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Summary:

Viber. WhatsApp. Google Voice. These services are alternative ways to send IMs or speak across mobile platforms and are challenging the mobile carriers at their own game. In the last year, these apps and more familiar services helped cut $13.9 billion in operator revenue.

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Viber. WhatsApp. Facebook Chat. Google Voice. These services all are alternative ways to send instant messages or texts across mobile platforms and join the usual suspects such as BlackBerry Messenger, iMessage and Skype as ways Internet businesses are again challenging the mobile carriers at their own game. The rise in third-party IM and voice applications has been noted in Europe, but reports out today show that carriers are running out of time. They need to hurry to co-opt their competition by playing to their strengths.

Ovum estimates operators lost $13.9 billion of potential SMS revenue in 2011 through subscribers using social messaging apps on their mobile phone, a loss in revenue that is both high margin and creates a virtuous cycle of use. When I sign up for a new social messaging service, I get my friends on it too, causing a loss in potential revenue that spreads virally. That’s how Viber, a social messaging service that was relatively unknown six months ago, can suddenly shoot up to consume 2 percent of mobile bandwidth six months later, according to data from Allot.

This morning I suggested that the challenge for carriers is finding a way to continue getting the same total dollars from subscribers while transitioning them to new services. Otherwise they might lose valuable dollars to IP-based voice and messaging services without making up the loss of voice and testing plan revenue. Ovum also pushes carriers to stop dithering and get on board with startups to offer their end users some sort of value that will keep some of that texting revenue in carrier pockets. Ovum suggests carriers focus on their ownership of the phone number:

“In addition, operators are in a position of strength because they control the entire messaging structure through their access to the user’s phone number and usage data. The established billing relationship is a great advantage, as is the fact that operators control to a great extent the services to which the user is exposed.”

I’m not 100 percent sure trying to pen users in using their phone number or creating extra hurdles to communications is the way to go, which seems to be an implication buried in Ovum’s idea. However, for widespread use, creating an easy on-ramp for less tech-savvy (or social) customers and allowing users to interconnect across services would be helpful and something that average consumers might pay for.

However, carriers who push too hard or erect too many barriers will likely see users resort, not just to giving up texting plans, but to a wholesale abandonment of their cell phone numbers. By using new services they can piece together their own IP-based communications using a device, some handy apps, and their mobile data plan.

My colleague Kevin Tofel does that right now, and while it takes a little effort today, there’s no reason a new service couldn’t come in and make it easier. By using a VoIP SIP provider and Google Voice, Kevin can receive phone calls and send texts over Wi-Fi or 3G networks at no per-minute cost, with his Galaxy Nexus. And he’s using a $30 a month data-only SIM card to do so, which eliminates all of the high-profit-margin revenues a carrier would normally earn through voice minutes and a texting plan.

Clearly, the non-techie population won’t take this route because it’s too complex for most people to bother. But if the carriers don’t begin to offer these types of services, or partner with those who do, they run the risk of third-party solutions that start to drain revenues from the network pipes.

  1. I’d love to see the math that went into that report. It’s surely in the same vein as extrapolating MP3 downloads into billions of lost revenue for the music industry. Silliness crafted by the research company to sell more copies of a $1500, 19-page report.

    SMS revenue isn’t being “lost”, it’s gone. It was really just an incredible gift for the carriers to get away with charging the equivalent of tens of thousands of dollars per GB for SMS data for as long as they did.

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  2. Stacy – you forgot iMessage, which is surely a non-trivial piece of those pie charts. I have no doubt that the aggregate is costing carriers a lot of money. As the other poster points out, carrier margin on SMS charges has always been nearly infinite. Good that they are being challenged.

    However, this is exactly like the “cord cutting” movement wrt Video content: What will protect the carriers in both cases is their oligopoly on the bandwidth itself. Eventually they will concede the farce that they are adding any value, and raise their dumb-pipe charges accordingly. Unless something truly changes the game like white-spaces, or the pipe-dream (pun intended) of Google/Apple/someone buying T-Mobile or Clearwire ever comes to pass and truly changes the game.

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  3. “Ovum estimates operators lost $13.9 billion of potential SMS revenue in 2011 through subscribers using social messaging apps on their mobile phone”

    I’d like to see how they came up with that number. Surely there is revenue being lost on people to pay per SMS. But it seems that globally, carriers have moved to bundling SMS into plans that include a quota of voice, texts, and data. So really, those carriers are double-dipping. Customers are paying for x number of SMSs per month and using iMessage or Facebook instead. They’re selling something with almost no incremental cost, that goes unused by customers.

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    1. but customers aren’t “paying for x number” of SMSs… they are just abandoning the plans altogether…

      http://attsmscashcow.com/

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  4. Brown_Te got it right, at the end of the day, they’ll just up bandwidth costs accordingly. My question is what’s in this for these apps? Do any make any money at all? I guess freemium of some kind or ads could help, but the scale required is pretty huge to make that worth it Id think…

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  5. It’s time for “carriers that only carry” to become real integrated SERVICE providers!

    As a supplier of VVoIP engines that enable HD-quality calls on iOS, Android etc devices, we work closely with global carriers who are implementing their own next-gen mVVoIP services. Telecom players with real strategic vision clearly see changes coming with the transition from the old, closed GSM world to the new all-IP and LTE era. As they compete with many app developers like Skype, Google and others, the importance of high quality cross-platform Mobile software becomes truly critical.

