added services or added features and a more contemporized

look and feel to existing ones. Examples include:

HD Voice. An opportunity to offer a differentiated experience, using wideband codecs. Energizes a category that has become highly commoditized.

Video calling. With LTE launched, operators should not be ceding the video calling space to OTT players. They have the opportunity to provide an always best connected video calling service, leveraging home and mobile broadband networks, as appropriate.

They can also add their own features/differentiation, such as integrated address book;

Sharing of content. Allows users to share data, such as documents or photos, while on a voice session.

Support on multiple devices. Allows operator to extend their offerings to additional connected devices, even those that are not equipped with circuit-switched cellular

capabilities, such as tablets, iPod Touch, console gaming devices and even the set-top

box.

A more integrated calling/messaging experienced through enhanced address book functionality, which adds presence, location, and cloud syncing capabilities.

Converged communication services, such as one-number, unified communications, and like concepts that have been discussed for several years.

A key aspect of this is further leveraging assets, such as the address book/contact list into voice and

messaging apps. The OEMs are muscling in on this territory, but the operators have a unique

opportunity here to leverage their network and offer cloud-based storage/backup of messages, contacts,

and other core elements of a customers communication experience. This provides the twin benefits of reducing the subscribers dependency on a device (i.e. if it is lost or stolen) and also leveraging services across multiple devices. Contacts or messages can be accessed across the devices that a subscriber might

use.


Another attribute of IMS-based services is a more contemporary look and feel. An example here is how

visual voicemail has provided an improved user experience for a feature that had not experienced much

in the way of service innovation over the years. Younger subscribers were starting to lump voicemail

(and email to a certain extent) into services that their parents use. This richer communication suite would appear more like a core app on a device, providing a gateway into a host of services using voice as an anchor.

A third key component of IP-based services is that they provide for a more software-centric, agile

framework. One of the challenges with traditional operator voice and messaging services is that they are

large silos, very hardware and five nines-oriented. The mindset around change and service innovation is cautious. Projects take a long time to develop, get approved, and tend to get in a queue in tech dev. By contrast, look at the pace of service innovation in the Web world. Lets use Google Maps as an example. New features or service enhancements are introduced to users (on the PC or phone) without

huge fanfare. They just appear, either in the background or as a quick app update. Some ideas or

concepts are put out there as beta, while others are offered to select users, or in particular geographies.

And Google is willing to pull a feature if it is not testing well. Its OK to fail.

Exhibit 2: Sample Operator VoIP Offerings

Operator Service

T-Mobile Started with a UMA-based Hotspot service, they continue to offer Wi-Fi calling over a range of feature phones and smartphones. Also announced in

October 2011, Bobsled is T-Mobiles IP-based communications platform. Can be used to chat with or call Facebook friends anywhere in the world; or

VoIP calls anywhere in the U.S. Bobsled is Facebook-centric. Promises HD

audio for Bobsled-to-Bobsled and CD quality audio for Wi-Fi and cellular

connections.

Sprint Option to replace Sprints voice service with Google Voice. A Google Voice user on Sprint can make and receive phone calls using their Sprint

number from the desktop without using their minutes, a major first in the

industry.

O2 O2 Connect, currently available to 1,000 users. Wi-Fi only. Apple and Android devices. Commercial service expected in 2012. No separate log-in

required; receiver of call does not have to be signed up. (Telefonica had

acquired Jajah in 2009). Domestic calls only.

Mobilkom Austria Mobilkom Austrias A1 over IP service enables users the ability to make VoIP calls with a softphone application on their PCs or laptops and also

choose to receive mobile telephone calls on their softphone. In contrast to

other VoIP services such as Skype, A1 over IP allows users to maintain

their usual mobile phone number while enjoying all the advantages that

VoIP offers, including real-time multimedia communications.

Uplus Uplus is an upstart entrant into the South Korean market. It is using mobile

VoIP to differentiate itself from its competitors. SK Telecom and KT are

following by allowing partial access.


This is the sort of agility and willingness to experiment that needs to be part of the operator mindset

around a new generation of services. Its OK to put a feature out there and test it with a particular market segment. Perhaps even use data known about subscribers to offer some aspect of feature customization,

or vary the presentation of information or navigation on the device. If the operator is prepared to use

location information, for example, to serve ads, why not use that or other relevant information about the

subscriber for rich communication services?

