Getting A Line On Asian Telephony
The cost of faxing a 42-page document from New York to Tokyo via the conventional telephone system is US$28. The same material transmitted over the internet costs less than one US cent. Savings are similar for voice calls. International calls can be made over the internet for the price of a local call.
This may be heartwarming for phone users but is causing unease among telecoms companies in Asia, where internet telephony is starting to catch on. Like call back services, internet telephony may force Asian telecoms operators to cut international phone rates.
This could damp already modest profit outlooks for operators in the region. If internet telephony takes off, there will be an acceleration in the rate at which Asian telecoms companies rebalance tariffs, said Mr Neil Juggins, Asia Telecoms analyst at Paribas Capital Markets in Singapore.
Making phone calls over the internet has for some time been seen as an imperfect technology. The voice has to be digitised and packaged to traverse the internet; the process often makes the voice sound tinny and introduces an annoying time lag into conversations. Recent advances are eliminating both defects.
Dialogic, a US company, says sales grew 40 per cent in Asia last year to contribute $30m of the companys total $213m revenue. The company has recently set up offices in Bangalore, Beijing, Hong Kong, Singapore, Sydney and Tokyo.
It costs about $2,000 per line to install software and a gateway which allows users to conduct internet telephony, said Mr Howard Bubb, Dialogics president and CEO.
There are two main types of customer: telecoms operators looking to offset falling margins by charging customers the going international rates for a service which costs next to nothing, and corporations aiming to cut business costs.
While telecoms companies generally require lots of equipment - enough to dedicate 100,000 lines to internet telephony - corporate customers usually need much less, Mr Bubb added. His company was in sales talks with many of Asias telecoms operators.
To work Dialogics system, both parties have to know in advance when a call is coming in order to switch on computers and prepare phone links. But a small Singaporean company, Innomedia, aims to circumvent this with InfoTalk, a product it plans to launch in the city state by October.
InfoTalk is a box (no computer is required) attached to a regular phone. Users must press a # sing after dialling a number, but apart from that, the procedure is the same as using a regular telephone, said Mr Lim Jew Tim, director of sales at Innomedia. This grandmother-proof (user-friendly) product was aimed at the retail market and would sell for US$300 a box.Such technology is not expected to capture a significant market share for at least a year or two in Asia, but its implications are contributing to gloomy earnings forecasts for many a former telephone monopoly. By and large, Asian telecoms markets have deregulated more slowly than those in the west, and tariffs are higher. Formerly monopolistic operators have in many cases planned a gradual transition to full competition, allowing them to continue reaping handsome margins meanwhile.
But new technology is playing havoc with their liberalisation plans.
Examples from the developed world show how valunerable phone companies can be. KDD, Japans international operator, could lose as much as 12 per cent of its voice telephony to the internet by 2001; Deutsche Telecom could lose 6-7 per cent, a study by UK consultants, Tarifica, shows.
The task of rebalancing - raising local phone rates to offset falling international tariffs - is fraught with difficulties. Many Asian governments take pride in keeping local rates low and have hoped rebalancing could be achieved gradually.
Some governments have begun to respond with regulations. Singapore, vigorously promoting internet use, has ruled internet telephony equipment may be sold but not advertised.
An executive with China Telecom, Chinas giant operator, said regulators were studying the new technology. This poses some threat to our traditional business, so we need to study it. But anyway, internet telephony is not easy to control. There are more than 100 ISPs (internet service providers) in China.
Mr Nurhandayanto, senior manager of engineering and marketing support for Indonesias Satelindo, said: This is new technology. We can not reject it. We have to face it and be ready to face it.
One response to the loss of international voice traffic by operators in the west, said Mr Bubb, had been to raise the rent internet service providers pay for leasing lines from telecoms groups.
But such tactics may ultimately be futile. Some think the internet has the potential to move from the periphery of telecoms to the mainstream. It is possible that in the future, telecoms will merely be one part of the internets capabilities.
Given the significance of internet as the emerging communications mainstream, (operators) need to watch out for becoming valunerable because of their weak internet position, said Mr Petri Poyhonen, vice-president of wireless date server systems at Nokia Telecommunications.
The convergence of telecoms and the internet underscores what Mr Frank Blount, chief executive officer of Telstra, the Australian telecoms giant, predicts will be an increasing number of tie-ups between telecoms operators, computer firms, software designers and media companies. Eventually, it may be difficult to distinguish between them.