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WhatsApp opens MVNO options

Bonnie Tubbs
By Bonnie Tubbs, ITWeb telecoms editor.
Johannesburg, 10 Apr 2014
With WhatsApp voice services on the cards, mobile operators may have to adopt an "if you can't beat them, join them" approach.
With WhatsApp voice services on the cards, mobile operators may have to adopt an "if you can't beat them, join them" approach.

Like it or not, mobile operators are going to have to start warming up to the notion of collaborating with the very same over-the-top (OTT) players that threaten their revenue, rather than continuing to stave off the inevitable.

This is according to telecoms analysts, who say that - while SA's mobile operators may currently view OTT players, notably the fast-growing instant messaging (IM) service WhatsApp, as forces to compete with - business models are eventually going to have to incorporate them.

This comes in the wake of German operator E-Plus' announcement this week that it has partnered with WhatsApp in a move that gives the IM platform limited mobile virtual network operator (MVNO) status.

According to the deal inked with Germany's third-largest operator (in terms of customers), WhatsApp will offer its own SIM with free WhatsApp messaging. Using the E-Plus network, the WhatsApp SIM, which costs EUR10 (about R150), gives users unlimited WhatsApp messaging. The fee also goes towards call credit or data.

Conduit companies

World Wide Worx MD Arthur Goldstuck says, when it comes to SA's mobile operators, the pressure to collaborate with OTT players in this way is not so compelling, given they are still able to benefit from voice.

The big "war", which has been raging between mobile operators and OTT players for at least two years now, is that OTT players feel operators should exist as pipes over which their services are carried, while operators feel they should share in the benefits of acting as conduits for OTT services, notes Goldstuck.

Ovum analyst Richard Hurst notes that apart from revenue erosion, one of the other bones of contention mobile operators have with the new wave of communications applications has to do with customer ownership. "One of the real issues the mobile operators are trying to battle with the arrival of the OTT players has been the management and ownership of the customers as these OTT players tend to come between them and the customer, shifting the operator into the role of bit pipe provider."

Goldstuck believes this debate, which has been one of the main topics for the last two years running at the annual AfricaCom conference, will come to a head this year.

In the meantime, Goldstuck says, the day is approaching when a combination of OTT voice and messaging services will create the opportunity and need for operators to look at different ways of collaborating with OTT players.

"[Operators] won't have a choice. They will have to allow OTT players in, but it's like letting the enemy into the heart of your territory and not having any way of managing them. The only way would be to partner, but right now the OTT players are not interested, based on the kind of partnerships the operators want."

At the end of the day, the operators have to rethink their existing business models, says Goldstuck. He says the E-Plus partnership is a great example of what kind of collaborations are possible, both in terms of services and a marketing angle.

Revenue erosion

Analysts have repeatedly confirmed OTT players pose a considerable threat to the pockets of mobile operators, which had for some time been consumers' only go-to platform for mobile text and voice communications.

Hurst says OTT players pose a serious threat to the traditional voice and SMS revenues of the operators, because they offer a cheaper alternative. "The extent of this revenue erosion for the mobile network operators is hard to quantify, due to the fragmented nature of the OTT players."

Goldstuck notes that both text and voice services are now offered over more cost-effective platforms, and are being taken up exponentially.

According to the SA Social Media Landscape 2014 report, by World Wide Worx and Fuseware, 10.6 million South Africans were using WhatsApp as an SMS alternative as of the end of last year.

With WhatsApp voice on the cards, and other OTT players like Facebook and BlackBerry bringing in their own voice services, the OTT voice is set to become much more pervasive, says Goldstuck.

"And more and more, when users use the voice component of platforms like WhatsApp and BlackBerry Messenger, they are going to opt for doing so over WiFi and evade using the operators' networks."

In terms of SMS, which can cost users anything from 15c to R1 (up to around R3 for international SMSes), the advent of OTT messaging means there is very little compelling the consumer to use their operator's text services.

Goldstuck notes that the cost of data to send a text message over an IM platform is nominal, so operators are not even benefitting from the data revenue.

"This is different with voice, which uses a lot more data - which varies, depending on the compression techniques the service uses and the extent to which it relies on WiFi or mobile data."

Friend or foe?

IDC analyst Spiwe Chireka says some of the discussions with mobile operators of late have been around them just trying to determine whether OTT players are friend or foe.

"They have been asking the question 'Shall we partner, or not?' and have been weighing this up against taking them on as competition.

"The reality is OTT players are expanding - and they are expanding fast. My view is that their influence and penetration is something service providers have very little control over.

"OTT players don't have the capital burden [mobile operators have] and so they can launch services faster than you can say 'cat in a hat'. Operators are going to have to start working with them, because the alternative is, let's say, not impossible - but very difficult."

The question that needs to be answered, she says is how do operators form partnerships with the new wave of players and still drive traction to cover for lost revenue. "This is something that still needs to be figured out, but it is inevitable."

Hurst says the most logical reaction from the operators to date has been the development of their own IM or similar platforms - or an acquisition of these players.

"Also, it should be noted with the arrival of the OTT players, operators have been faced with strategic choice based on becoming a 'smart' operator or a 'lean' operator.

"The smart operator will be looking to provide an array of services over their connections or pipes, and will seek to smarten the end-user experiences with apps, billing and other services such as banking. The lean player will look at being able to provide the connection and will be agnostic in terms of services or applications that run onto their network. There is no right or wrong strategy in this regard; it's just a matter of what fits the strategy and vision of the network operator."

In terms of a partnership similar to that of Germany's E-Plus and WhatsApp, Hurst says SA may well see something like this in the future. "If I recall the CEO of Cell C, Alan Knott-Craig, has said that his network would like to be an enabler of the OTT players and that he does not regard them as a threat, but rather as an opportunity for his business to grow."

Chireka says with the voice to data split currently sitting at about 30% to 70%, the voice segment is still very high, and for operators to now consider MVNO-like options would be putting the cash cow in danger.

"We are moving in that direction, but until there is at least a 50%-50% split - I don't see partnerships of this kind taking place."

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