Fourth, moving to VoLTE provides the ability to offer voice and other enhanced services across multiple

devices, even if they are not equipped with a radio for circuit-switched calls. This allows some of the

same capabilities available on smartphones to be extended to other portable, connected devices.

Certainly tablet devices such as the iPad are one example. Another opportunity is the huge number of

iPod Touch devices, which skew heavily toward the youth segment because they are cheaper and do not

carry the burden of a $70/month service plan. Importantly, Apple has just extended iMessage to these

devices with the iOS 5 release. The experience is elegant and seamlessly integrated with text messaging.

Its like their own IN or calling circle service that the operators popularized, except its for text. It is on these additional, connected devices such as tablets and iPod touches that operators are likely face the

greatest threat from OTT providers such as Skype, Google Voice and iMessage. There is no reason

operators should cede the opportunity to those providers.

Finally, there are important business framework considerations for VoLTE:

Economics. Over the medium to long term, the cost of carrying voice over IP will be less than circuit switched cellular.

Spectrum optimization. Every operator has unique spectrum considerations. VoLTE certainly allows for more efficient use of network capacity. Others are migrating to

VoLTE as part of a broader spectrum re-farming strategy.

More flexible and agile pricing. There is much greater provision here for innovative pricing models, such as: working with multiple connected devices; sharing of plans;

session pricing; distinct pricing for particular features or apps; or pricing based more on

market segmentation.

One could imagine an operator gateway to a suite of IP-based voice and text services on additional connected devices, through an app icon or widget on the device home screen. Since these are IP-based services, the operator has room for creativity on pricing. Operators might migrate to a family plan structure for data, where the account holder would purchase a certain number of GB per month from the

operator that could be shared across individuals or devices. Rather than todays voice/messaging/data plan silos, these IP-based services would be treated as part of the data plan, which provides much greater flexibility in how they are offered across devices and users.


Case Study: T-Mobile USA.

T-Mobile USA has 33 million customers in the U.S. and 17% share of the market. It has always been

considered the value-based provider and has typically oriented its services to the urban youth segment.

As of December 2011, the company has deployed HSPA+ services to the majority of its markets in the

1900 MHz and AWS spectrum bands. It does not have a clear path to LTE services at this point unless it

is able to secure additional spectrum. It is also the only one of the Big Four U.S. wireless operators to not offer any landline service.

T-Mobile has two innovative offerings in the voice arena. It has been offering a UMA-based service,

called HotSpot@Home, since 2008. Subscribers pay $10 extra for unlimited calls from home or any T-

Mobile hotspot, using a UMA-based phone. The genesis of the service was to improve the in-building

coverage of its primarily 1900 MHz network, by handing calls over to Wi-Fi. A secondary benefit was a

more economical price plan alternative for subscribers with certain usage profiles. T-Mobile had also

offered a service called @Home, which allowed customers to have unlimited calling from a home

landline phone, using a specially provided T-Mobile router that had places for two SIM cards to be

installed. The @Home service was discontinued in March, 2010. This has now evolved into an IMS

based offering.

The successor to the original UMA service is an IMS-based service called Wi-Fi Calling. The free

service uses an IMS based Wi-Fi Calling client that works with the Smart Wi-Fi app pre-installed and

pre-configured for T-Mobile. It is available on select Android devices such as the Samsung Galaxy S2.

The service can be used to make and receive calls and SMS, as well as access high-speed data service

over the home broadband network. Calls count against the bucket minute allocation, or are free if Wi-Fi

calling is added to the Even More plans. The user interface is a Wi-Fi calling widget added to the

application tray on smartphones. Users can easily toggle the service on and off. There is no handoff on a

call leaving a Wi-Fi zone and the T-Mobile network.

The primary difference between Wi-Fi calling and the former UMA service is that Wi-Fi calling uses the

home VoIP service but it is a T-Mobile branded service. Calls can be made over any Wi-Fi network not just T-Mobile hotspots. There are also some good options for users. They can choose Wi-Fi

Preferred (calls use Wi-Fi when available); Cellular Preferred (use cellular when available); or Wi-Fi

only (only able to make calls when connected to Wi-Fi). But because Wi-Fi calling is more of a chip-

based than a system level integration, battery life is not drained as quickly as in the previous UMA

version.

