Thursday, December 31, 2009

Telefonica - buying Jajah could speed up mobile VoIP

[investors business daily] Telefonica's purchase of Internet calling startup Jajah likely will speed up big changes in Europe's mobile phone market, analysts say.

Spain-based Telefonica last week agreed to acquire Jajah, a VoIP (voice over Internet protocol) provider, for $206 million. Initially, Telefonica plans to make Jajah's calling service available to customers of O2, its European wireless unit. Telefonica is also a big wireless carrier in Latin America.

Mountain View, Calif-based Jajah has about 25 million users, compared with VoIP leader Skype's 520 million.

Most Jajah and Skype users make free or low-cost international calls using personal computers, but Web calling on mobile phones moved forward in 2009, in part spurred by the launch of Google's Google Voice VoIP service in March.

Deutsche Telekom had owned a small stake in Jajah before Telefonica bought the whole company.

"Over time, more or less everyone will be using (VoIP) on (mobile) handsets," said Aapo Markkanen, an analyst at IHS Global Insight. He says Telefonica could offer its customers low-cost international calling via Jajah. He says VoIP would also make it possible for mobile phone users to talk with friends while sharing music, photos or other content at social-networking Web sites such as Facebook.

"The acquisition of Jajah seems to imply that Telefonica has concluded that the most rational approach to VoIP, rather than rejecting it, is to embrace it and start innovating new services based on it," Markkanen said.

Some European phone companies seem to be jumping on the mobile VoIP bandwagon faster than U.S. wireless firms, says U.K.-based research firm Informa Telecoms & Media.

In the U.K., Hutchison-owned carrier 3 lets customers make unlimited Skype-to-Skype calls for free, without incurring data charges. Deutsche Telekom's T-Mobile unit began allowing mobile VoIP calls over its network in June, but charges for them.

The one pure-play VoIP firm traded in the U.S., Vonage, last week added mobile phones to its unlimited calling plan that covers some 60 countries, for a flat fee of $24.99. It's called Vonage World Mobile.

"Many European operators are reluctant to allow voice services to be cannibalized and are still blocking or charging extra for mobile VoIP on top of the data fee," says an Informa report.

In the U.S., Apple and AT&T ran into regulatory trouble last year over mobile VoIP policies. Apple pulled the Google Voice application from its iPhone app store, prompting the Federal Communications Commission to open a probe.

In October, AT&T shifted its position, saying it would let Skype, Google Voice and other VoIP applications run on its 3G network.

Consumers need data-ready 3G phones to use VoIP software. While analysts say mobile VoIP has the potential to disrupt the wireless industry, for now only 12% of phones used worldwide are 3G. The figure is higher in countries with many smart-phone users, such as the U.S.

Wireless companies say the quality of normal cell phone calls will be higher than VoIP calls, giving customers a reason to keep voice plans.

The emergence of 4G services, which are faster than today's highest-end 3G, is expected to promote VoIP calling. Analysts say U.S.-based Clearwire will start to offer mobile VoIP calling in 2010. Clearwire is building a 4G WiMax network.

Long-range, Telefonica could offer Jajah services on 4G LTE networks it plans to build, analysts say.

Telefonica's purchase of Jajah is just the latest deal involving VoIP companies. In September, EBay sold 65% of Skype to private equity investors for $1.9 billion. Skype charges for calls to regular phones but provides free computer-to-computer voice services.

In November, Google acquired Web calling startup Gizmo5 for a reported $30 million.

Analysts say wireless firms might partner with other mobile VoIP startups, such as Fring, Vyke and Freshtel Holdings.

Telefonica has dabbled in Web acquisitions, but not all have worked out. In 2000, its Terra Networks unit bought Web portal Lycos for $5.4 billion. In 2004, Terra sold Lycos for under $100 million.

Telefonica has done better in telecom deals. It bought U.K. wireless firm O2 for $31.5 billion in 2006, expanding its footprint in Europe.

While Telefonica has run up its debt, it's still being aggressive, says Markkanen. In November, Telefonica bought German Internet service provider Hansenet for $1.3 billion.

Telefonica Answering The Call For VoIP In Europe

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