If you can’t beat ‘em, you might as well buy ‘em. That’s the attitude telecom infrastructure vendor Genband is taking in the escalating war between carriers and over-the-top (OTT) text, voice and video communications apps. On Thursday, Genband revealed it has bought fring, an early pioneer of mobile VoIP and video chat services, kicking off what many industry watchers believe will be a big wave of consolidation in the OTT communications space.
I had a chance to speak with Genband CEO David Walsh before the announcement. He shared his reasons for pulling the trigger on the fring deal, but he also offered up a very frank accounting of how the mobile industry has failed to fend off the OTT threat. The carriers’ biggest failure, Walsh said, is they ignored the problem.
“They were just hoping all of these over-the-top companies would just go away,” Walsh said.
That’s hardly what happened. WhatsApp now boasts more 300 million active users. Skype handled 167 billion minutes of international VoIP traffic in 2012 alone. An there are dozens other OTT apps, ranging in size from a few million to hundreds of million users, all chipping away at carriers’ traditional communications revenues. We’re going to talk about this friction between these new wide-open OTT models and the carriers in more depth at GigaOM’s Mobilize conference in October.
Some carriers started fighting back with their own OTT-style apps like Orange’s Libon and T-Mobile’s Bobsled, but most took the approach carriers always adopt: big sweeping industry-wide technology initiatives such as Voice over LTE (VoLTE) and Rich Communications Suite (RCS), which promise to combine traditional voice and SMS with much more advanced features. Standards are wonderful things, but they’re also long drawn-out slogs when it comes to actually implementing them.
One day you may be able to video chat with anyone in the world by simply dialing a mobile phone number, but that day is still many years away. Meanwhile the threats of the WhatsApp, Skype, Viber and Tango are here today.
Shopping in the app stores
It became apparent to Genband that its carrier customers needed to fight fire with fire, Walsh said. While Genband could have built its own app and OTT infrastructure from the ground up, it made more sense to buy a company that had already done the development work and had built out a sizable network. Genband looked into some of the most successful OTT players like WhatsApp and Viber, Walsh said, but either they didn’t want to be bought or their asking price was too high.
WhatsApp will probably a command a billion-dollar price due to the enormous size of its user base, which is very attractive to a company like Google or Facebook. But Genband is interested in primarily in its technology, not its users. The OTT players measure their annual revenue per subscriber in dollars or cents — if they have any revenue at all — while the mobile industry takes in hundreds of dollars per subscriber each year in voice and SMS fees.
“It would have been difficult to buy Viber or WhatsApp because they feel their payout will come from Google or Facebook,” Walsh said. “They’re looking for a very large check.”
Fring came much cheaper, though Walsh wouldn’t reveal how much Genband paid (Reuters pegs it at $50 million). It has a user base of 40 million, which makes it one of the mid-tier OTT companies in terms of subscribers. But Walsh said fring had the technology and the global network it needed.
What will Genband do with fring?
Essentially it will turn it a global OTT app accessible to any carrier who wants to buy in. Instead of building apps where users are limited to communicating with customers in their own networks, carriers can use fring to cross carrier and international boundaries. Those carriers can brand the service whatever they like, but ultimately their customers would be able to make calls or video chat with other customers on other carriers as well as fring’s independent user base, Walsh said.
The bigger promise, Walsh said is that fring can be closely integrated with carriers’ regular voice and messaging services (a process fring already started with a few carrier partnerships). From the address book, you chose to make a regular voice call, send an SMS, an IP message or launch a video chat session.
Eventually those OTT services could be integrated more closely with a carrier’s future infrastructure-based technology. Genband sells a product called Spider designed to negotiate communication sessions between different technologies. A talk session could switch seamlessly between a VoLTE call to a fring call, while one carrier’s customer could translate a fring message into SMS or even into WhatsApp.
Will the carriers buy it? By integrating with fring, carriers stand to gain little in new revenue, but on the other hand it’s revenue they were never going to collect anyway. You’ve also got to think that many carriers will bristle at the idea of paying Genband for technology they will only turn around and offer their customers for free.
But carriers will need to fully engage in the OTT war sooner rather than later. It’s not merely a question of losing out on international voice and messaging revenues. The danger is consumers will become much more comfortable using OTT apps to the point they don’t bother with carrier communications services at all, regardless of the cost.
At GigaOM it doesn’t cost any more to call my colleagues on the phone than it does to use a service like Skype or Google Hangouts. But the more we use those services the more the idea of making a phone call becomes an afterthought. If operators aren’t careful there will soon come a day when consumers bypass the phone dialer and SMS clients on their mobile phones completely, opting for whatever enhanced communications service Google or Facebook will offer.
Featured photo courtesy of Shutterstock user Antonio Guillem