Voice and SMS apps: Has the telco fightback begun?

Voice and SMS apps: Has the telco fightback begun?

We all accept that the advent of smartphones, and the app revolution it has ushered in, has revolutionised the way we communicate. Many of the apps designed for communication – e.g Skype, Viber and WhatsApp – are threatening to rewrite the rules of communication in the mobile telecoms world.

Indeed, in the past two years, their impact has radically changed the debate in several countries, especially the Netherlands. This panic has seeped deep into the fabric of the industry. It is now fashionable to look at such ‘communication’ apps and conclude that the future for mobile telcos is bleak. But is it?

A ‘Vonage’ moment for mobile telcos

When the likes of Skype and Vonage threatened to cause upheaval in the fixed telecoms space, most telcos swiftly abandoned blocking VoIP and utilised two co-ordinated strategies to nullify the threat. Firstly, many telcos moved from per unit pricing to access + volume pricing. And then, with the poor availability of naked DSL (digital subscriber line) solutions, the price differential that underpinned the business models of SkypeOut and Vonage respectively collapsed. Today, no one talks about Skype or Vonage as a threat to fixed telcos.

Unsurprisingly, the stage is set for a rematch, albeit from different routes. Bigger call and SMS bundles have helped slow down the adoption of non-telco services. But it is not enough. Ovum has argued that mobile telcos must ultimately embrace VoIP and that position has received robust backing with the debates over net neutrality.

With ‘blocking’ out of the toolbox, many mobile telcos, egged on by Vodafone in 2010, began moving away from ‘all-you-can-eat’ data bundles and started offering capped/tiered data packages. That immediately brought data usage into the fray, potentially discouraging many would-be deserters from moving away from the telcos’ voice and SMS offering.

But there is Wi-Fi: an increasingly free resource at home, on campuses, in hotels and offices. The opportunity for using communication apps over Wi-Fi circumvents the constraints of data usage limits on the mobile network. And given that research continues to suggest that many users make mobile calls from their homes/offices frequently (was that not the justification for ‘homezone’ tariffs?), voice and SMS over Wi-Fi becomes potentially out of the control of mobile telcos.

With apps and browser-portals, mobile telcos are taking the battle to the upstarts.

Attack, the strategists say, is the best form of defense. As Ovum articulated in our framework for dealing with the mobile VoIP threat, telcos have now begun competing in the space with their own apps, browser-based clients or even unlicensed mobile access (UMA) based services.

In the first 10 months of 2011, Ovum’s Innovation Radar, a database that tracks the launch of new mobile services globally, has seen numerous attempts by telcos to offer their own version of calls/messaging apps over Wi-Fi. These range from the ‘Business Soft Phone’, a browser-based client launched by Saudi Arabia’s Mobily, to O2 Connect’s app-based solution that is being trialled in the UK.

For telcos who embrace these types of solutions, the aim is to lure customers back or disincentivise them from establishing a relationship with non-telcos. But we are at an early stage. So far, this is not about forcing all customers to switch to apps or web clients to make calls. Rather, for those customers who would have otherwise embraced Skype and others, a telco app doing the same thing and offering even better services is a no-brainer.

Most telcos will support communications over Wi-Fi for free or for a cheaper price than communication over their 3G networks. Likewise, unlike, say, Skype’s iPhone app, a telco-backed app would not require a new identity, might not involve additional payment for communication to offline persons, and most crucially, has a far better chance of offering decent quality of service.

But, to make this strategy truly innovative, telcos would need to do more. Enabling users to move seamlessly from Wi-Fi to 3G and back is a core telco advantage. Likewise, integrating this with account management, customer support and product promotion would be be beneficial.

An emergent strategy with a chance to deliver

The fact that mobile telcos need to launch such services, bypassing the very 3G network that they have spent the last decade building, is not a deliberate strategy. It is an emergent one, and proves the widely expressed view that over-the-top players will win is not a fait accompli.

The downside for telcos is that these solutions will not earn them new revenues, could potentially distort the established calling patterns they are used to and might even cannibalise some of their revenue, especially from roaming.

But the upside is that the solutions help telcos to stop – and potentially reverse – the trend of losing the all-too-important direct relationship with the customer: the quickest way to becoming a bit pipe.

In the end, telcos may have to break eggs to make omelettes; but no one should write them off.

Written by Mobile Today
Mobile Today

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