What telcos angsty about OTT players can do

The immense popularity of messaging apps and other over-the-top (OTT) services such as WhatsApp, Viber, and Skype increasingly has been the bane of telcos angsty not only about their dipping voice and SMS revenues, but also for not being able to charge these players for tapping their network.

SingTel, for instance, is urging regulators to allow telcos to charge OTT players such as WhatsApp and Skype for the use of their networks or risk having carriers cut back on their infrastructure investment.

Speaking at the Mobile World Congress in Barcelona this week, SingTel CEO Chua Sock Koong cautioned that the amount of investments telcos poured into improving their networks could be drastically reduced unless they were given the right to start charging OTT players for tapping their networks. SingTel's Australian subsidiary, Optus, invested almost US$1 billion during its fiscal 2013 into enhancing its fixed line and mobile networks, Sydney Morning Herald reported.

Chua said: "The main problem we have as an industry is we have been unable to monetize this increased demand [for OTT services]...and [average revenue per user] has fallen over time. I think the pace of change in our industry is relentless so clearly we can't afford to stand still. If we are not careful we could stand the risk of being totally disintermediated."

Her concerns aren't unwarranted. The Australian Communications and Media Authority (ACMA) in December said OTT services were threatening traditional fixed-line and mobile voice revenues as more Australians turned to VoIP to communicate. Over 1.06 million, for instance, used VoIP on their mobile devices last year, up 73 percent over the previous year. In addition, 3.68 million Australians who owned mobile phone did not have a home fixed-line telephone service, an 18 percent increase from June 2012.

The impact on traditional telco revenues can also be seen in other markets in Asia. Carriers in China, for instance, are also seeing drops in voice calls and SMS revenues as more of their subscribers turn to WeChat and other messaging apps. In fact, Chinese telcos this year could record the first dip in the number of SMSes sent during last month's Chinese New Year.

In India, free messaging apps were estimated to cost telcos US$1.2 billion last year, and this number could increase to US$3.1 billion in 2016 as Indian mobile users sent fewer SMS messages. Ovum analyst Neha Dharia in a report last May: "We expect to see more such device and operator-led cooperation with social messaging players which will accelerate the growth of these apps in India. Along with this, the boom in smartphones and Internet-enabled phones will fuel the growth of messaging apps even further."

The significant is the impact that the Vietnamese government is considering policies to ban free OTT communication services such as Viber, LINE, and WhatsApp to protect the revenue of local telcos.

Rather than implement an outright ban, though, Chua urged regulators to enable telcos to identify and charge OTT service providers for running their apps over the telco's network. And instead of simply enforcing a levy on these players, the CEO said SingTel would prefer to engage them as "partners". "Our ambition must be to become the preferred network partners of customers and OTT players. We must create sustainable revenue models," Chua said.

Move OTT services to lower-tier pipe

What telcos can't do, though, is start charging for services that are already free simply because of falling ARPU (average revenue per user) and for being "unable to monetize" the growing demand for OTT services. It is their responsibility to identify new revenue streams and business models if previous ones are no longer bringing in the moolah.

"We at MyRepublic love WhatsApp and Skype! Rivals? They're complimentary services that enhance our users' experience. Bring 'em on, don't charge 'em!"

~ Greg Mittman, MyRepublic

As a friend of mine rightly said: "No one is going to agree to pay just because the telco isn't earning."

If what the telcos claim are true, that OTT services are sucking up their network resources, they should then provide the stats to support their claims. Any "partnerships" they hope to ink with OTT players shouldn't be about paying for status quo, especially one that is currently free for these players. Instead, these deals could focus on QoS (quality-of-service) and assuring there's no data loss or network latency for their services.

For OTT players that choose not to pay telcos for better network performance, their apps can be identified and re-routed to a smaller pipe when the telco's network resources are stretched, for instance, during peak hours. As a result, users of these OTT services are more likely to experience a lag or data loss and the OTT players risk the wrath of their users.

This won't make consumers like me happy, but it may at least push OTT players like WhatsApp and Skype to sign QoS deals with telcos to guarantee better experience for their users before the disgruntled masses move to another OTT service that can offer more robust performance.

It is unlikely any OTT players would agree to sign a QoS deal when status quo has so far served them well, and cost them nothing. But if the popularity of these apps are indeed sucking up network resources, then QoS deals are the most logical route for telcos to take.

Blocking OTT services aren't ideal either because users will simply move to another, or new OTT market players will pop up offering alternative services.

Operators in Singapore have also launched their own OTT offerings in a bid to lure consumers to their platforms, but such efforts have been largely unsuccessful.

Well, at least one ISP in the country is choosing to embrace OTT players.

Greg Mittman, MyRepublic's vice president, said on the company's Facebook page: "SingTel chief executive Sock Koong Chua has urged regulators to give carriers like Optus the right to charge rivals such as WhatsApp and Skype for use of their networks or risk a major decline in network investment. We at MyRepublic love WhatsApp and Skype! Rivals? They're complimentary services that enhance our users' experience. Bring 'em on, don't charge 'em!"

I should note, though, MyRepublic is a fiber broadband operator and does not generate any significant revenue from SMS or voice call services, unlike the local carriers.

Perhaps telcos are a tad angsty thinking about WhatsApp rolling in US$16 billion worth of change from the Facebook buyout, but complaining about the loss revenue also makes them look like whiny green-eyed brats.

Ultimately, Chua is right. Telcos like SingTel should look for sustainable revenue models or risk being totally disintermediated.