T-Mobile has also introduced a new, branded IP communications service called Bobsled. It is pre-loaded

on select devices or available as an app download on phones or PCs.

Bobsled Calling allows free calls to friends using their Facebook ID or phone number, and free VoIP calls to the U.S. and Canada.

Bobsled Messaging allows free, unlimited messaging from a phone, tablet, or browser. Additional features include Group Text and Cloud Text (synchronizes messages across devices).


Some of the advantages of the Bobsled approach are:

Provides T-Mobile with a branded, IP communications platform, and a competitive counter to OTT services.

Gives T-Mobile a presence across connected devices, even if the user does not have T-Mobile service. For example, Bobsled can be used on iPhones. This provides T-Mobile with added

visibility, opportunities to up-sell services, and perception as an innovator.

A branded service within the Facebook community, whose users are an important segment for T-Mobile. If the user sees an online Friend via Facebook presence, the user just clicks on call to be connected.

This service hits some of the hallmarks of why we think operators should be considering VoLTE:

enhanced features; leverages existing assets such as the Facebook community and presence; connectivity

across devices; and a more open approach, rather than the traditional operator walled garden.


Case Study: MetroPCS

Metro PCS is the fifth largest U.S. wireless operator, with 9.5 million subscribers, a facilities-based

network covering 95 million POPs, and nationwide services through roaming agreements. A key point

of differentiation has been its unlimited services initially local and voice-centric, now nationwide and inclusive of text and data.

Why VoLTE? Due to spectrum and capacity constraints, MetroPCS skipped some elements of the

CDMA 3G migration path and has gone straight to 4G. It has launched LTE in all of its core markets, as

of December 2011.

MetroPCS is planning on implementing VoLTE for three reasons: to support re-farming of spectrum

from CDMA to LTE; offer integrated voice and data services; and provide a platform for future

innovation. From a business framework perspective, because Metro PCS already offers nationwide

unlimited plans that include voice, text, and data, the company is less encumbered by the voice/text/data P&Ls structure than some incumbent operators.

At the 4G World event in Chicago in October 2011, Metro PCS announced its multi vendor ecosystem

for VoLTE that included Mavenir. They indicated that this approach provided flexibility in the solution

design and Time-to-Market (TTM).

Metro has successfully completed its first end-to-end VoLTE call and is expecting the first VoLTE-

capable handset to be commercially available by Q1 2012, with additional handsets being introduced

throughout the year. This would make Metro the first operator in the world to launch a commercial

VoLTE service.


Case Study: CSFB-Centric Approach

The VoLTE roadmap among major European operators is a little bit different. Although this varies by

geography, deployment of LTE in Europe is lagging that of North America. Most European operators

are focused on a two-tiered network strategy of deploying LTE in urban centers and other hotspots, while relying on HSPA for broader coverage.

Even though LTE deployment is slightly further out, the market dynamics driving the need for next generation voice services, as identified in this White Paper, still exist. As a result, most European operators are pursuing a circuit-switched fall back (CSFB)-based solution first, which allows LTE users

to obtain legacy circuit-switched voice services when they are outside of an LTE coverage area.

Vodafone, Orange, and TeliaSonera have all publicly announced that they will be launching LTE phones

some time in 2012, which will use CSFB for voice.

Migration to VoLTE will be a function of LTE deployment and maturation of the technology. In

October 2011, Vodafone and China Telecom conducted a successful trial of VoLTE interoperability at

Vodafones testing labs in Dusseldorf, Germany.

KDDI in Japan is another example. The operator plans to launch LTE by the end of 2012. The company

is pursuing a strategy of deploying LTE for the provision of high-speed data services, while continuing

to use its CDMA network for voice, by implementing CSFB, which allows the two radio networks to

work together. Successful trials of CSFB have been completed and the company plans to implement

CSFB in time for its year-end LTE network launch. As LTE deployment broadens and VoLTE matures,

KDDI has indicated it plans to migrate to VoLTE.

