You would imagine that an increase in data usage — which messaging apps could drive — is a good thing for Indian telcos. However, this recent article in Mint provides some startling evidence to the contrary.
Apparently, in Indonesia, data usage has skyrocketed, comprising 20 percent of revenues today versus around 7 percent five years ago. But instead of adding to the bottom line of telcos, margins have actually fallen — from around 53 percent in 2009 to 48 percent today. This trend could have serious implications for Indian telcos in the future.
A year or so ago, I wrote about the death of the most ubiquitous form of communication used in India: The SMS. Fifteen years ago, when many developed countries were just waking up to the potential of the cell phone, you could see a whole range of Indians — from vegetable vendors and tea-stall owners to clerks and corporate executives — dashing off quick text messages using their feature phones. For the first time, Indians had their hands on a cheap form of instant communication, and they were using it every which way possible.
Now, however, 22 years later (as my article pointed out), the SMS is being finished off by the stealth killer, the messaging app. "Research suggests that the volume of mobile-based messaging in India from apps such as Line, WhatsApp, WeChat, and Nimbuzz, to name a few, will be twice that of SMS-based messaging by the end of 2013," my piece said.
"Consequently, SMS growth rates have fallen from 14 percent in 2011 to 8 percent in 2013, according to research outfit Ovum. Also, 2013 will be the last year that SMS brings in the largest proportion of non-voice revenues. By 2015, its revenues will begin to plateau. It's not hard to see that the SMS is going the telegram way," it added.
The end result is that Indian telecom operators will lose over $3 billion in revenues from SMS by 2016. Which is why you would imagine that there is an urgency to spur data usage, of which messaging apps form an important part. However, the math doesn't seem to go that way. As the Mint article explains, "Indian telcos have managed to restrict capital expenditure by using vendor financing". Nevertheless, data still clocks in lower revenues than voice or SMS.
Plus, as the article points out, Indian telcos have shelled out princely sums for spectrum in the recent auction, so this will simply make things even more difficult for companies like Airtel and Vodafone.
As India gets more comfortable with data usage — and this is happening rapidly even in rural areas, according to the Mint piece — things will ironically get tougher for telcos that have been trying to milk data plans for additional revenue since voice has flatlined.