Telcos start to partner OTT rivals

OvumOvum has already commented on the loss of SMS revenues due to the viral growth of social messaging players such as WhatsApp. The impact of these OTT players will cost operators $23 billion (€18 billion) in SMS revenues in 2012, and that figure is expected to rise to $54 billion in 2016.
 
We have argued that one way for operators to effectively combat this threat is to partner with OTT players, and in the past few months partnerships have begun to emerge between operators and social messaging players.
 
KDDI and Line were the first to announce a partnership, in July 2012, while 3 Hong Kong announced the “WhatsApp Roaming Pass” in September 2012. The latest initiative comes from Reliance Communications in India, which has launched a new data subscription plan, the “WhatsApp plan”.
 
These partnerships not only increase stickiness among the operators’ subscriber bases, but are also becoming a potential revenue opportunity.
 
Operators attempt to monetize social messaging
 
Partnering with social messaging players is a double-edged sword for operators. Although it will further popularize OTT services and dampen SMS revenue growth, it will allow operators to remain relevant in the messaging industry, and to try to grow revenues through social messaging subscription plans.
 
Hong Kong operator 3 has signed an exclusive partnership deal with WhatsApp, whereby its customers will pay $1 (HK$8) per month to use WhatsApp in Hong Kong and abroad. They will have free access to WhatsApp services such as photo and location sharing, and using the service will not impact subscribers’ data usage while roaming.
 
 
In a similar vein, Reliance Communications in India has launched a “WhatsApp Plan” for all Reliance GSM subscribers. Subscribers have access to unlimited use of WhatsApp and Facebook across the country for $0.30 (INR16) per month without paying any extra data consumption charge.
 
KDDI in Japan has followed a different route in collaborating with Line. The operator has added the Line app to its “au Smart Pass” app promotion service, which offers unlimited access to 500 Android apps for a monthly subscription of $4.70. A key revenue stream is a set of unique, paid-for emoticons, which generated $4.4m in the two months following the launch of the service.
 
Messaging could set a precedent for other services
 
Although there is a marked tension between OTT players and operators, every once in a while we see examples of how they can collaborate. Following this flurry of activity in messaging, Ovum expects to see collaboration in other consumer services as well.
 
The strategy of offering an OTT service exclusively on a network or providing unlimited access for a one-time fee seems to be working for several operators: Orange and Vodafone both offer Facebook access on several of their plans, while 3 had an exclusive deal with Skype in the UK.
 
These partnerships either help to grow revenues (through subscription plans), or are instrumental in reducing churn and gaining market share.
 
Partnering is occurring most in Asia
 
Ovum’s research has indicated that the impact of social messaging will be felt the most in Asia-Pacific; 32% of global SMS revenue losses will come in the region.
 
That is perhaps a key reason why most of the operator and OTT partnerships are arising in the Asia-Pacific region. However, the partnerships that have been agreed vary according to the demands of the markets in which they will operate.
 
 
In Japan, where IP-based messaging is commonplace, KDDI’s move to add Line to the suite of apps allows it to incorporate a popular app with the potential to grow the operator’s revenues through billing or payments. In India, Reliance Communications’ partnership with WhatsApp is designed to grow users and revenues from a demographic that may not subscribe to more expensive data plans, while in Hong Kong 3 is targeting travelling users with its WhatsApp roaming pass.
 
Regardless of the rationale behind the partnerships, as SMS revenues and traffic come under greater pressure we will see more operators partnering with social messaging players in the region.
 
Neha Dharia is an analyst for consumer telecoms at Ovum. For more information, visit www.ovum.com/

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