Analysts: Facebook's WhatsApp deal won't sting U.S. carriers, but may affect those in emerging markets

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Facebook's (NASDAQ:FB) $16 billion deal for over-the-top messaging service WhatsApp likely will not have a major impact on U.S. carriers and other Western operators because most have begun offering unlimited voice and text messaging. However, the action could put pressure on carriers in emerging markets, according to industry analysts.

"The U.S. carrier vs. WhatsApp battle was fought and ended a year and a half ago," Recon Analytics analyst (and FierceWireless contributor) Roger Entner said. "That's when the carriers were worried about it. They simply chose to give customers more value" by offering unlimited texting and calling plans.

Entner noted that most carriers have moved to unlimited messaging plans, especially those with shared data offerings. And many also have international messaging options. For example, Verizon Wireless' (NYSE:VZ) new "More Everything" plans include unlimited international messaging.

For operators in emerging markets, Entner said, the deal will be "a headache" and could force them to also offer unlimited messaging, a move that could potentially cut into their already thin margins.

WhatsApp has grown into a huge presence in the mobile messaging market by offering cheap or free IP-based messaging and calling services, thus cutting into wireless carriers' own voice and messaging revenues. Facebook disclosed that WhatsApp counts over 450 million people using the service each month, and is adding more than 1 million new registered users per day.

But carriers will still need to deal with the threat of OTT players, analysts said, a problem now exacerbated by WhatsApp's huge financial backing. "It doesn't really diminish anything, it just increases the power of OTT," 556 Ventures analyst William Ho said of the deal.

Indeed, OTT messaging traffic is likely only going to continue to grow, especially as more consumers in emerging markets get smartphones with data plans. "According to Ovum's Mobile Messaging Forecast, operator based mobile messaging traffic (including MMS, SMS, A2P SMS) will peak in 2014 with 7.7 trillion messages, declining in 2015 to 7.6 trillion messages," Ovum analyst Eden Zoller noted. "While OTT messaging is set to grow strongly YoY, Ovum's Social Messaging Traffic and Subscriber forecast estimates OTT messaging traffic to have hit 27.4 trillion in 2013 and growing with triple digit growth rates to 68.9 trillion by the end of 2014. SMS volumes were higher than social messaging volumes in 2012, but in 2013 messaging apps took a big leap forward and overtook traffic. We can expect strong growth in traffic to continue in the coming years."

Informa Telecoms & Media analyst Pamela Clark-Dickson wrote that the deal leaves operators "in an interesting position" because "Facebook, one of their key content partners, now owns an application that has been a major catalyst in the decline of SMS revenues and, for some, SMS traffic. The potential souring of the relationship between the operators and Facebook brought on by the acquisition will be mitigated somewhat by the fact that mobile subscribers will continue to demand access to both applications, resulting in sustained generation of mobile data revenues for operators."

Entner said that Facebook's real motivation to acquire WhatsApp was to address competing messaging services, such as Apple's (NASDAQ:AAPL) iMessage, Google's (NASDAQ:GOOG) Hangouts and Microsoft's (NASDAQ:MSFT) Skype. "That's the competitive threat" to Facebook, he said.

Other analysts argued Facebook was motivated to acquire WhatsApp as a way of growing its presence in emerging markets. "In analyzing the launch of Facebook Home, Mobidia shared data with me that showed time spent in WhatsApp in places like Spain, Mexico, and Argentina was much greater than time spent in Facebook," independent analyst Charles Golvin wrote to FierceWireless.

Golvin added that the acquisition is also a defensive move by Facebook, which could lose teens and other groups to apps like WhatsApp.

For more:
- see this Facebook post
- see this WhatsApp post
- see this WSJ article (sub. req.)
- see this separate WSJ article (sub. req.)
- see this GigaOM article
- see this Re/code article
- see this The Verge article
- see this TechCrunch article

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