Telcos need new strategies

The popularity of OTT apps has hit telcos (photo credit: Skype).

By Edwin Yapp

If I were to ask you when you last sent out a text message or SMS (short messaging service), what would your response be? A day ago? Two?

If you find that you’ve not been using your text messaging service for a while now, you’re in good company. These days, I find that I only receive SMS from services providers, banks and other companies I’ve signed up alerts for. And when I communicate with mum and dad.

Instead, like millions of other smartphone users, I have been using alternative instant messaging apps to keep in touch with friends and colleagues.

The rise of alternative instant messaging apps has been nothing short of phenomenal in the past two years. Today, players such as WhatsApp, Skype, WeChat, Line, KakaoTalk have begun to dominate the messaging market.

According to Ovum, SMS growth rates fell from 14% in 2011 to 8% in 2013, and the main driver for this was the emergence of social messaging. It further forecasted that social messaging cannibalisation of SMS revenues will grow from US$32.6 billion in 2013 to over US$86 billion in 2020.

Similarly, research company Analysys Mason forecasts the number of users on smartphones to increase from about one billion in 2013 to almost three billion in 2018. Messaging volumes associated with these smartphones are expected to almost double in 2014 and will reach 37.8 trillion messages sent in 2018.

So what has brought about the rise of these apps?

There is a confluence of factors that have made this possible. Firstly, it’s largely free. After all, you can message over free Wi-Fi hotspots and even if you’re using a data plan, the messages sent are not charged per unit sent but rather over a flat rate.

Secondly, it has features such as group chats, the sending of pictures and videos, and even voice clips – doing so without extra cost. Thirdly, it’s easy as ABC to get onto such a platform: download the app, register, and start using it.

But if one delves deeper into the larger issue, the rise of such apps isn’t limited to instant messaging only but is part of a bigger trend known as over-the-top (OTT) apps.

In industry parlance, these apps that traverse the broadband connections – be it over fixed-line fibre or mobile data – ride off whatever broadband connection you have, regardless of the kind of service.

OTT has been around for many years. Examples of early OTT apps are like Skype and Nimbuzz, MSN Messenger, Yahoo Chat and GTalk, all of which consumers used to communicate for virtually free over the Net by riding on a basic data plan on a smartphone.

But the rise of such apps has not only recently captured the attention of the consumer but also that of mobile operators. The issue has to do with what is known as OTT charges or the lack thereof.

Put simply, mobile operators and those who own the pipes and access to broadband networks are complaining that it’s essentially unfair for them to spend money building these networks when OTT players aren’t paying their dues to use their applications on any of these networks.

For example, SingTel’s CEO Chua Sock Koong has gone on the record to ask regulators to give carriers like its subsidiary Optus, Australia’s second largest telco, the right to charge rivals WhatsApp and Skype for use of their networks or risk a major decline in network investment.

I find this scenario pretty ironic as these very same mobile operators, who have for years made a pile of money off consumers, are now asking players that are using their networks to pay their way, and contribute to the operators’ coffers.

So is it fair, one might ask? Would the chances of operators charging OTT players raise the spectre that the latter would levy us consumers further for using OTT apps?

Live and let live

Admittedly, the issue is a complex one. Mobile operators all over the world have been calling for OTT players to pay their dues while the latter – the biggest of them all Facebook and Google – have resisted paying.

At the centre of the controversy is what OTT players deem as a Net neutrality issue. In a nutshell, it is about ensuring that service providers and governments treat all data on the Internet equally, thereby guaranteeing that the data will not be discriminated or charged differently by user, content, site, platform application, type of attached equipment, and modes of communication.

Much has been written about this. Depending on which side of the wall you stand on, your conclusions would inevitably be different.

What’s certain is that OTT players are here to stay and that they are an unstoppable force. As such, rather than quarrelling over this, mobile operators must come up with a strategy to try and get along with OTT players.

Several analysts I spoke with suggested that mobile operators would need to ensure that they differentiate their services further from what OTT players are able to offer.

“Operators’ unique selling points such as quality, security, interoperability and trust are more relevant when it comes to voice than messaging. Thus, they have a stronger role in the value chain and control many of the potential differentiators for voice services,” said one regional analyst in a note.

Another way would be to start partnering with OTT players, a move which the likes of DiGi Telecommunication has done with WhatsApp. Other strategies to consider are launching standards-based alternatives such as Rich Communication Services (RCS) and Voice over LTE (VoLTE), something pursued by Korea’s SK Telecom and LG UPlus.

Other revenue sources

Mobile operators should also target enterprise solutions such as video conferencing on-the-go and remote access to business applications that can drive data consumption, offering solutions such as machine-to-machine (M2M) services.

M2M communication allows devices such as smart metres/sensors to report data, via an LTE network to a utility company, so that it would be able to use the information gleaned to automatically track usage and offer tiered pricing.

They should also consider selling wholesale data to enterprises as a way to offset slowing consumer data services.

Besides this, mobile operators can also focus on the opportunity that LTE can bring and its advantages such as faster speeds, lower latency and an end-to-end all Internet Protocol (IP) only connection.

“VoIP services are currently restricted to a limited set of use cases and substitution of traditional services has been modest in most countries,” says one analyst.

“So voice services will not be that easily overtaken by OTT players as with the case of messaging apps like WhatsApp, Facebook and Skype, and this represent an opportunity for mobile operators to continue keeping the share of its market,” the analyst noted.

At the end of the day, competition is good and the coming of these OTT players will herald a better future for consumers as competition always breeds better innovation and more competitive prices for the general public.

 

Edwin Yapp is a freelance editorial consultant and co-founder of Digital News Asia, a technology news portal that covers the Southeast Asian tech scene. He can be reached at [email protected]

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