Last week I spent some time mulling over the opportunities that operators might have with new LTE services to increase revenue, differentiate their service offerings, retain customers and generally improve their fraught competitive situations. This week more first-quarter results have highlighted how operators across Europe are suffering from the same issues, ranging from cuts in mobile termination rates through to domestic price wars and the impact of European Union roaming price caps. All these factors are serving to drag down operator revenue and profits.
A further issue is, of course, the impact of over-the-top (OTT) services on text and voice revenue, and operators are already taking measures to try and address this. As things stand, it's far from clear if any of these measures will work. One measure, as exemplified by Vodafone Red, is to include unlimited calls and texts within mobile tariffs in a bid to dissuade subscribers from using web-based communications services, such as Skype, or WhatsApp. iPhone users are automatically directed to use iMessage, it has to be noted.
Telekom Austria, meanwhile, is planning to build a converged voice network, implementing a hosted IMS solution from ZTE that will allow the operator to launch services based on the Rich Communication Suite-enhanced, as well as voice-over-LTE (VoLTE).
Operators are well aware of the threat that OTT presents, although some of their views--for example, that subscribers only use OTT apps because they are cheap--may be slightly off kilter. Nevertheless, if operators are still in any doubt about the severity of the threat, two reports this week provided some stark figures to illustrate how big a threat OTT is set to become.
According to a recent report from Informa Telecoms & Media, daily OTT messaging traffic has already overtaken daily P2P SMS traffic in terms of volume, with an average of 19.1 billion OTT messages sent per day in 2012, compared with an average of 17.6 billion P2P SMS messages.
By the end of 2013, Informa estimates that 41 billion OTT messages will be sent every day, compared with an average of 19.5 billion P2P SMS messages
While Informa notes that SMS and OTT messaging are different services that are used in different ways by subscribers, the adoption of OTT messaging by mobile subscribers has and is having an effect on mobile operators' SMS traffic and revenues in some countries, including Spain, the Netherlands and South Korea.
"For example, mobile operators' SMS revenues in Spain have declined dramatically, down from €1.1 billion ($1.4 billion) in 2007 to €758.5 million in 2011," Informa noted.
In a separate report, meanwhile, Ovum forecasts that social messaging apps are set to cost operators $32.6 billion (€24.9 billion) in 2013, growing to more than $86 billion in 2020, and said the next two years will be a critical period for operators to address their relationship with OTT players. According to Ovum analyst Neha Dharia, partnerships in this area will intensify over 2013.
"WhatsApp already has a number of operator partnerships, including a roaming pass with 3 in Hong Kong and the GSM-based service offered by Reliance Communications in India," Dharia said. "Facebook has a long history of working with operators, and its new partnership with 18 global operators will allow free or discounted data access to the social network's messaging platform."
Dharia added that such operator partnerships help OTT players to broaden their reach, while the operators benefit from the sale of subscription plans.
In summary, the broad message to operators is that should actively seek partnerships with OTT players, rather than ignoring them, underestimating them or expecting them to just fade away. Relying on Rich Communication Suite and Joyn also seems to be a precarious strategy on its own. For one thing, these services are late to market. Apps from operators are also rarely regarded as "cool," although Orange and Telefónica have both made a good stab at producing their own messaging apps (see Orange's Libon and Telefónica's Tu Me).
Dharia also noted that social messaging player Viber's CEO said the company would be happy to share revenues from paid services once it begins to charge consumers.
SMS is certainly no longer the cash cow it used to be. Ovum forecasts that 2013 will be the last year that SMS brings in the largest proportion of non-voice revenues, and by 2015 it expects SMS revenues will begin to plateau.
The time to act is now.--Anne