WhatsApp, WeChat, TicToc and Tango change telecoms landscape

The popularity of texting among young users has resulted in free or cheap messaging services such as WhatsApp, WeChat, TicToc and Tango. Jay Directo / AFP

Free communication services such as WhatsApp, a mobile-phone application that offers free texting, are starting to eat the mobile-phone operators' lunch.

The Silicon Valley start-up WhatsApp claims more users than the leading internet chat service Twitter and is reported to have turned down a US$1 billion takeover offer from the internet giant Google.

The popularity of texting rather than making voice calls among young users has resulted in free or extremely cheap messaging services such as WeChat, TicToc and Tango springing up, which make money from a combination of subscription and advertising revenues.

These services are enabling mobile phone users around the world to avoid paying mobile operators for communication services such as texting. All the user needs is a modern smartphone capable of downloading the WhatsApp application or one of its new rival services and a Wi-Fi or a mobile data network connection.

The immediate and potentially deadly danger now facing operators around the world is that many consumers, particularly the youth market, the key to future growth, will desert the mobile networks entirely. Instead of paying hefty monthly mobile bills, consumers can now simply opt for a low-cost Android smartphone to avoid having any contact whatever with the mobile-phone operator.

Operators such as du and Etisalat, in common with global players such as Vodafone, must now address the challenge of how to keep their customers in the face of free or almost-free mobile communications services delivered over the internet.

According to Dan Bieler, an analyst at the international research company Forrester: "No carrier can escape the forces of IP-based communications."

Forester believes that the internet's reputation of being almost impossible to regulate may continue.

"Some national regulators have tried - and some still try - to protect their national telecoms service providers through cumbersome regulatory requirements. These attempts are in vain as they are ultimately bound to fail," says Mr Bieler.

He adds the challenge of resisting the onslaught of the new breed of free-service providers will be tough for operators, who will see consumers rapidly switching to free and almost-free internet-based services.

"Communication, voice, messaging, video, etc, is migrating to the internet. This means that all carriers have to fundamentally change their business model," says Mr Bieler.

Forrester reports that internet service providers such as WhatsApp are now rapidly widening their range of communications services to include voice as well as text services. The new breed of telecoms services are being described as "over-the-top", meaning they provide content and services independent of the mobile operators or their networks.

"Telecom carriers' core revenue base, voice and messaging, is under attack from the over-the-top [OTT] business model. Given the financial importance of voice and messaging revenues for carriers, they must prioritise the defence of future cash flow potential from these services," says Mr Bieler.

According to Forrester, despite the growth in new broadband services, voice and text services still provide the bulk of mobile-phone carrier revenues.

"Voice and messaging markets remain a large revenue source for carriers. Communications services - excluding access revenues - generate about 75 per cent of carrier sales, and between 20 per cent and 30 per cent of overall revenues," says Mr Bieler.

While traditional voice remains a powerful revenue source, it has increasingly been replaced by texting, particularly among younger users. This is already adversely affecting the revenues of mobile-phone network carriers.

"The arrival of free OTT voice and messaging services is beginning to manifest itself in the financial publications of carriers. Minutes of use and SMS messages per subscriber are declining and are dragging down voice and messaging revenues," says Mr Bieler.

The carriers are fearful not merely of losing revenues to new competitors but of seeing those revenues disappear from the market altogether. Just as the music and movie industries have learnt to their cost, once consumers develop a habit of not paying for content or services on the internet, it can be impossible to make them start paying again.

The new service providers do not themselves generate much income in contrast to the large sums of money the carriers are already losing. Very few OTT voice and messaging services are truly fee-based, although some charge limited fees For example, WhatsApp charges $1 for its iPhone app. However, on all other platforms, the app is free for the first year, costing $1 a year thereafter. Otherwise, the OTT service providers generally rely on advertising income.

To combat the OTT services, carriers will have to redesign their bundled services packages, stressing broadband delivery services such as video on demand.

According to Mr Bieler: "Voice and messaging will be given away without extra charge. Bundling will therefore become much more important as part of the overall carrier go-to-market approach."

It therefore appears that the days of mobile operators charging 21st-century prices for 20th-century services such as simple voice and texting may finally be nearing their end.