SEA operators revisit their business models-
With the growing adoption of data services and increasing proliferation of smartphones, telecom markets over the world are undergoing a dynamic shift. Traditional voice services and SMS services are slowly taking a back seat as over-the-top (OTT) applications such as WhatsApp, WeChat, Viber, and Skype gain immense popularity among mobile users. These applications allow voice and SMS services along with a host of additional communication services over the internet, such as video calls, group chats, and voice recordings, at discounted rates or free of cost.
While such applications have received an overwhelming response from the consumer community both due to their additional features and cost-effective nature, the increasing adoption of these services has had serious repercussions on operator revenues worldwide. According to market estimates, global annual SMS revenues will fall by $23 billion by 2018 from $120 billion in 2013. By region, the Asia-Pacific region is forecast to experience the highest drop in annual SMS revenues over the review period, falling from $45.8 billion in 2013 to $38 billion in 2018.
The trend is gaining ground in Southeast Asia’s (SEA) telecom markets too, most of which are characterised by a growing mobile internet user base and increasing sales of smart devices. According to industry estimates, sales of smartphones in Southeast Asia reached 18 million in the first quarter of 2014, representing a year-on-year growth of about 43 per cent. Smartphone users across the region use these devices to engage on social media, stream and download videos, run applications, and play online games. In such a scenario, by providing the option of sending free/discounted international messages and making cheaper international calls, OTT applications have rendered the traditional mode of messaging redundant, and have thus, captured a significant share of operators’ SMS users and revenues.
At present, many telecom operators in Southeast Asia have experienced a decline in voice traffic and SMS revenues due to the growing popularity of third-party solutions. The Philippines, known for years as “the SMS capital of the world”, has seen a drop in text messages over the last few years, while similar drops have been witnessed in Malaysia and Singapore as well.
The Total Access Communication Public Company Limited (dtac), a Thailand-based GSM service provider, experienced a decline in the share of voice revenues in the total service revenue from 58.8 per cent for the quarter ended June 2013 to 53.9 per cent for the quarter ended June 2014. For Axiata, with operations across a few markets in Southeast Asia, revenues in the voice segment dropped from RM 2,420 million for the quarter ended June 2013 to RM 2,405 million for the quarter ended June 2014, with SMS revenues accounting for 12.5 per cent in April–June 2014, down from 14.9 per cent in April–June 2013.
On the other hand, the extensive use of OTT applications has favoured service providers in terms of high data and internet revenues. For example, for M1, a Singapore-based operator, the contribution of data revenues increased from 28.4 per cent in April–June 2013 to 34.4 per cent in April–June 2014.
The rising popularity of OTT services is already putting the role of operators in the telecom value chain under threat, and there are concerns that operators will be reduced to mere dumb pipes, providing ready-made networks for services from application developers and OTT players. Further, falling messaging revenues will reduce telecom operators’ revenues. Devising new strategies and revisiting the existing business models has become imperative for operators, particularly from the point of view of ensuring long-term sustainability.
Mitigating the OTT risk
Looking at the competition from OTT service providers, telecom operators are predicting the end of the heyday for SMS volumes and looking for different ways to drive revenue growth. Some operators in Southeast Asia have created their own OTT services to compete with existing providers. For instance, Malaysia-based service provider Maxis developed its Best Integrated Go-to-Market (BIG) platform, starting with the launch of MyDeals SMS and MMS promotions platform in 2010, followed by the launch of MyLaunchPad web portal in 2011 with capabilities of news, music, and games. In 2012, it launched BIG and started facilitating advertising partnerships. In 2013, it added a location-based advertising capability to the platform. Philippines-based Globe Telecom partnered with Singapore’s SingTel to launch MyAppsMall, which carries more than 20,000 items that include games, social networking, sports, and other applications. Similarly, SingTel and StarHub, also Singapore based, are currently working to bring their own services to market. However, the success of such initiatives will depend on marketing, service differentiation, and the interoperability or platform independence of the applications. Besides bringing new services to market, telecom operators have also taken initiatives to incorporate OTT-type features in existing messaging services, like sending single texts to groups easily, including voice and video in text messages, etc.
However, the most popular route taken by operators in Southeast Asia has been tapping the potential of data services and OTT services through innovative partnerships that can offer bundled services to customers. The major operators in Singapore, SingTel and StarHub have tied up with WhatsApp and WeChat respectively to provide access via special data plans. In Indonesia, XL Axiata provides free activation and data package for all WeChat users, while Axis Telekon partnered with Viber to offer subscribers a “Viber-Only” plan. Globe Telecom in the Philippines gave free access to unlimited Viber chat through the “All you can app” deal.
Operators have also been working with regulators to ensure a fair revenue sharing agreement with OTT players. They are of the view that since OTT applications use their network, OTT players should pay all the fees or at least share the burden of hefty spectrum and network payments that operators make to governments. For example, in Vietnam, operators requested the regulator for a 3G price increase saying the increased 3G tariffs would offset the revenue decline due to the use of OTT voice and messaging applications. 3G tariffs were increased by 20 per cent. In another instance, the telecom regulatory authority of Indonesia, BRTI, has taken a step forward to resolve the rising conflict between telecom operators and OTT service providers. The agency is planning mediation between operators and local OTT business players to develop a mutually decided business model for data services.
The way forward
As competition increases to provide consumers with more and better mobile services, telecom operators run the risk of becoming a mere channel for OTT service providers to sell their applications. To avoid such an outcome, operators must either develop new ways to compete with the growing crop of OTT players to protect their revenues, or collaborate with OTT players by developing appropriate revenue sharing models. In the long run, as more players join the telecom value chain, working on new arrangements of coexistence will be the only option for players to hold their positions in data-hungry markets.
