VoIP Q4 2010 Short Report

John Bosnell June 2011

Point Topic Ltd 61 Grays Inn Road London WC1X 8TL, UK Tel. +44 (0) 20 3301 3303 Email info@point-topic.com

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Contents

INTRODUCTION .......................................................................... 3 GLOBAL AND REGIONAL ............................................................. 3 LEADING VOIP COUNTRIES ........................................................ 5 CONCLUSION .............................................................................. 8

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Introduction
The number of Voice over IP (VoIP) subscribers worldwide increased by 12.6% during 2010. At year end the total number of VoIP subscribers stood at just over 120 million. That is an increase of 12.6% over the course 2010, or just under 2.9% during the quarter. Point Topic defines VoIP in this report as a subscription service that does not require a PC to operate. For this reason, Skype services are not included in the figures for subscribers, although we discuss them in this report. But PSTN-style services are included.

Global and Regional

During the year, VoIP subscriber numbers grew in every region. The more mature VoIP markets grew at a slower rate than more established VoIP markets. For example, Subscriber numbers in Western Europe increased by 8.68% during 2010, whereas subscriber numbers in Eastern Europe increased by almost 20%, albeit from a relatively low starting base.

VoIP subscriber numbers by region, 2009-2010

Region Asia-Pacific Eastern Europe Latin America North America South and East Asia Western Europe Global Total

2009Q4 29,102,717.00 1,182,440.00 3,769,670.00 27,867,110.00 5,805,000.00 39,248,238.00 106,975,175

2010Q4 33,890,259.00 1,412,987.00 4,371,200.00 30,795,894.00 7,338,000.00 42,656,731.00 120,465,071

Year on year % increase 16.45 19.50 15.96 10.51 26.41 8.68 12.61

The South and East Asia region showed strong growth during 2010. This was partly due to growing subscriber numbers from China. Licensed telecoms operators are allowed to operate VoIP services in the country, and there is also a thriving market in illegal VoIP services. These are typically offered by small home-grown businesses. Skypes service is allowed to operate in China for PC-to PC calls only.

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Figure 1 Regional IPTV splits, Q4 2010

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Leading VoIP countries

Subscriber numbers The USA was the leading VoIP country in 2010 with over 26 million subscribers. We estimate that over 20 million of these subscribers are with cable companies including Comcast, Time Warner and Cablevision. Other VoIP subscribers are using a VoIP-only provider such as Vonage, with around 2.4 million subscribers, or a VoIP plan from a telco that also offers traditional PSTN services. We estimate that there are over 24 million VoIP subscribers in Japan. NTT East has the largest market share (just over 24% in mid-2010), followed by NTT West (20%) and Softbank BB (15%). Other operators, including KDDI, make up the remainder. Softbanks market share has declined from the early-2000s when it launched its all-IP triple-play over fibre offering and was the first to offer VoIP in Japan. In 2006 it had 42% market share. The country with the third largest number of VoIP subscribers is France, with over 18.6 million subscribers at the end of 2010. France has seen a significant change in its fixed telephony market during the last decade. VoIP has enabled new entrant operators such as Free to use unbundling or bitstream access to offer consumers an all-IP triple play for a low price. Incumbent France Telecom was relatively quick to launch its own VoIP products. The result has been a rapid shift away from PSTN. By 2010, over 50% of telephony traffic originating on fixed networks was started on a VoIP phone. This means that France has a very high penetration of VoIP services. Around 93% of broadband subscribers in France also have a VoIP service. That is higher than either the USA or Japan, where the figures are 30% and 72% respectively. As Figure 3 shows clearly, these three countries continue to dominate VoIP, with the third largest market France having slightly more than twice as many subscribers as the next largest country market of Germany. Italy saw a slight drop in VoIP numbers during 2010, due to a slight reduction in VoIP numbers reported by Telecom Italia.

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Top 10 VoIP countries, 2009-2010

Impact of Internet telephony All of the VoIP services that Point Topic has been tracking use IP technology to provide a PSTN-like service. In other words, the customer can simply pick up a telephone handset to make a call, and will receive a bill from their service provider. But any discussion of VoIP needs to include Internet telephony. Luxembourgregistered Skype is by far the most widespread of these services, although some IM platforms and online gaming networks support IP voice traffic. Initially, the majority of calls via Skype were made and received from the PC. For nontechnical users, Skype still remains more complex to use. Calls can now be made via a mobile, connecting to the Internet using WiFi (usually free) or 3G (could be expensive depending on the tariff). Skype phones are also available, which plug directly into a router and do not require the home PC to be switched on. But these have seen relatively low rate of uptake. Skype has provided some operational data for 2010, in an amendment to an S1 filing with the SEC. An S1 filing is a general registration, which is the first step towards an initial public offering (IPO). Skype said that it had 663 million registered users at the end of 2010 (up 89 million over the year), with 145 million registrants using Skype at least once a month. However, only 8.8 million Skype registrants pay any money for the services, generating revenues of $859.8 million. That represents an ARPU of just over $8 per user per month assuming a constant rate of ARPU growth. Skype also said that 42% of its minutes in Q4 2010 were video telephony. Skype also plans

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7 to launch advertising on its services, perhaps to make up for the revenue it is not earning from telephony. Adverts will initially run in the USA, UK and Germany, starting in March 2011. What these numbers suggest is that the number of regular Skype users (at most 145 million) is at around the same level as the number of full-service VoIP users (120 million). ARPU is considerably lower, as only 8.8 million Skype subscribers were paying anything at the end of 2010. The other obvious point to be made from the Skype data is that there is demand for video calls. But Skype has created an expectation that this is a free service. This makes monetising video calls difficult for other operators in the consumer video telephony space, and even for operators looking at the low end business video telephony market.

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Conclusion
These numbers show that there is considerable public appetite for VoIP services, especially in markets where the service is offered as a free or low-cost addition to broadband services. The line to the house or office is now there to provide the Internet connection, and the voice service can piggyback on that. In some markets like France a large proportion of telephony has already transferred to IP services. In 10 years, the US market has grown from less than 200,000 subscribers to over 26 million. Not every market has seen this level of VoIP growth, but a wide range of suppliers are targeting customers often business customers with VoIP products. Experience in the USA and France show that consumers are unconcerned with the underlying technology behind voice calls. They do not care that the service is provided over PSTN or VoIP, but that it works and is a reasonable price. The numbers can be difficult to measure, as this is a fairly fragmented market in many places. Rather than a monopoly or duopoly of telephone service suppliers, as was the case 20 years ago, consumers can choose from a far wider range of suppliers. Many will use VoIP, but some will use pre-selection or calling cards to route calls onto lower-cost long distance or international services. Bundles and VoIP-over-WiFi further complicate the picture. Another impact of VoIP is to drive down average telephony costs within a market. This lowering of price expectations, combined with customer inertia, and a perception of complicated service set-up, could present the biggest challenges for future growth in VoIP numbers.

This analysis is taken from Point Topics Broadband Money Makers service.

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