As the technology that delivers data networking has stabilised around a well understood architecture (including Ethernet and TCP/IP) and the technologies themselves have developed to the point where they provide all of the capability that most people need, new developments have focused on the application of data communications in a mobile/wireless context. The evolution of wireless LAN (or WiFi) technology has had two principle drivers:
- A need to address the requirements for networking where physical cabling is not practical or not desirable, especially where the number of connections is relatively small.
- A need to provide mobile or nomadic access for people working outside of the traditional office environment. This was itself driven by a growing dissatisfaction with the high costs and poor performance of data communications over 2G mobile phones.
Similar requirements have driven WiFi in business use. Some homes and offices are not really suitable for re-cabling – the cost and disruption of retro-fitting LAN cabling make it impractical. There is also the case that some landlords will not allow tenants to drill holes in walls or do the other work necessary to deploy LAN cabling. Unless the user is happy to have cables trailing across floors, WiFi is the perfect solution. It is also true that many businesses have a changing population of users and again WiFi’s ability to flex across a dynamic population of users makes it ideal for this application.
This latter attribute, the ability to accommodate a shifting population of users, has driven the WiFi “Hotspot” market, in response to the requirement in the second point above. Airports, business centres and hotels are natural applications for this and speculative business plans have seen hotspots installed in coffee shops and pubs. From a technology perspective the primary driver for WiFi usage has been simple availability. Most new laptops (which are taking an increasing share of the PC market) and many PDAs have WiFi capability built in, either at the chip level (Intel’s Centrino product) or on the mother board. This drives the perception that WiFi is “free” and drives up its utility.
As WiFi and Broadband become pervasive users are looking for new ways to harness this newfound communications power and their attention rapidly transfers to voice traffic, which still accounts for the majority of most peoples spending on communications. In the early stages of VoIP (Voice Over Internet Protocol) deployment at the user level it was mostly invisible to the user and was driven by a strategic choice in larger companies. Latterly VoIP has become reliable and easy enough to use at the user level and the migration of this use from fixed broadband to wireless is inevitable. Where a specific choice is being made it is often driven by an awareness of the high cost of mobile calls.
Market dynamics
This new market is attracting sufficient attention to get on the radar of the analyst and market watching firms, who are starting to measure shipment and deployment volumes at the handset level. Although much VoIP usage is driven by “soft client” usage, this is difficult to measure. Handset shipments are a good proxy for the overall growth in the Voice over Wireless market, even if they account for only a portion of that market. Infonetics estimate that 113,000 units shipped worldwide in 2004 producing revenues of $45m with more than 8,000 handsets supporting both Voice over Wireless and cellular. Although this latter market is clearly in an even earlier stage, it looks likely that Voice over Wireless will create a further dynamic in the convergent telecoms market. Early shipments have featured take up in healthcare and logistics where fixed line phones have real limitations. In the US IDC estimate that the residential market for VoIP will grow from 3 million subscribers in 2005 to 27 million in 2009. Apart from the value of this market on its own, these sorts of volumes flush additional development investment into the technology and service provider markets. In Western Europe IDC estimate that overall IP telephony shipments grew 13% to $77m just in the fourth quarter of 2004. Their prediction for 2005 is that the market will grow 53% overall and revenues will reach $350m. Ovum estimate the VoIP market will reach $1.4bn in 2008.
Outstanding issues
There are still issues that need to be addressed and managed. The ones that have gained most attention so far have been quality of service, the ability to roam between different wireless platforms (or even between different access points on the same network), the relatively short range of unlicensed spectrum systems and their ability to support relatively low densities of users. As most users leave access points on their default settings, security is also a consideration.
Another issue at play is the shift in revenues between fixed and mobile telephony. In most markets there are multiple mobile operators, even where there is limited competition for the incumbent national carrier in fixed telephone services. This shift has challenged the business models of even the most monopolistic fixed line operators, who are seeing traffic levels falling rapidly in the one area of their business where most of the revenues and margins sit. Despite attempts to counter this with pricing action they have universally found the mobile proposition difficult to counter, to the point where, in some countries, the number of mobile handsets exceeds the adult population and where many people choose to not have a fixed telephone line at all.
Voice over wireless is seen by many operators as a partial answer to this challenge and as a way of defending their revenues against cannibalisation by mobile traffic. The VoIP “free on net” calls model can appear to makes their situation worse and yet many operators realise that they have to find a way of addressing these challenges. Embracing VoIP seems a bitter pill to swallow but the ability to challenge mobile erosion with Voice over Wireless makes this more palatable.
For more information about Voice Over Wireless, visit the Wired Workplace customer zone and download the whitepaper in full.
