The rise and rise of OTT messaging apps

Few will forget the earthquake and tsunami in 2011 that brought about the Fukushima nuclear disaster and killed thousands of people in Japan. The earthquake and tsunami also inflicted huge structural damage, and caused massive disruption to the country's communications networks.

Rising from the rubble in the immediate aftermath of the earthquake, a service called Line was established quickly and effectively by employees at NHN Japan to better communicate during this terrible time. Since then, NHN, which is owned by the South Korean Naver group, has released Line commercially and developed it into one of the world's leading OTT messaging providers with 390 million subscribers to date. It has joined a growing line-up of companies that have been busy taking voice and SMS revenue from established telecoms operators by offering free chat and messaging services.

Not all OTT messaging providers will have such a compelling story as Line, but their impact has been similar. At first, the knee-jerk reaction by operators was to block services they described in the small print as "VoIP and peer-to-peer". Nonetheless, such efforts often just made things worse: for example, in May 2012 the Netherlands enshrined net neutrality in law following attempts by Dutch incumbent operator KPN to make users pay extra for using third-party apps over its 3G network. It was becoming increasingly clear that resistance was proving futile.

OTT messaging applications have not gone away--far from it. In the past quarter alone, Tango received funding of $280 million (€203 million), and Facebook bought WhatsApp for $19 billion. What's more, OTT messaging providers now say they sense operators are more open to potential collaborations, as our latest special report shows.

For their part, operators have been aware for some time that they need to do something to stem the flow away from their core voice and SMS services while they build up data revenue. Efforts have included a greater focus on data plans with inclusive unlimited voice calls and texts. Vodafone made it clear that its all-inclusive Red plans were a defensive tactic against the might of WhatsApp et al.

At the same time, operators are looking at what other options they have. Some like Telefónica have focused on innovation, while also keeping the door open to collaborations with OTT messaging providers. Indeed, Telefónica has already teamed up with Line in order to provide a messaging option for Firefox OS-based mobile phones.

This year will be a crucial year for operators, not least because growth in peer-to-peer SMS continues to slow. Indeed, Ovum has previously predicted that SMS revenues will begin to plateau in 2015.--Anne