Yelo targets Skype, BT goes for whole OTT market

Wednesday 16 January 2013 | 15:08 CET | Market Commentary

Yeloworld has launched a mobile voice app, called Yelo. Yeloworld is a start-up founded by entrepreneurs with a track record in Hong Kong and the Netherlands. The Yelo app (not to be confused with the Yelo TV app from Telenet) is expected to be for calling what WhatsApp is for SMS. The technology comes from the Dutch company RingCredible, which also supplies VoIP technology to Scarlet. 

The free app is available for iOS and Android, and a BlackBerry version is also planned. The app supports calls over Wi-Fi or 3G to any number worldwide, fixed or mobile, based on the existing contacts of the user (excluding emergency numbers). Customers need to maintain prepaid credit, but no subscription is required. Yeloworld said the service offers high-quality sound thanks to "the most advanced voice and VoIP technologies", as well as call savings of up to 90 percent compared to traditional mobile services (the Yeloworld site claims as high as 99%) and an average 50 percent compared to other OTT services such as SkypeOut, Jajah (from Telefonica) and Rebtel.

At the same time, BT has launched SmartTalk, an iPhone app that offers calls at British fixed-line rates, regardless of where the user is in the world. The costs are the same as what users pay at home from their fixed line, and many calls are free if included in the fixed-line subscription bundle. Calls outside the bundle are charged the local British rate plus a set-up fee of 13.87 pence. 

There is no end to the number of VoIP apps on the market. In addition to those mentioned above, there's also apps from Google, Viber, Voipbuster, Tango and Facebook Messenger (with VoIP in Canada). In the Netherlands, there are a few more, such as RingCredible and IKmobiel. More and more traditional operators are also launching these kind of apps, such as BT, UPC in Eastern Europe and Com Hem in Sweden. 

Yelo will not mean quite the same as WhatsApp, as the latter only costs a small annual fee (or is even free, with the many promotions), while Yelo has usage charges. An advantage with apps like Yelo is that no name is needed (such as with Skype), only the numbers and existing contacts in the address book. SmartTalk from BT is a very attractive proposition for BT subscribers. The only issue is the required data connection if no Wi-Fi is available, which can bring extra costs. 

The ability of OTT providers to offer lower tariffs than competitors (especially Skype) is due to a number of factors: 

  • The possible exclusion of free calls between users of the service. These kind of on-net calls still have real costs (even if there are no termination fees), which are offset through cross-subsidies. For Skype, this means (in theory) higher costs for SkypeOut (calling to fixed and mobile numbers). Voipbuster offers free calls to a number of destinations, capped at 300 minutes per week. This also needs to be offset somewhere else, resulting in higher fees for calls to other destinations. 
  • The small print. For example, Yelo rounds calls to the nearest minute and always charges a connection fee of around a minute. Other apps offer lower fees for only a limited number of minutes per month. Rebtel claims "no connection fees, no fine print, just dial and save". 
  • Uniform tariffs. Skype has chosen to offer the same rate to a number of countries (1.9 cents per minute to numerous fixed-line destinations), likely to make things simpler for the consumer. 
  • The business model. Some accept losses in the beginning in order to build up a base, only to later raise rates or develop new revenue sources (such as paid add-on services or advertising). 
  • Name recognition. Skype can probably charge a bit more because it is so well-known.  
  • Negotiating cheap minutes through international partners such as BT, iBasis (KPN) and any number of local players. 
  • A smart deployment of an internal network of international servers.  
Looking briefly at Yelo's prices, there are some big differences. For example, Yelo is cheap to call mobile numbers in Australia and Germany, but Rebtel is a good bit cheaper for calling Turkish mobile lines. Comparisons are difficult, and users need to think about which countries they call most often. The small print can also have a big impact on the final cost. 

Conclusion: a civil war in OTT land is slowly emerging, as Skype is challenged by a number of newcomers with low prices. Skype has in its advantage a strong brand name and predictable rates. There's also the question of whether consumers find the extra savings from using Yelo rather Skype worth going through the effort of installing the new app and buying call credit. After all, you save a lot already with Skype. In the mean time, the traditional operators can ratchet up the pressure further, as BT is doing. BT apparently thinks it's better to cannibalise its own revenues than to leave it to Skype, Rebtel, Yelo et al. It seems only a question of time before all the traditional operators offer such an OTT app. 

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