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O2 uses VoIP service to differentiate

In wake of Telefónica's $207 million acquisition of Austrian/American mobile VoIP company Jajah in 2009, O2, a subsidiary of the Spanish telecom giant, has announced a third, VoIP-based consumer service based on Jajah's technology. With this announcement, the operator is taking yet another step to further differentiate themselves in the ever so competitive telecoms market.

The first service to emerge after the purchase and to be directly modeled after Jajah's core service based on local numbers for international calls, O2 Global Friends service, was launched in July of 2010. In September of this year, O2 took the old, yet familiar concept of calling cards, and wrapped it into a digital package in the shape of an iPhone app.

Now, the company has announced a limited trial service entitled O2 Connect. O2 Connect is, for now, an app for iOS and Android, and relies on users having an active WiFi connection to facilitate free (however domestic) calls and SMS. Furthermore, O2 Connect is the first product to emerge out of Telefónica Digital, a new business unit announced earlier this year that is set to lead Telefónica's digital growth strategy.

It's evident that not only the new business unit, but O2 Connect as a service, is a part of a greater over-arching measure to differentiate themselves as well as counter the growing number of IP-based communication services in the likes of Skype, Rebtel and Viber, that push operators, such as Telefónica, down the path of becoming mere providers of capacity.

In an official statement from the company, Telefónica said they deem the potential for adoption as significant, given the widespread use of similar, competing services in the likes of Rebtel, Viber and Skype in various emerging markets. Even though the service only facilitates domestic calls (at the time of writing), it will be interesting to see what kind of pricing model that will apply for international calls using O2 Connect. Chances are consumers will be disappointed due to that Connect is asynchronous, meaning O2 only have control over its own customers' call leg, and as a result still have to pay a termination fee to fellow operators.

On the flip side, what does speak in favor of O2's approach at least in terms of user adoption is that the solution is liberated of what's referred to as the UMA (Unlicensed Mobile Access) protocol necessary for the service to work, effectively eliminating a lot of friction. Also, from a differentiation aspect in a business that's increasingly commoditized, Kineto Wireless reports that operators who have deployed various WiFi calling solutions experience a 25-40% lower churn rate, something that should be a big incentive in itself considering the notoriously high churn in the mobile operator business.

Lastly, with desktop computers playing little to no role in catalyzing digital consumption in emerging markets, unlike in the US or other western countries, Internet enabled phones have. According to the Boston Consulting Group, the number of people with access to the internet will double in Brazil, Russia, China, India and Indonesia by 2015, suggesting O2 might just be putting their eggs in the most future proof of baskets.