In the Global telecom industry, only the Indian market was able to generate double-digit YoY revenue growth, driven by both a recovery in voice Revenue per Minute (RPM) as the competitive environment among the players improved, and an additional kicker from data growth—in other words, both growth engines were still working.
From a revenue perspective, at least for the time being, the advent of smartphones has created an additional growth driver for the sector, in the form of data revenues generated. Thus, to date in the region, the amount of SMS and voice revenue cannibalised by OTT mobile messenger applications, such as WhatsApp, WeChat and LINE, has been more than offset by the data revenue generated.
OTT voice a further cannibalisation threat
Three things have changed over the last 6-12 months that in our view potentially raise the level of threat from OTT apps to telcos.
As smartphone penetration has risen, so has the size of the OTT community across the world. WhatsApp now has 450 mn users worldwide, and has been acquired by Facebook. LINE also has 340 mn users.
The level of stickiness and scale market-by-market. While there are several competing OTT messaging apps, a clear dominant player has emerged in several markets (e.g., 95% of iPhone users in Korea using Kakao Talk and 82% of iPhone users in China using WeChat). This usage and experience stickiness arguably disintermediates the telcos from their customers.
Most important, the advent of OTT voice could put a much larger pool of telco revenues at risk of OTT cannibalisation.
What is triggering the rush into voice services?
The progress towards OTT voice does vary by app developer. Skype and Viber started as peer-to-peer VoIP services and extended into video calls and then voice calls to external phone numbers. LINE, WeChat and Whatsapp started as IP-based instant messaging software.
The coding required to facilitate VoIP has likely been more complex than that required for instant messaging, but several competitors have reached a similar stage at the same time. Second, network stability has improved globally as increasing amounts of 3G infrastructure have been rolled out. Third, 3G smartphone penetration has reached critical mass globally, and fourth, the messaging apps have also reached critical mass in terms of size.
The final ingredient is the desire of the messaging app providers to achieve increased ‘engagement’ with their customer bases, expanding the range of services provided. From a platform of increased engagement, advertising, subscription fees and / or other opportunities for monetisation may present themselves.
The fact that no clear model already exists is unlikely to stop the app developers from proceeding with a rollout, given the services will be highly scalable and Development Costs Low.