WhatsApp rings death knell for established telcos

Nigel Eastwood/New Call Telecom

WhatsApp recently launched a new VoIP feature on Android with “in-app” calling that brings it into direct competition with traditional fixed-line telephony operators.

WhatsApp joins a league of established messaging services such as Nimbuzz and Viber, though late to the party – the first mass-market VoIP service was launched 11 years ago. Yet, this rings a further death knell for established telcos both in the United Kingdom and abroad.

VoIP continues to grow to the detriment of fixed-line and the scale of growth is staggering. A recent GlobalWebIndex survey found that the instant messaging industry has grown by 113% over the last two years alone.

Unsurprisingly, this has severely damaged revenues. The roll out of free, or low cost, VoIP services has applied serious downward pressure on fixed-line profit margins.

A fierce price war between the operators themselves is fanning the flames, and in some areas of the industry fixed-line margins are now negative. Between 2008 and 2013, fixed access and call revenue in the UK fell from £10.2 billion to £8.4 billion (about $15 billion to $12.4 billion).

ARPU in fixed-line is also at an extreme low. If that was not enough, according to new research from Future Market Insights, the global VoIP services market is set to triple over the next six years.

A crisis is looming. Sooner or later operators will have to raise their price point, but this will only feed the vicious cycle. If operators raise their prices, it will encourage more of their existing customers to use these free OTT voice calling services and ARPU will only fall further. The decline of the established telcos is, in my view, a self-fulfilling prophecy.

Many operators have, of course, already tried to shift their business models towards data. They have moved away from voice, and started selling unlimited data packages, competing on speed and coverage.

However, as the tech matures, the difference between the operators on speed and coverage will shrink, eventually becoming indistinguishable to the consumer. We are getting close to that point already and when that moment is reached, it’s going to get nasty.

 

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