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The rise of WhatsApp and Skype: How mobile operators can turn threat into opportunity

So-called over the top (OTT) messaging startups such as WhatsApp and Snapchat are fast becoming the most popular messaging services worldwide. And mobile operators over the last 12 months have now acknowledged that these OTT communication services have turned into serious competitors, replacing the previous incumbents.

So just how fast are these messaging services growing and how can operators cope with the impact OTT services are having on their revenues?

The acceleration of OTT

Last month, app of the moment Snapchat turned down a cool $3 billion (£1.9 billion) from Facebook because it hopes its user base will grow even more next year to justify an even bigger valuation. Despite being just two years old, the fast-growing messaging system already registers 5 million daily users and handles 350 million messages a day, according to the Guardian.

Whilst some believe Snapchat was foolish for not accepting Facebook's offer, you can understand why it's decided to focus on growth when you take a look at the WhatsApp's user base. WhatsApp is four years old and now has 300 million users, growing at a rate of 14.6 million new users per month. That represents user growth of 233 per cent in 12 months, during which the number of daily messages sent has increased from 2 billion to 10 billion. Mobile operators can only dream of such scale and there are even more messaging and chat apps worldwide which are enjoying this level of fan interest.

The latest whitepaper by mobilesquared, based on qualitative and quantitative research with 40 mobile operators (MNOs and MVNOs) worldwide, explored the rise of OTT services and how operators plan to tackle the threat of OTT. Interestingly, over one-fifth of operators expect more than 50 per cent of their subscribers to use an OTT service.

In particular, the research revealed that mobile operators see Skype as the biggest threat to their bottom line. This is not surprising, since Skype is costing the telecoms industry £61.1 million per day and a staggering £22.3 billion per year.

280 million active monthly Skype users

Skype has over a billion sign-ups, though the company says it actually has 280 million active monthly users, of which 55 million users are logged on and using the service simultaneously at any one time during the day. This figure has risen from 42 million users in 2012. Therefore, there are an additional 13 million people using Skype and potentially making voice and video calls, and messaging at any-one-time compared to last year.

Mobile operators – in developed markets, at least – can only fantasise about such user growth. To put that into context, at the end of June 2012 Vodafone Group's total subscriber base had grown by just 1.7 million over the previous quarter.

But impressive statistics aside, the most important figure from a mobile operator's perspective is the amount of traffic Skype is now ge­nerating. In April 2013, Skype announced that its active users are now spending a total of 2 billion minutes per day on its service. That equates to 730 billion minutes a year. On average, each of these active users spends just over seven minutes per day, or 2,555 minutes a year using Skype communication services.

In 2012, it was estimated that Skype was costing the telecoms industry £25 million per day and £9.2 billion per year, based on the assumption that a call costs 3p per minute. When applying these latest numbers to the existing assumptions, that figure has rocketed to the £61.1 million per day figure.

Without a doubt, Skype's user and usage figures are expected to continue to grow unabated. The Skype app is among the top 10 downloads of all time for Windows Phone, iOS and Android. As smartphone proliferation continues globally, Skype will consolidate its position as one of the leading cross-device communication services for end users, far removed from its original online PC-based beginnings.

So how can mobile operators combat the impact of OTT and why are we advocating that they should get into bed with these OTT players?

The rise of OTT and mobile operator partnerships

Mobile operators are under no illusion that OTT services will have a financial impact on the industry. In particular, mobilesquared's research revealed that mobile operators are more concerned about declining messaging revenu­es than voice and, for the first time, 14 per cent claimed that OTT has created a loss of messaging revenue of more than 21 per cent. To combat this, the majority of mobile operators have said that they have a strategy in place, with 36 per cent now claiming that they are looking to partner with OTT providers as opposed to imposing surcharges or blocking OTT services. Over the past 12 months:

  • The number of mobile operators blocking OTT services peaked in 2012 with 11 per cent, but has dropped in 2013 to six per cent.
  • The growth in imposing surcharges in recent years from five per cent in 2011 to 16 per cent in 2012 has dropped to zero per cent in 2013.

Blocking has certainly been viewed as a negative tactic deployed by mobile operators, while a surcharge can be viewed as a mobile operator tax. While the latter is understandable given that the OTT service is reliant on the mobile operator's infrastructure, blocking access, or lowering the quality of the service, especially to prepaid users, is not consumer friendly and could potentially lead to churn (users leaving the service).

With mobile operators becoming more tolerant and accepting of OTT players, they now have the opportunity to offset the decline in traditional mes­saging revenues with an increase in OTT termination traffic revenues.

Strategy: Rent out virtual phone numbers

One mobile operator strategy is to partner with OTT players by renting out virtual phone numbers and terminating OTT traffic and in this way participate in revenue streams. Mobile operators can tap into the OTT opportunity as the subsequent impact of more OTT users presents a marked increase in traffic termination. This corresponds to the fact that the revenues generated by OTT off-net traffic termination are set to increase from £4.82 billion in 2013 to £32.8 billion in 2017.

Partnerships are proving to be an effective way for mobile operators to generate revenue from OTT services, as they can leverage existing assets and bring benefits for both sides. They allow operators to generate revenue from mobile data, SMS and voice or branded app services. In the long-term, opening up the dialogue with OTT providers give MNOs the opportunity to investigate other areas of cooperation, such as carrier billing, which are again mutually beneficial.

For the OTT provider, partnering with MNOs gives them reach into a potentially larger customer base. There is also the potential to generate additional income from revenues on SMS and voice traffic, data plans or in-app purchases. However, to do this efficiently they need to partner with a company that can bridge the complicated gap between the internet world and the telecoms world.

Companies such as tyntec are especially equipped for this because of their key knowledge of the inner workings of the telecoms and Internet worlds along with their experience in bringing beneficial solutions to both parties. They enable telecommunications in the cloud by providing virtual phone numbers which Internet companies can associate with social networking profiles, instant messaging accounts or VoIP IDs. These services are then connected to the mobile space, enabling seamless communication across several platforms and systems using a fully interoperable and ubiquitous mobile number.

Turning a threat into an opportunity

Overall, many mobile operators are seeing the rise of OTT services as an opportunity rather than a threat and are now considering how to capitalise on and monetise OTT services to their advantage. Most have stated they now have a plan in place and have moved away from blocking, imposing surcharges or lowering the quality of service.

Their original approach to make money from charging for data is also declining, and they now prefer to partner with OTT players by renting out virtual phone numbers and terminating OTT communication traffic.

Jose Garcia is VP of Sales and Carrier Relations for tyntec.

Image: Flickr (Jan Persiel;Per Olof Forsberg)