BARCELONA, Spain--Two major trends in the wireless industry appear to be converging. On one hand, operators continue to struggle with over-the-top players like Google (NASDAQ:GOOG), Viber, Facebook (NASDAQ:FB) Messenger and Skype cutting into their voice and messaging revenues. On the other hand, operators have quietly been inking deals with content providers in order to offer cheap or free access to specific services, a practice some have dubbed the toll-free data model. Now, it seems some companies are hoping toll-free data models can put wireless carriers back in the game and give them some leverage against the OTT tide.
First, let's be clear: It's no secret that wireless carriers are losing business to OTT companies like Google and Facebook. A number of studies have shown declines in operators' SMS revenues, and Skype and other VoIP calling services continue to gain steam. Operators are clearly concerned--to the point that they have attempted a rally around the GSMA's RCS-based joyn effort. But, according to most accounts, joyn services haven't caught fire, probably because there is no clear reason why users should pick joyn messaging services over the likes of established offerings including WhatsApp, Apple's (NASDAQ:AAPL) iMessage, Google Talk and Facebook Messenger.
Indeed, perhaps the main theme of this year's Mobile World Congress trade show here is how operators want to strike back against the likes of Apple and Android. Although Apple has never overtly attended MWC, Google this year significantly reduced its presence here at the show. Last year Google's Eric Schmidt headlined the event's evening keynote session and Google dominated a key hall with an elaborate Android booth (that famously featured a slide). This year the evening keynote slot was headlined by executives from Jolla, Firefox and Ubuntu, three new smartphone operating system providers whose sole marketing message appears to be the fact that they are not Android. And it's a marketing pitch that seems to be resonating with operators and handset vendors alike--Firefox managed to get more than a dozen operators and a handful of Android handset vendors to sell its smartphone operating system.
But what does this all have to do with toll-free data? Facebook and Viber here at the show each separately announced toll-free (or reduced fee) data agreements that are geared toward helping carriers sell more data.
Facebook recently announced a promotion that will provide users with either free or discounted access to its Facebook Messenger service in a handful of emerging markets. Facebook said the promotion will be available through 18 operators in countries including Indonesia, Thailand and Brazil. Although Facebook did not detail the terms of its partnerships, it's reasonable to assume Facebook is subsidizing the cost of users' data charges via payments to the wireless carriers.
Separately, messaging company Viber inked a deal with Axis in Indonesia that will provide the carrier's users with access to Viber at a reduced price. In return, the service promotes Axis' data plans and encourages users to upgrade to more expensive data services.
"We're definitely prepared to share revenues [with wireless carriers] when we start charging users," said Viber CEO Talmon Marco, explaining that, for example, Viber could offer enhanced calling services through a partnership with a carrier and then share the resulting revenues from those users willing to pay for the service.
It's a bit ironic that wireless carriers might have to go back to OTT vendors to eke out some additional cash through these kinds of revenue-sharing agreements--after all, it was wireless networks that first allowed OTT vendors to gain the traction they now have. Nonetheless, some operators seem open to the idea of partnering with the OTT companies they have previously derided as free riders on networks that cost billions of dollars to build.
"I don't see conflict here, I see opportunity," said Deutsche Telekom CEO René Obermann, discussing possible partnerships with OTT vendors. (Ironically, DT said earlier this month that integrating joyn into its network architecture is "very complex "and is taking more time than expected.)
"We believe that some time will pass before business models settle but at least the operators and OTT players are now sitting at the same table and discussing their common future," wrote Informa Telecoms & Media analyst Dario Talmesio. "However, some black eyes will be seen before the wedding is consummated."
I don't think anyone believes that toll-free data deals between wireless carriers and OTT companies will completely replace the voice and messaging revenues carriers have lost to companies including Skype and others. Further, OTT players appear to be using the toll-free data option only when it suits them: Facebook is only offering discounted access to its services in emerging markets, where it might not yet have a firm grasp on the social networking market. In established markets, the company has not yet made any sign it will engage in similar toll-free offerings. For example, in the United States, Facebook recently added voice calling services to its primary smartphone app, an action that could push U.S wireless carriers further into the background of users' mobile experiences.
Finally, toll-free data partnerships might end up a passing trend rather than a new paradigm. During the 2010 MWC, Verizon Wireless inked a major agreement with Skype that routed every Skype Mobile call over Verizon's existing, circuit-switched network, rather than delivering the call via VoIP over its EV-DO network. The result was improved voice calls on Skype. Although the companies didn't reveal the terms of their partnership, it was a clear example of the kinds of partnerships wireless carriers and OTT companies can make. However, the Verizon-Skype deal appears to have petered out--none of Verizon's new phones support the service, and neither company is promoting it anymore, and instead they are relying on Skype apps. A Verizon spokeswoman declined to provide further details on the situation.
Wireless carriers continue to struggle to remain relevant in a fast-changing market where companies like Facebook are suddenly becoming telephony providers. So far wireless carriers are trying to use services like joyn and smartphone platforms like Firefox to remain in the game. I think this is a terrible strategy. Instead, wireless carriers should focus on improving and simplifying their pricing, service and coverage. I would be much more inclined to buy service from a wireless carrier that offered clear pricing information (it's unlimited data, but only the first 2 GB is high speed?) and service information (4G LTE is really fast, but it doesn't say how fast?).
Perhaps the best example of operators' continuing problems in this area comes from Telefónica, which announced it would offer a new service on its forthcoming Firefox phones that would allow users to get real-time information on their monthly service charges. On hearing this news, my only thought was: Why isn't Telefónica already offering that across all of its phones? +Mike Dano