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Thursday, April 19, 2007

Truphone Cripples “Calling Party Pays”

Knowing that there must be some business model hidden somewhere, I thought I’d examine the Truphone Mobile VOIP charging schema.

You can make plenty of free calls IF both parties are in a Wi-Fi zone. Now, given that the Nokia N95 is after all a mobile device first and foremost – how do you know if you are both in a WiFi zone? – the answer is you can’t.

If you are mobile and outside a WiFi zone, what happens? Well, the very kind people at Truphone forwards the call to your handset using the Mobile POTS functionality, but charges you the termination rates and not just the normal mobile termination rates but a marked up rate. From the Truphone price list, this is how much the call costs:
  • O2 – 14.9ppm,
  • Orange – 15.7ppm,
  • Other - 30.0ppm,
  • Three – 29.3ppm,
  • T-Mobile – 16.4ppm,
  • Vodafone – 15.0ppm
And this is the best bit, you have to setup a prepaid account to Truphone to cover all these charges – they don’t offer credit to no-one, even though you’ve bought the top-of-end-mobile model and paid full whack for it and presumably already have a mobile post paid account.

Most confusingly to the customer is that the above charges about don’t include VAT – in fact VAT is deducted when you top-up your prepaid account so a £10 top-up only is worth £8.51 of calls.

Of course, Truphone offer the option of you rejecting the call if you so desire, but how tight are you going to appear to the caller? How inconvenient is this?

In other words, when you are outside the comfort zone of your WiFi zone, the call receiver will end-up paying for the calls not the caller and thus ending the 20+ year tradition of Calling Paying Party in the UK mobile market.

Calls to non-SIP phone numbers are also charged at the above pre-paid rates with an introductory offer for geographical fixed lines numbers being free for a couple of months. In other words, Truphone is again making money of the termination rate differential and given Ofcom currently imposes a limit on average termination charges of 5.63ppm (voda, o2) or 6.31ppm (t-mobi and orange), the gross margin will be quite high for them.

Apart from the above not-so-free calls, Truphone stresses in its sales pitch that the service is good for roamers, in fact Dean Bubley chronicled a real life example of a mobile road warrior:
"So far I’ve spent 137 minutes on SIP calls using the N95. Setup was trivial, dialling is as simple as pressing “internet call” on a contact. Call quality is indistinguishable from GSM roaming call..... I've saved $292 so far, so that's payback in 9 days [for the phone purchase price]"
Apart from the obvious statement that in the example, he uses the roaming warrior was being charged around 100ppm which is obviously a rip-off and therefore I don’t blame the guy to look around for alternatives. Possibly if the WiFi rates in the hotel were reasonable and given that the guy was calling a SIP number and not paying termination fees then Truphone would be a solution for this particular use-case.

However, how many people are in this niche:
  • still paying top notch rates for mobile roaming;
  • making over 2 hours of calls in a particular session, be it an evening or visit
  • roaming for 9 sessions over the length of mobile contract; and most importantly
  • really care how much their mobile phone bill is and want to go through the decision point of making WiFi calls rather than mobile calls.
This niche will be tiny in the UK and I would be extremely surprised if it was more than 25k people.

The other interesting part of the Truphone business model is that WiFi access in the Cloud areas are for free. I wonder if Truphone is paying the The Cloud a cut of the expected revenues whilst in their HotSpots?

The other interesting part of the business model is how Truphone got placed on the Nokia handset in the first place? Was this because of technical excellence? Or was it because Truphone are paying Nokia a fee – whether per handset or by revenues?

Obviously there is potential for Truphone to share revenues of its high gross margins from the termination fee business. I don’t understand why they don’t just offer the mobile operators a share of the revenues to cover handset subsidies and acquisition costs?

As for the Truphone user experience, I particularly loved this answer as part of the “Truphone Known Issues” page:

Issue: My / the other person's voice breaks up sometimes during the call
This could be caused by any number of events in the network path between you and the other party in the call, however the most common reason is WiFi radio interference. Some ways this can happen include:
  • Traffic on a nearby WiFi connected laptop (e.g. you are web browsing whilst talking, or an email arrives while talking).
  • Traffic on nearby Bluetooth devices
  • physical obstruction - e.g. somebody walking between the phone and the access point
It is hard to completely prevent all these things, but one good rule is to hard-wire devices like laptops if possible, and turn off the WiFi, to keep the radio environment as clean as possible.

This doesn’t exactly fill your average punter with confidence does it – if someone walking between you and the access point is going to causes the call to break up. Mind you, the product is still in beta, perhaps they'll work out the kinks before they go live.

All in all, I continue to be less than impressed with the Truphone offering.