OTT messaging adoption may marginalise Europe's operators

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Mobile messaging is rapidly becoming the new battle ground in Europe as over-the-top (OTT) providers develop products that are attracting millions of new users to their slick services, leaving operators floundering to catch up.

Traditional SMS text messaging, a cash-cow long overdue a revamp, is rapidly losing ground to upstarts such as WhatsApp, textPlus and others as smartphone users take advantage of these apps' capabilities and lower costs.

According to a recent report from market research firm Ovum, the growth of OTT messaging apps will result in mobile operators worldwide losing $54 billion (€42 billion) by 2016, more than double the $23 billion Ovum expects them to have lost by the end of this year.

The adoption of OTT messaging is increasing, with 90 per cent of smartphone users in the Netherlands reportedly using WhatsApp. OTT messaging has forced some European operators to accept their fate, while others are taking the fight to the OTT community.

Telefónica leads pushback in OTT battle

One operator leading this charge is Telefónica with the launch of its Tu Me service in May.The service, available for iPhone and Android users, allows customers to to send free voice and text messages, photos, video and their locations to friends—and all for free.

"We've seen our customers moving to OTT messaging, so we needed to be there as well. It's been a steep learning curve," said Jamie Finn, director of OTT communications products with Telefónica Digital.

Telefónica launched its Tu Me service in May.

Finn said that OTT messaging requires a very different approach. "The communications patterns and infrastructure are unlike what we had as a company, which is traditionally very locally focused," he noted. "To deploy Tu Me we needed equipment deployed around the world supporting this single OTT service."

"OTT messaging is a relatively easy app to develop where latency is not a particular issue. But, key to its success is to have a platform with the scale and reach to enable the app to become viral," Finn said. "WhatsApp have been very good at this and is now becoming almost a horizontal application."

WhatsApp usage soars

For its part, WhatsApp claims there are many reasons behind it becoming a force in OTT messaging. "Part of the reason has been the high price of SMS messages, together with the growth in smartphone adoption and that WhatsApp is available on numerous platforms," said Neeraj Arora, the company's head of business development.

"We've now cemented our position in Europe in terms of popularity, especially in Germany, the Netherlands, the UK and Italy--all of the countries that have high smartphone penetration," he said. "We've now reached critical mass in these markets."

WhatsApp has been installed over 100 million times on Android devices around the world, according to the app's Google Play page, a figure that doesn't include downloads to iOS, BlackBerry, Windows Phone or Symbian and Nokia's S40 devices, as GigaOM noted.

Arora noted that operators first saw concerns 12 to 18 months ago that they would see their messaging revenues decline, and that many have now realised that their future is inherently tied to data traffic. "The operators we've partnered with are now making money from the data traffic being generated by WhatsApp," he said. "We're one of the strongest drivers of data traffic for them."

WhatsApp sends and receives more than 10 billion messages per day. 

While Arora will not identify messaging traffic statistics down to a country level, he noted that around a year ago WhatsApp was recording about one billion incoming messages per day. By late August the company confirmed that it was receiving year four billion incoming and six billion outgoing massagers per day (outgoing can be higher if somebody sends a group message), for a total of 10 billion messages.

Of note, the company will not look to monetise its service until 2014 or the year after, with Arora claiming that its focus is on developing the product and boosting usage numbers.

RCS joins the fight with joyn

While Arora dismissed Rich Communications Suite (RCS) as an OTT messaging platform, Graham Trickey, a senior director with the GSMA, says that RCS--marketed under the joyn--now has wide support from the operator community. "The focus today is on a country-by-country basis to ensure that operators avoid any interoperability issues."

"We have been working with operators to help them understand the benefits of using IMS as a core for RCS," he said. "More recently, we've been co-operating with a number of technology vendors to ensure that not having an IMS system is not the block towards implementing RCS." Vodafone Germany beat its competitors to the punch and launched joyn service in late August.

Trickey said external companies offering to provide operators with a hosted RCS service, removing a significant barrier. "This cuts the time to market to as low as 10 weeks."

However, Telefónica Digital's Finn believes joyn will face hurdles: "The big issue with the RCS advocates is their desire to create the joyn brand, which is a fundamental mistake. Operators have high-profile brands and don't want to throw this away by adopting joyn."

"RCS is a technical capability, not the customer experience. It's another way to do text messaging with groups, and I'm not sure the RCS people have thought this through," Finn added. "We've been operating in the OTT apps business for nine months now, and it's a harsh business environment to work in."

Another critic of RCS is Dario Talmesio, principal analyst at Informa Telecoms & Media, who said that the technology has taken far too long to come to market.

"Compare this with Tu Me which only took Telefónica Digital 100 days to develop, while RCS has been talked about for four to five years."

However, the debate over RCS is perhaps a sideshow. Talmesio said believes the real battle is keeping the customer engaged, which is why Telefónica Digital is deploying Tu Me. "If the operators lose altogether the customer engagement [to OTT players] then they have lost the communications channels with their own customers, and then they become just a pipe."

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