STOCKHOLM -(Dow Jones)- Wireless telephony operators are slashing tariffs to neutralize Internet-based rivals trying to muscle in on their bread-and-butter business. In Sweden the offensive is being led by Tele2 and TeliaSonera whose per-minute charges are now among the lowest in Europe. These operators say they can still make money despite plummeting tariffs although there's a danger that sales could dip unless lower prices are offset by higher usage. For now, though, their aim is to ensure there's no economic case for customers to switch to the likes of eBay's Skype.
That policy appears to be paying off with Jonas Kjellberg, president of SkypeMobil in the Nordic region saying "it will be difficult for us to deliver something that is cheaper," although Credit Suisse noted this month: "The question is not whether (Internet-based wireless services) will impact mobile but by how much and how quickly."
The new rival operators are establishing themselves in voice over Internet protocol, or VoIP, technology. They've been concentrating on the fixed-line telecom market amid surging popularity of broadband, targeting expensive international and long-distance calls which has led to dramatic price cuts.
With cheaper wireless broadband Internet access on the way mobile operations are also on their radar although there's uncertainty about how much of a threat VoIP operators can pose to established mobile players.
Anna Bager, an analyst at industry research firm IDC, thinks it may be short-lived.
"VoIP operators could have a window of opportunity now but they're unlikely to be winners long-term," she said, adding that the ongoing convergence of fixed-line and mobile telephony will make VoIP operators irrelevant, with incumbent telecom operators driving development.
Still, VoIP is forcing the established companies to revise their business models even though well-known crusaders like Skype and Vonage are estimated to have registered revenue of only a few hundred million dollars globally last year.
Credit Suisse says the industry faces "a protracted period of low growth in mobile" and adds that French wireless operators' expectations of sales increases of between 1% to 3% may prove optimistic. Deutsche Telekom expects prices in Germany to drop around 20% this year.
Telecom Italia recently halved its targeted growth for mobile unit TIM to 2%-3% annually through 2008 from 6%-7% through 2007.
In Sweden, TeliaSonera's domestic mobile sales gained 0.4% last year while Tele2, which has been the most aggressive on price-cutting, lifted sales by 7.5% by attracting more customers and higher usage.
Tele2 offers per-minute prices as low as SEK0.39 ($0.05), excluding VAT, to all domestic fixed-line and mobile networks. Comparable prices for a call to rival mobile networks in the U.K., Germany and France range from $0.16 to $0.53.
Tele2 makes a loss on some outgoing calls to rival mobile networks since an interconnection charge of between SEK0.72 ($0.09) and SEK1.00 ($0.13) is levied for each minute of a call. But both Tele2 and TeliaSonera have maintained profitability by slashing costs and relying on high interconnection charges for incoming calls from other operators.
Competitors like Skype or Vonage wouldn't get any incoming interconnection fees as they handle calls via a fixed-line connection.
"The situation in the Nordic countries is extreme. Prices have gone from being among the most expensive to among the cheapest," said Leif-Olof Wallin, an analyst at research firm Gartner.
He expects termination fees on mobile and fixed-line networks to converge with only a 20% premium remaining by 2010.
Rivals that don't own their own mobile network infrastructure, including Verizon Communication Inc.'s (VZ) Swedish unit, Affinity Telecom and RIX Telecom, have complained to regulators about Tele2 and TeliaSonera's pricing policy, saying that the two operators are effectively charging different termination prices to external customers than to internal fixed-line units.
SkypeMobil's Kjellberg said it's not his company's style to try and get regulators to implement change. Instead the company will focus on other opportunities to make money such as charging fees to companies when Skype users click on ads on the Internet and connect to a sales representative.
TeliaSonera and Tele2 recently both introduced international call rates from mobile phones in Sweden starting at around SEK0.45 ($0.06) per minute to countries in Europe and SEK0.95 per minute to other continents in an effort to win back traffic lost to VoIP operators.
Skype's Kjellberg said margins on voice calls are razor thin and the company's SkypeOut service, which offers international voice calls at low cost, may eventually disappear.
Company Web site: http://www.tele2.com
-By Magnus Hansson, Dow Jones Newswires;+46 8 545 130 91, magnus.hansson@dowjones.com
(END) Dow Jones Newswires "
Posted to the site on 16th March 2006
Posted to: www.cellular-news.com/story/16556.php