Services like WeChat, Skype cannibalize telco revenues, strain resources: analyst-A A +A
Wednesday, September 4, 2013
INTERNET services that bypass traditional distributional channels cannibalize revenues of telecommunications providers and put a strain on network resources, an analyst said today.
Matthew Howett, practice leader for regulation and policy of Ovum, said telecommunications companies today face key challenges: a growing market maturity, decline in traditional voice communications, growth in video traffic that requires substantial investment and the need to sustain investments.
Howett gave a talk yesterday morning at the Asian Carriers Conference in Shangri-La’s Mactan Resort and Spa on how telcos can respond to challenges posed by so-called over-the-top or OTT services.
OTT services are Internet-based services that bypass traditional distribution channels like those of telcos. Examples of OTT services are Skype, which replaces traditional phone communications, and video streaming service Netflix, which can replace traditional cable TV provider.
Howett said telcos are being hit by OTT services because these eat up traditional revenues on voice calls and SMS service while increasing demand for network connectivity.
He said OTT voice over Internet protocol or VOIP services, which are services like Skype that allow calling over an Internet connection, will cost telcos $52 billion in revenues globally by 2016.
Messaging services like WhatsApp, WeChat and Line, will cost carriers $32.6 billion in lost SMS revenues this year and $52 billion by 2016, he said.
He said these services have also “loosened” traditional telcos’ hold on their customers. He said many customers identify more with OTT services like WeChat, Twitter or Facebook rather than their telco providers.
Howett said the maturing market has led to slowing growth in mobile connections and continuing decline in voice revenues. Ovum, a global research company with headquarters in the UK, projects fixed voice lines to go down three percent this year with revenues dropping .3 percent.
He said that broadband is where the opportunity lies for telco with LTE connections going up 150 percent and fiber signups increasing by 28 percent.
Howett said European carriers are hardest hit by OTT services because of the continent’s higher smartphone penetration rate. He cited as example the impact of OTT messaging service on KPN Netherlands, which recorded an -8 percent drop in SMS traffic per user in the first quarter of 2011 against a 13 percent year-on-year growth in the
first quarter of 2010. Average customer spending also went down 22 percent, he said.
Howett said that when an OTT messaging service hits a range from five percent to 10 percent, “it is unstoppable.”
In Spain, WhatsApp took off after hitting five percent adoption. In Korea, Kakao Talk reported rapid growth after it hit 10 percent.
Howett outlined a response framework by telcos that range from adopting a wait-and-see stance, joining them, protecting the network by barring or throttling services, partnering with OTT services to competing with them.
He said many operators block services and while this slows the erosion on revenues and delays the tipping point of these services, it is unfriendly to consumers and may drive them to competitors and also attract the attention of regulators.
Some operators partner with OTT services and Howett said this helps them outcompete other companies, drive paid mobile data traffic and promote customer engagement and loyalty. He cited as example the agreement between Orange and Facebook.
Others, he said, offer their own OTT services. While this allows telcos to “claw back some lost revenue,” it also carries the risk of cannibalizing existing revenues.
He said adopting a wait-and-see attitude is dangerous as the wider adoption of OTT services is “just a matter of timing.” He said the impact of OTT is “sudden and fast” and if telcos don’t act fast, there “may not be time to respond.”
Published in the Sun.Star Cebu newspaper on September 05, 2013.