By Anne Morris
The relationship between operators and over the top (OTT) messaging providers has been an uneasy one in the past, when operators often reacted to this attack on their core services of SMS and voice calls by blocking "unauthorised" VoIP and peer-to-peer services on their networks.
OTT messaging providers have not gone away though--far from it. In the past quarter alone, Tango received funding of $280 million (€203 million), and Facebook bought WhatsApp for $19 billion. OTT messaging providers now say they sense operators are more open to potential collaborations.
"Operators are resigned to the fact that voice and SMS revenues are declining, so they need to monetise data," said CCS Insight analyst Kester Mann.
At the same time, operators are hedging their bets by pursuing their own OTT strategies. What operators should be doing depends on which part of the industry one is speaking with.
OTT providers gain steam
OTT providers remain varied, ranging from giants like WhatsApp and BlackBerry Messenger down to smaller players like Voxer.
Nimbuzz is a messaging provider that has European roots but currently focuses on India and Asia. The company reported 150 million subscribers in March 2013 and COO Joby Baby said the company is growing fast, and is adding around 210,000 users per day.
Nimbuzz, an OTT provider, says it is adding 210,000 users per day.
The company is already looking at Europe and hopes to partner with operators. "Three years ago, the attitude among operators was completely different," Baby said. "Now things have changed drastically."
Nimbuzz' approach is to create value-added services on top of the traditional free messaging and VoIP services, and form co-branded partnerships for those services, which include gifting, in-app purchases, gaming purchases, and so on. Baby said revenue shares for such deals are 50-70 per cent in Europe in favour of the OTT provider.
Although he said he was unable to reveal any details right now, Baby said Nimbuzz is in talks with a leading European operator and expects to be launching a co-branded partnership in around four to six weeks.
Japan-based OTT messaging provider Line now has around 390 million users globally, and like Nimbuzz said operator attitudes have thawed noticeably. The company has already reached a deal with Telefónica to provide messaging services on Firefox OS-based mobile phones, and said it is in talks with other operators in markets such as France and Germany. In March, Line announced a new calling service allowing people with Line accounts to make voice calls direct to landlines and cell phones from the Line app. The service, Line Call, will initially be available in eight markets: the United States, Japan, Mexico, Peru, Columbia, Thailand, Philippines, and Spain. Line said it plans to roll out the service to other countries in the future.
Sunny YoungEun Kim, head of business development at Line USA, said she approaches operators with a number of different propositions and is prepared to be flexible depending on their needs.
"For example, we can figure out a Line data package with content," said Kim. This allows an operator to launch a new data package at a small premium with unlimited access to Line messaging and chatting, for example.
Such approaches by Nimbuzz and Line are clearly targeted at helping operators boost revenue from their data traffic by adding in extra value for consumers.
However, some companies in the value chain think that operators are fighting a losing battle even if they are open to collaborating with OTT messaging apps.
"I don't see a greater collaboration with the carriers. I see the value proposition of OTT apps for the carriers as very limited. It's heading more toward managing the downside," said Tony Jamous, CEO of Nexmo, whose platform supports about 80 per cent of all OTT service providers globally, although not including WhatsApp.
Jamous said he sees more cannibalisation of B2C market for voice and messaging over the next five years, primarily in Europe and the United States. "2014 is the year that operators move from fear to panic," he said. "By definition, the carrier network is not fit to be more than a pipe. My recommendation is to be OK with their identity as a pipe; they should stop trying to be innovative."
Operators go their own way
That is unlikely to be a welcome message to those operators that think they are more than a data pipe and are innovating.
Telefónica, for example, is basing its entire future on being a "digital" and innovative company and has its finger in a number of different pies, including the deal with Line.
"In round one of OTT, WhatsApp won. That's OK; that's the first round," said Ian Small, the former CEO of WebRTC specialist TokBox who is now responsible for all of Telefónica 's future communications services.
"We're doing 'over the telco'; taking the best bits of telcos and OTT," said Small. "You have to have a nuanced view of OTT; you have to decide where to partner, where to lead, where to compete."
Small thinks there are a lot of opportunities where operators can succeed, but concedes that it is not always easy to make the right bet. "We obviously have a number of different things going on," he added. "From us you will see continuing efforts to innovate and bring solutions to the market."
Current projects include TokBox, which allows developers to integrate video into websites and applications; TU Go, a free app that lets consumers use their O2 mobile number on tablets and laptops; Joyn, the consumer-facing application based on the GSMA's rich communications suite (RCS) platform; and open APIs, which allow developers to integrate elements of the Telefónica platform into their own applications.
Orange also supports open APIs and has also gone down the route of providing its own messaging application under Libon. In fact, Libon is set to replace Joyn in markets where Orange has launched the service and will become the sole OTT messaging brand for Orange.
Orange also offers Libon as part of its low-cost Sosh service in France, and said current statistics show that Sosh users using Libon decrease the usage of other OTT apps up to 80 per cent.
"Libon is core to our approach," said Simon Best, director of group marketing at Orange.
Orange does not currently partner with OTT messaging providers, although Best said the company would be open to it "if we felt it added value."
Are the GSMA"s Joyn efforts too late?
"RCS? It's too late," is Jamous' view of the GSMA-led initiative, and he is not alone in thinking this. "When was the last time that carriers agreed on a protocol that worked? SMS! And that was 20 years ago."
Nexmo CEO, Tony Jamous, is sceptical about the GSMA's RCS initiative
CCS Insight's Mann said he is also sceptical about Joyn: "I did not really see anything at Mobile World Congress [in February] that changed my mind," he said.
Nonetheless, while Joyn may not make it as the brand that all operators will adopt, there has been growing momentum of late behind the use of RCS as a platform for the launch of richer services. "European mobile carriers such as Deutsche Telekom, Orange and Vodafone are using RCS technology as the basis of their response to the OTT challenge," noted Current Analysis analyst Peter Briggs.
According to latest figures from the GSMA, there were 29 live RCS solutions in 23 countries as of February 2014; 87 operators have committed to launch by end of 2015; and 31 native devices are included in operator portfolios.
However, the general message from operators is that they are interested in partnerships with OTT players but still want to pursue their own approaches. Briggs said partnerships between carriers and OTT providers can be beneficial if detailed business cases are worked out. "In either case, though easier for DIY solutions, carriers can play to their strengths in privacy and security as consumer concern hits various markets," he said.