The telecommunications industry is losing billions to competition from social messaging apps like Facebook, WhatsApp and Viber, a report says. The industry knows it’s time to fight back.
On a recent trip abroad, I had barely spent an hour in the country before purchasing a SIM card with mobile broadband.When the carrier’s salesman asked whether I wanted more voice time or text messages, I quickly told him that all I wanted was broadband Internet – paying more for those services sounded like a rip-off if I could use social messaging apps like Facebook, WhatsApp and Skype for free messaging and calling while also being able to surf the Net.
It turns out that a growing number of smartphone users are choosing to use social media and social messaging apps over traditional communication lines like SMS.
As a result, the telecoms consultancy firm Ovum estimates that mobile operators will have lost $23 billion (17.7 billion euros) in revenue by the end of this year.
“SMS as a technology is clearly outdated because you can only send one message to one person and that’s it,” Ovum analyst Neha Dharia told DW.
Other services are more attractive because they give users more options, adds Dharia. They can share sound and image files, and make voice calls for free.
The report says operators in Europe and Asia-Pacific are taking the brunt of the revenue shortfall.
And it’s forcing carriers to come up with their own solutions.
In Europe, some carriers are charging more for data, while others bundle SMS and voice packages.
Deutsche Telekom began offering more flat rate packages two and half years ago “as a reaction to the changing market,” a Deutsche Telekom spokesman told DW.
The German carrier is also trying to emulate the competition. It is launching an app called Joyn, which will allow users to exchange images and video chats for free. Telefonica, AT&T and NTT DoCoMo are doing the same.
Stormy times ahead
But tough times still lie ahead for the industry. Their losses are expected to more that double by 2016 according to the Ovum report.
Take for instance, the social messaging app WhatsApp – it has taken the Netherlands by storm. It has been installed on more than 5.5 million smartphones in the country, with 80 percent of the users using it at least once a day, according to Telecompaper. The growth of WhatsApp and similar services is clearly eating into the revenue of mobile operators.
This year, the Netherland’s largest mobile operator KPN reported a 29 percent year-on-year decline in the number of text messages sent in the second quarter.
“SMS business has been a very lucrative business for carriers for many years as they got between 70 to 90 percent margins on each SMS,” says Julien Blin, an analyst at Infonetics Research.
With the billions of text message sent every year, it’s no surprise that carriers’ revenues are being hit by competition from Facebook and the likes, adds Blin.
“The GSM infrastructure was not built for SMS and so the revenue that can be achieved through SMS is arguably pure profit because you [actually only] need the GSM infrastructure for voice,” says Dan Bieler, Forrester Research.
Bieler estimates that carriers generated around 15 to 25 percent of revenue from SMS business before mobile internet packages became significant.
Analysts say it is too early to know whether new mobile bundles will make up for the lost revenue – with profit margins as high as 90 percent. But there’s more at stake.
Dario Talmesio, an analyst at business information provider Informa, argues that keeping customers is more important than the technology they use on a network.
“Losing the money is not as bad as losing customer engagement,” says Talmesio.
Talmesio suggests social messaging platforms will become increasingly valuable to their carriers as they present new channels through which they could collect personal marketing data and perhaps even sell products.