    The concept of a VAS service that has traditionally been used for generating revenues on a higher position in the value chain needs to be re-invented. It will be interesting to observe what is sure to be a totally new market landscape with completely new rules over the next few years.

    - For carriers, not only is it possible to regain their core voice sales by offering cross-platform HD voice and videotelephony and compete better with strong OTT players,
    - but it’s the right time for them to reach the subscriber base of the competition by offering their own OTT services.

    The first real-world examples of carriers moving to this direction:
    http://www.spiritdsp.com/press/read-more/article/lg-u-south-koreas-leading-communications-service-provider-signed-a-licensing-agreement-with-spir/
    http://www.spiritdsp.com/press/read-more/article/korea-telecom-licenses-spirit-dsps-mobile-voip-engine/

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  6. It’s time for “carriers that only carry” to become real integrated SERVICE providers!
    As a supplier of VVoIP engines that enable HD-quality calls on iOS, Android etc devices, we work closely with global carriers who are implementing their own next-gen mVVoIP services. Telecom players with real strategic vision clearly see changes coming with the transition from the old, closed GSM world to the new all-IP and LTE era. As they compete with many app developers like Skype, Google and others, the importance of high quality cross-platform Mobile software becomes truly critical.

    The concept of a VAS service that has traditionally been used for generating revenues on a higher position in the value chain needs to be re-invented. It will be interesting to observe what is sure to be a totally new market landscape with completely new rules over the next few years.

    - For carriers, not only is it possible to regain their core voice sales by offering cross-platform HD voice and videotelephony and compete better with strong OTT players,
    - but it’s the right time for them to reach the subscriber base of the competition by offering their own OTT services.

    The first real-world examples of carriers moving to this direction:
    http://www.spiritdsp.com/press/read-more/article/lg-u-south-koreas-leading-communications-service-provider-signed-a-licensing-agreement-with-spir/
    http://www.spiritdsp.com/press/read-more/article/korea-telecom-licenses-spirit-dsps-mobile-voip-engine/

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  7. Alexander Samarin Wednesday, February 22, 2012

    It’s time for “carriers that only carry” to become real integrated SERVICE providers!

    As a supplier of VVoIP engines that enable HD-quality calls on iOS, Android etc devices (www.spiritdsp.com), we work closely with global carriers who are implementing their own next-gen mVVoIP services. As they compete with many app developers like Skype, Google and others, the importance of high quality cross-platform Mobile software platforms becomes truly critical.

    The concept of a VAS service needs to be re-invented for voice/video/IM. It will be interesting to observe what is sure to be a totally new market landscape with completely new rules over the next few years.

    - For carriers, not only is it possible to regain their core voice sales by offering cross-platform HD voice and videotelephony and compete better with strong OTT players like Skype and Google,
    - but it’s the right time for them to reach the subscriber base of the competition (i.e. on competitors’ networks) by offering their own OTT VAS services.

    A few real-world examples of carriers moving to this direction that belong to one of the most advanced mVoIP markets – S.Korea:

    http://www.spiritdsp.com/press/read-more/article/lg-u-south-koreas-leading-communications-service-provider-signed-a-licensing-agreement-with-spir/
    http://www.spiritdsp.com/press/read-more/article/korea-telecom-licenses-spirit-dsps-mobile-voip-engine/

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    1. Alexander Samarin Thursday, February 23, 2012

      PS: Please accept my apologies for glitch that caused multiple copies of the comment..)

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  8. Maybe it is time the operators realize they are not more than dumb pipes. They used sms for years as a cash cow wringing out the consumers, but now they are hitting a limit.
    Here in The Netherlands they already jacked up the prices since last year, sometime more than 100%. They blame higher data consumption and the decrease of sms for lower revenue. And all three operators at (nearly) the same time. Now all three are under investigation by anti trust agency. And at KPN (our own AT&T with 48% market share) because of this several managers already left in anticipation of this investigation.

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  9. The carriers are fighting OTT (“Over The Top”) services like those mentioned by creating barriers to interconnection today. Although Sybase and Syniverse, the two major SMS “switchboards,” allow SMS interconnect, the carriers have pressured them successfully to prohibit MMS interconnect with OTT companies, including mine, Line2, which provides a way to add a business phone line to your mobile device. We’ve had MMS ready to go since last Fall but the carriers won’t allow interconnection. They are considering additional anti-competitive moves, like requiring their customers to “opt in” to receive texts from an OTT service, effectively making the inbound message look like spam.

    Lowell McAdam, the CEO of Verizon, is on record stating they are no longer a voice company but a data company and as such “then its a utility, like water, you want people to use it.” He realizes that carriers can monetize OTT traffic through their data plans.

    Monthly ARPU for mobile carriers is about $50, which comes from various combinations of voice, data, and SMS across feature phones, smartphones, etc. I would gladly pay $59/month for an unlimited data only plan for my smartphone. The first carrier to do that will gain massive share and increase their ARPU. Customers and carriers can both win. If McAdam would be bold and start walking his talk, he’d make his shareholders very rich.

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