South Korean telcos unite to take on OTT

08 Feb 2013

APAC`s mobile operators are now facing their most severe threat in recent times in that OTT services such as Kakao Talk, LINE, WeChat and others are eating large chunks of traditional telco revenue and carry the potential do to even more damage by eating into SMS and voice revenue.

What`s more, these companies are successfully branching into other services such as gaming and m-commerce and are succeeding at what Facebook, Skype and other Web 2.0 giants have been meaning to do for some time.

While some operators are quite content with the dumb-pipe approach and others have sought to settle this matter in court, South Korea`s three mobile operators have taken an active approach to the matter by launching their own OTT voice and chat service, Joyn.T.

While it remains to be seen whether the service will take off, and they tread a slippery slope in terms of cannibalizing their own services, allowing unfettered OTT dominance is clearly not an option as no sane carrier would wait and watch half of their revenue disappear.

While mobile VoIP has been available for some time, mass adoption first started with Kakao Talk in South Korea in 2010. The app became available in 2010 being started by former executives from NHN and quickly spread among the country`s smartphone users due to the appeal of sending free chat messages and making voice calls to other subscribers absolutely free.

But unlike other chat applications popular in the West such as Whatsapp and Viber the platform soon added paid content such as stickers, which proved immensely popular and led to more new services such as m-commerce and mobile gaming.

The service was so popular that Korean operators stopped publishing SMS revenue due to the presumed massive drop in revenues (90% of South Korean subscribers use the service every day) and finally after throttling and threats of regulatory intervention the operators now throttle voice service for customers spending less than 55,000 won ($50).

But the damage had already been done and the business model was soon replicated elsewhere. LINE is a similar service in Japan which is now used by a majority of smartphone users, and although quality is low, calling is not blocked. The company has expanded to Thailand and Taiwan and is now the dominant app in those markets. Kakao Talk has entered Indonesia and has signed a deal with the dominant operator Telkomsel to promote the service. A similar service in China, WeChat - powered by the juggernaut Tencent - has 200 million active users.

The advent of these services prevents a dilemma to mobile operators as regulatory measures may be unsuccessful (KPN failed to stop Whatsapp in the Netherlands) and it is quite dangerous to flirt with free services that your existing customers are already paying for.

In South Korea, all three mobile operators SK Telecom, Korea Telecom and LGU+ have attempted to respond to this threat with their own service, Joyn.T. This app, available on all three operator app stores, is a GSMA-backed service which provides several services designed to compete with Kakao Talk. The following rates show SK Telecom`s Joyn.T tariffs:

While it remains to be seen as to whether or not operator VoIP services can stem revenue losses from OTT applications, the movement is gaining more traction in other parts of the world as Vodafone, Deutsche Telecom and Telefonica have all shown support for the GSMA initiative.

Operators will have to add more content offerings to compete with these services, which in the end might not be such a bad thing as these companies have dreamed of diversifying into such areas for a very long time. VoIP platforms might just be the way to go about it.

Marc Einstein is a telecom analyst/consultant. He is based in Tokyo.

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