Case Study: Verizon Wireless

Verizons VoLTE strategy shows that VoLTE is less a function of technology and more related to an operators broad-based network strategy. Verizon has what is arguably the most aggressive LTE deployment plan in the world. Its LTE network currently covers approximately half the U.S. population,

with plans to cover the vast majority of its voice footprint by the end of the year.

Initial LTE handsets are dual-radio, using LTE for data and CDMA for voice (and data when outside

LTE coverage area). However, Verizon has a particularly aggressive plan to migrate to VoLTE, and has

publicly indicated plans to launch VoLTE in 2012. Verizons focus on VoLTE has several underpinnings. To begin with, the operator wants to shift voice traffic to the 700 MHz band, which

would free up some of its legacy cellular spectrum to be used for data services. Second, VoLTE would

allow customers to conduct a simultaneous voice and data session something that has been a key competitive disadvantage of CDMA-based wireless services (and which AT&T has seized upon in its

marketing campaign). Verizon also certainly envisions a suite of value-added services based on IMS,

and a competitive response to OTT offerings such as Google Voice especially given Verizons participation in the fixed line, broadband, and TV businesses.


V. Effective Go-to-Market Strategies

Below are some go-to-market thoughts, as operators consider VoLTE and the next generation of voice

and messaging services and features.

1. Operators Must Seize the Mantle

The good news about IP services is that barriers to entry are lower and service deployment quicker and

more agile. There is a large span of organizations looking to get into the action here.

Operators should think strategically about what their platform of IP-based services is going to look like

over the next 3-5 years, and how it will be different not just from other operators but from the wider

competitive ecosystem, including major OTT providers. They should have a broad game plan for voice,

messaging, and video services, and a roadmap for how those services will be methodically introduced.

Operators should also be structuring for a more software-centric mindset, getting services or apps

speedily to market.

2. Offer a Superior Experience and QOS

Many IP-based services in voice, messaging, and video will have a look-alike aspect to them. Again,

note how many VoIP, or video chat apps are available today.

Operators must think strategically about how they can offer a differentiated product and communicate

the carrier grade aspect of their offerings. Specifically:

Add QOS to VoIP, reinforcing the superiority of voice quality due to the implementation of policy servers

Leverage carrier assets to incorporate differentiating features into IP-based applications, such as presence, location, subscriber information (with the proper privacy safeguards, of

course).

Open up network APIs to developers. Some of the more progressive operators are already doing this.

Emphasize customer service and physical distribution resources. Remember, customers cannot call Skype, Fring, Facebook, Google, etc. if there is a problem or if they have a question.

Have a strongly articulated message regarding how the service is differentiated from OTT offerings. Communicate this to the sales and distribution force.

Effectively manage the interplay between the macro cellular network and Wi-Fi.


3. Think About Market Segmentation

As offerings are expanded and dip into adjacent ecosystems, some services or features will be better

received by some segments than others. For example, a slightly lower QOS for voice might be

acceptable for a particular demographic that is either more price elastic or is more accustomed to

landline VoIP services.

Additionally, VoIP services that tie into social networking apps, and incorporate information such as

presence or location to deliver a more integrated experience, might appeal to a particular market

segment.

Operators should also consider test marketing certain features or applications with a particular group of

subscribers. This approach is practiced widely in the Google and Facebook world.

4. Think About a Different Price Framework

The pricing framework may change substantially over the next 2-3 years. Operators must determine how

to price VoIP services for a cloud-based framework, which will require more constant connectivity, multiple members of a household sharing in a data plan, and multiple connected devices per individual. I

see a structure where a subscriber or a group purchases a GB bucket that can be shared across group members and devices. We may slowly collapse todays voice/messaging/data pricing silos into an integrated access service, where voice, messaging, etc. are all data. This is not unlike the pricing for todays home broadband service. That creates the opportunity to structure additional products/features/services that can be upsold, just like todays in-app purchases or, using the cable analogy, On Demand content and premium content subscriptions.

5. Training, Customer Service, Usability

Operators have unique assets in their multiple points of distribution and customer touch points. Point of

sale employees must be properly versed in VoIP, manage expectations, and be able to explain and

demonstrate features.

