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WhatsApp has been all over the news after signing a $19 billion deal with Facebook. It has a lot of people speculating what it means for the telecom industry.
WhatsApp is the largest messaging application in the world with 450 million globally users. It uses your phone number as your universal identification. Its business model is free for the first year and 99 cents per year thereafter. It’s unlikely that Facebook’s strategy is to take over the telecom communications. It’s more conceivable that by owning key mobile brands such as WhatsApp and Instagram, a mobile-based photo-sharing site, Facebook will be able to extract knowledge from messaging content that can be used to drive future advertising and social commerce. The battle being fought is with the likes of Google, Amazon and the next startup looking to disrupt.
Despite dire media predictions of WhatsApp’s impact on the telecom industry, it is premature to conclude the sky is falling. But there are important takeaways to the WhatsApp story that telcos should pay close attention to. For example, the technology behind WhatsApp is very simple: telecom operators today have all the technology to build a service like WhatsApp. Beyond the technology, it’s the consumer experience that WhatsApp provides and its business model that are largely responsible for its success. Telcos should learn that innovation and customer experience are the keys to differentiation and winning.
Adopting a data-driven mindset
WhatsApp emphasizes an irreversible trend started years ago: the erosion of SMS revenues, making it all the more important for telcos to aggressively move to a data-centric business model. Many operators are already shifting to a data-driven model emphasizing increasing data consumption and operational savings to offset the decline in messaging revenue. In a data world, growth is accomplished by increasing the number of smartphones and tablets available and working within the vendor ecosystem to make them more affordable to a larger population that can use them to view more data like video. This data-driven model is already seen in the U.S. market where telcos have rolled out shared data plans that include unlimited voice and SMS.
Facebook will likely accelerate the growth of WhatsApp and the messaging app market, which in turn will accelerate the further erosion of messaging revenues for telecom carriers. Contrarily, it will also likely lead to more multimedia being shared through WhatApp, which is good for driving data usage and moving users to higher-end smartphones and LTE networks. Brian Action, co-founder of WhatsApp, has said, “I view it from the perspective that we’re facilitating a broad movement to data plans and the entities that provide those plans are the carriers, so they stand to benefit quite substantially.”
Operators should not be focused on beating Facebook. And they should quit hoping for messaging revenue decline to reverse itself and instead focus on data consumption. Additionally, innovation and service differentiation are the formula for winning subscribers.
An all-IP network is required to participate in an IP driven economy
No longer connecting just calls, telcos in the new digital economy connect devices with unique IP addresses to the Internet. All of these “things” connected to the Internet generate data. The digital economy empowers consumers with greater flexibility in the use of voice and media services, which enable them to better mix and match services to suit changing lifestyle needs. To play in this digital economy, operators must migrate to an all Internet based network platform: voice over LTE.
Despite its name, VoLTE’s key value proposition isn’t voice. Instead, its primary benefit is integrated high-definition voice, HD video and messaging, provided by an IMS backbone that makes seamless communication accessible across any connected device and network. Thus, VoLTE allows consumers and enterprises to take this high-quality communication experience with them wherever they go – something that over-the-top providers can’t match. Users can ride the VoLTE data stream to download videos, play games and access other multi-media content at LTE speeds while simultaneous talking on their smartphone. And by tethering their laptop or tablet to their LTE smartphone, consumers can extend LTE speeds to other devices. VoLTE gets operators to a data driven business model by lowering network cost of delivering data and enhancing the quality of experience. Being more spectrally efficient, VoLTE also allows operator’s to free up and re-assign precious 2G and 3G spectrum to support more data services.
As a result, VoLTE is a gateway to future revenue opportunities. To quote a tier-one service provider customer, “you cannot participate in a data-centric economy if you are not IP.” VoLTE enables operators to reach beyond traditional telco markets into healthcare, education, machine-to-machine, etc. VoLTE’s WebRTC APIs enables them to extend their communications brand to the Web where conversation experiences can be started from any device, webpage and application. It also enables telcos to defend and extend their communications turf by participate in enterprise communications opportunities, where mobility, “bring-your-own-device” and vendor lock-in are issues. This is a space that operators can disruptive – similar to the way OTTs disrupted consumer services.
Once on an all IP communications platform with global interoperability, there are no barriers to the telecom industry playing a bigger role in wholesaling communications services, even to OTT providers. Leveraging IMS within a cloud deployment model, operators could become the wholesale backbone of future communications by embedding communication in every new service, application and browser even if they don’t own the end service.
Wake-up call
This isn’t the first time the telecom industry has had a warning shot fired across its bow. Skype became the world’s largest mover of international voice traffic. Now WhatsApp is the world’s fastest-growing messaging service. In response, telcos must be quicker, more agile and more innovative. But they will not win the battle of lowest common denominator – making cheap voice calls. Instead they need to adopt a data-driven mindset leveraging the IP network and the cloud to enable the faster introduction of new services and bundles, quicker scaling in response to demand and differentiated and reliable quality of experience that meets consumer and business demands to communicate whenever, wherever and however they choose.
While voice is still the predominant source of telco revenue, data services are rapidly growing and show no signs of slowing down as telcos transition away from 2G and 3G networks that do not support high bandwidth required for video and other digital data. LTE device owners, on average, consume twice as much data, including 50% more video than 3G users. Within the new digital economy, smartphones are becoming cheaper and increased global popularity will also drive data consumption. All signs point towards data being a game changer. And while content is king, it’s still the customer experience that rules supreme. Finding the right formula of innovation, data driven business models and operational optimization to provide a superior service is where all battles will ultimately be won.
