Mobile Carriers Must Rediscover Themselves to Survive The Onslaught of Communications Apps

Last year Viber CEO Talmon Marco took the fight to the telco companies around the world. On stage at the Mobile World Congress in Barcelona, he described how Viber had introduced various features to text messaging in just two years that SMS still did not have after decades. This year, WhatsApp CEO Jan Koum announced voice calling for WhatsApp at the same event. The war between telco infrastructure companies and communication services companies is becoming more intense.

We've crossed the point in which apps such as WhatsApp, Facebook, KakaoTalk, Line, Viber, WeChat, and others are strong enough to decimate the revenues of traditional telecommunications companies even as they offer communication services completely free of charge. Ovum's research in 2012 projected that these apps will deprive traditional mobile telcos of $54 billion of SMS revenue in 2016, rising from $23 billion in 2012 and $32.5 billion in 2013.

Tens of billions of text messages per day Research firm Informa expected that by the end of last year, there would have been 40 billion messages exchanged each day using text messaging apps, nearly doubling the rate of SMS messages in 2012 which was 21 billion per day.

WhatsApp CEO Jan Koum said at Mobile World Congress in Barcelona last month that WhatsApp now sees 50 billion text messages exchanged daily within its network. Apple CEO Tim Cook revealed during the company's shareholder meeting, also in February, that iMessage, which had 320 million users in mid 2013, now sees several billion messages exchanged per day and 15 to 20 million FaceTime calls made daily. When BlackBerry announced its BBM numbers in May 2013, it was seeing 10 billion messages exchanged within its system.

Without having to dig up numbers for other messaging services, it's obvious that not only has Informa's figure been blown away, but there is a clear preference among many mobile consumers that these apps are the preferred messaging channels for smartphone users.

Telcos want OTT to pay As these so called "over the top" services take over the communication functions of traditional telecom companies, the telcos have been looking to avoid becoming mere "dumb pipe" or infrastructure providers. Also at MWC last month, SingTel CEO Chua Sock Koong suggested that apps like WhatsApp and Skype should be paying telecom companies for the right to use their infrastructure. Ms. Chua said, "our ambition must be to become the preferred network partners of customers and OTT players", and that there needs to be "sustainable revenue models" so both telcos and OTT services can coexist.

Viber CEO Talmon Marco isn't entirely against such an idea but perhaps not the way the telcos would like. Last year, Marco said that he's open to sharing Viber's revenue with the telcos, but will not pay for running its free services, which happen to make up the bulk of Viber's traffic. If Viber were to introduce a paid service, Marco said that he's willing to share that revenue with the telcos. Now that Viber has been acquired by Japanese e-commerce giant Rakuten, it remains to be seen whether Marco maintains that position.

What can telcos do? Mobile network companies say that they're limited by government regulations and having to ensure global interoperability across telcos, whereas these "over the top" (OTT) services are not regulated and free from such requirements. This is true. Telcos can't really overhaul its antiquated SMS system efficiently and effectively without breaking compatibilities.

If a mobile telco wishes to implement features of OTT services, all other telcos around the world must support the same feature set using the same standards or it would be pointless. The introduction of Rich Communication Services, which has been picked up by multiple telcos in several countries around the world, is a step towards that, but there's no telling whether this will take off at all considering the speed of innovation that OTT services bring and all the hurdles the telcos face.

Communications apps skip interoperability for the sake of innovation and simplicity because it costs nothing for consumers to maintain presence across several different services. It's not uncommon for a mobile consumer to be using Facebook Messenger alongside BBM, iMessage, Hangouts, WhatsApp and Line, for example.

Infrastructure at the core Perhaps what telcos have so far refuse to consider is the fact that they have always been infrastructure companies at the core. Their revenues may have primarily originated from charging for communications services, but if they really believed that they are telecommunications companies, they probably should have realized that communication activities happen regardless of the medium. Their most prized assets are their network infrastructure.

Just as long distance communications occurred through mail, telegram, and traditional phone lines, it has now made the jump to digital. Skype, WhatsApp, and Viber's forays onto the scene in the mid to late 2000s caught the telcos off guard and unprepared for the rapid onslaught of Internet-based communications that followed.

Certain Indonesian telco officials who shall remain nameless have conceded that telcos will never be able to regain the hey days of SMS and voice revenues. "Those days are over now, everyone's moving to OTT services eventually, which is why we're building this digital lifestyle ecosystem", one of them said. "By focusing on this digital lifestyle, we're working to ensure that our customers remain with us, using our network", he continued.

"We still have over 130 million customers on our network", said another, "and the majority of them are on feature phones. That still presents a massive opportunity for us during this transition in behavior". At Telkomsel, only 20 percent of its customers are on smartphones and not all of them use smartphones as they are meant to be, "only 80 percent [of that 20 percent] do".

Biting the bullet It's becoming clearer that mobile network companies must embrace the fact that they are losing the communications component of their business. Creating or venturing into the digital ecosystem will not be an easy task and will require some swallowing of pride.

Mobile telcos brought about the age of ubiquitous Internet access through the development of their networks but at the same time they also allowed the creation of the very things that will transform, if not terminate, their own existence. The survival of mobile carriers will depend on whether they can accept the fact that they are in fact infrastructure companies and therefore act accordingly.

On that note, don't get me started on Facebook's plan to use drones to deliver wireless internet services to many countries around the world, which will bypass traditional telco infrastructures.