Customer service is another key asset that should be leveraged. One of the failings of the OTT world is

that there is little in the way of support resources. The mainstream consumer is not going to hunt around

user forums looking for answers to questions. Operators are in the unique position (and also bear the

burden) of running a substantial customer service operation, which can be a resource for enabling a

superior customer experience, increasing adoption, and responding to questions that arise. Calls into care

or access into the operator portal are natural up-sell opportunities.

Operators should also think about a usability onramp, such as a widget or other gateway into services, placed on the home screen of the device. Remember, that in a world of 500,000+ apps, discovery is a key challenge and that operators have the unique opportunity to promote and position their services, as

compared to some of the OTT providers.


Conclusion

We are in the early days of VoLTE. For the next couple of years, as LTE networks are rolled out and the

first VoLTE services are trialed and introduced, operators will be leveraging both the LTE and 2G/3G

networks as a fallback. This provides an important opportunity to tune the quality of service on VoLTE,

and test service and feature concepts. Within two to three years, we are expecting full LTE VoIP

handsets to become widely available, with both voice and data running simultaneously over LTE. Fall

back to the circuit switched cellular network will occur primarily for roaming.

At the same time, major OTT players, such as Skype, Google, Apple, and Facebook, are offering

increasingly feature rich voice and data services over mobile networks. The pace of innovation has

accelerated. Wireless operators must have a counter to, or leverage, the capabilities of the OTT

providers.

The good news is that the move to a flat IP network provides operators with a platform for service

innovation. New ideas and concepts can be developed and distributed more quickly, more nimbly, and

less cheaply. Operators have core assets they can leverage to provide a differentiated, or enhanced,

experience compared to OTT providers.

This will be a new era, where operators will offer more new concepts to their subscribers, in a

compressed timeframe, compared to the way they have traditionally done business. Not everything will

be QOSed, vetted, and business-cased to the same extent as it is in the telco world. But it will also be significantly less expensive and cumbersome to deploy new services and features, and make adjustments

and enhancements, than it has been in the pre-IP world. This represents the true convergence of the

Internet/Web and communications service provider eras.


Authors Note:

This report was authored by Mark Lowenstein, Managing Director of Mobile Ecosystem.

The report is underwritten by Mavenir Systems, for the purposes of advancing thought

leadership in the areas of VoLTE. The opinions expressed in the report are those of the

author. This report is in no way an endorsement of any particular companys products or services.

Author Background and Additional Reading

Mark Lowenstein is a prominent wireless industry executive,

consultant, analyst, and commentator. As Managing Director of

Mobile Ecosystem, Lowenstein advises C-level executives on

corporate, product, market, and industry strategy across the value

chain of the wireless, communications, and digital media industries.

Most recently, Lowenstein was Vice President of Market Planning

and Strategy at Verizon Wireless, where he led the companys efforts in market segmentation, business planning, national pricing, and market

intelligence for the consumer and enterprise markets.

Lowensteins consulting career began at the Yankee Group, where he founded and led the companys top-ranked global wireless practices. As Executive Vice President, he supervised a global team of analysts, authored dozens of influential reports, and headed

large-scale strategy consulting projects.

As one of the wireless industrys senior thought leaders, Lowenstein is a frequent keynote speaker at corporate and industry events worldwide and is broadly quoted in the print and

broadcast media. Lowenstein writes a monthly opinion column for Fierce Wireless, the

leading on-line publication for the wireless industry with a circulation of 75,000. His

Lens on Wireless newsletter is read monthly by more than 10,000 industry executives and

enterprise decision makers. Mr. Lowenstein has provided testimony to the FCC and has

been retained as an expert witness in several cases pertaining to the wireless industry.

Lowenstein has served on numerous advisory boards over the course of his career, has

been an adjunct professor at Tufts University, and has served as a judge in numerous

business plan competitions.

Additional Relevant Articles:

The Future of Voice

Predictions for 2012

The Year Mobile and Content Will Merge

Is Mobile Ready for the Cloud?

The Next-Generation App Experience

volte strategy from mavenir

Documents

evolution of voice services

suite of voice

mobile voice strategies

mobile operators

google voice

core operators services

messaging services

aggregate data services