Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
Over-the-top messaging players are capturing new users at high speed, benefiting from network effects and thus eroding SMS revenues, once a very relevant money stream for mobile players. OTT services are traditionally those provided over a broadband connection. The first to emerge were mainly free IP-based telephony services, but they have expanded to include streaming video, browsers, mobile messaging and more (salient examples include Skype, Netflix, Hulu, etc.).
OTT has gained momentum by providing an alternative to traditional telecom carriers focused on content and services. The problem for telecom carriers is that IT players, device manufacturers and other participants started to launch these OTT offers, and hence the telecoms’ risk of becoming dumb pipe increased. Since OTT providers do not have to incur network and infrastructure expenses, they do have an advantage that they are exploiting and therefore ought to be taken more seriously by traditional service providers. For the user, the value perception depends on two main attributes: utility and cost. Since most services are free or entail a very low cost, users tend to accept lower quality services. But as competition has increased, this scenario has evolved, making solid offers and value added services more frequent.
So far, OTT mobile messaging has impacted mature markets more acutely, typically in Europe, the Asia-Pacific region (especially Japan and South Korea), and North America. The main reason behind this fact is that smartphone and mobile broadband penetration are key enablers of OTT mobile messaging. Some of those markets have even witnessed a transition where SMS traffic has begun to decline with OTT messaging taking its place as the inexpensive text-based communication form for users. Alternatives such as OS-specific BlackBerry Messenger or iMessenger or the cross-platform WhatsApp are the usual suspects.
Although SMS is still growing in Latin American countries like Argentina, Brazil or Mexico, the OTT trend is already emerging. For instance, Telecom Personal, one of the largest mobile carriers in Argentina, has already stated that its SMS growth is slowing: SMS traffic grew 21% in 2011 compared to the previous year, but the figure only reached 3% in 2012. Figures for the first quarter of 2013 also show a deceleration. In the six main markets (Argentina, Brazil, Chile, Colombia, Mexico and Venezuela) 3G coverage neared 20% in 2012, and lines with such technology are expected to grow at a compound annual growth rate of approximately 40% until 2017, paving the road to OTT services.
Carriers in this region can only anticipate headaches as the market matures and OTT messaging becomes pervasive. However, they can still choose to move toward the new trend, opting between a reactive or proactive stance. The first option implies pushing data caps and pricing tiers based on data usage, or even opposing network neutrality regulation. Meanwhile, the proactive approach entails partnering with OTT providers and/or offering their own OTT applications — even doing so over other operators’ networks. Examples of proactive operators around the globe include Telefónica, Orange and even the GSMA initiative Joyn.
In May 2012, Telefónica launched the applications TU Me and TU Go, which include messaging and mobile voice over IP features. The applications also include file sharing, location sharing and drop box compatibility. The service is always in-sync with the cloud, available on Apple and Android devices, and PCs as well. The download ranking by country was: Spain, the United Kingdom, the United States and Mexico.
Orange launched its application Libon in November 2012, enabling users to make free calls, and use smart messaging and visual voicemail. Libon is available on smartphones running Google’s Android platform and Apple’s iOS. The application will have Joyn-compatibility to provide interoperability with advanced OTT functions.
The GSMA Joyn service (also known as “the operators’ WhatsApp”) provides instant messaging or chat, live video and file sharing across any device, on any network, with all the Joyn enabled contacts in a users’ address book. Although so far only Orange, Telefónica and Vodafone have launched Joyn in Spain, more than 30 mobile operators have committed to launch the service in Germany, Spain, the United States, Korea, Mexico and other countries.
However, in Latin America and other markets in different maturity stages, timing is key. Reacting when the OTT menace is still remote and while SMS is still growing could result in the cannibalization of SMS revenues. Monitoring critical variables such as SMS growth, smartphone and mobile broadband penetration as well as OTT messaging application downloads could help in shaping the right strategy. Though the headache might be inevitable, at least there seem to be some good aspirin at hand.
