Data, new revenue sources to make up for OTT messaging impact: analysts

The growth in popularity of over-the-top (OTT) messaging services will cost global mobile network operators over a hundred billion dollars this year, according to Juniper Research Ltd., but some Canadian analysts say the impact will be dampened by increased data usage and new sources of revenue, including uptake in Internet of Things devices (IoT). Released Monday, the white paper projects that the move by consumers to OTT messaging services and social media will cost network operators around the world “nearly $104 billion” in 2017, up 23 per cent from $84 billion last year, which they say is equivalent to 12 per cent of their service revenues. Mobile network operators “are increasingly seeing their revenues eroded by traffic migration to OTT and apps,” the white paper said, adding that social media posts are replacing voice calls or text. This trend, it said, will further eat away at traditional traffic in the future and make a “significant number of operators” redundant. Juniper analyzed the scale of operator traffic decline with uptake of OTT voice-over-internet protocol (VoIP) and message services, according to a Monday press release. It built a model that assessed the scale of OTT service adoption, average service usage levels, such as VoIP minutes and instant messages per user per month, and total OTT traffic. It looked at eight major regions, including North America. Facebook Inc.’s WhatsApp messaging service alone, for example, generates “nearly three times as much daily traffic” as SMS — 42 billion daily Whatsapp versus 16.4 billion SMS messages in 2016 — the U.K.-based company said. OTT messaging services also include those from Viber Media S.a.r.l, Apple Inc.’s iMessage and Microsoft Corp.’s Skype. “OTT messengers offer a richer experience, they offer integration of images, text, and multimedia, and most offer OTT voice service too,” Iain Grant, an analyst at the Seaboard Group, said in an email. In a June 2015 report, Juniper said it expected messages sent with OTT apps to increase from 31 trillion in 2014 to 100 trillion in 2019, but those apps will generate less than one per cent of revenue per message than carrier-based texting services. Bill Menezes, an analyst at Gartner Inc., said his company has been tracking a number of cellular service providers trying to block the use of OTT applications in some regions, with some showing the financial harm stemming from adoption of WhatsApp and Facebook’s Messenger service.That included instances of blocking in the United Arab Emirates in April 2015, Morocco early last year, and U.K. operators attempting to lobby against OTT services in mid-2015. It was four years ago that some Canadian carriers were still charging per text message, which analysts forecast in 2013 was still important for their businesses. SMS “was an important element in carrier revenue and profit forecasts,” Grant said. However, this changed as the marketplace changed and companies began shedding SMS and its picture-focused MMS variant, he said. Now carriers, such as BCE Inc., Rogers Communications Inc. and Telus Corp., are offering many phone plans with “unlimited domestic voice and messaging” on a standard plan, Menezes said, with the focus now on data consumption. Data, Grant said, will “fill the hole in their revenue streams” left by SMS, noting that to that end, these developments are not new to carriers. But Menezes said carriers are catching up to their OTT messaging competition. They are enhancing their native messaging applications to give a similar feel and look to OTT apps, including having video messaging, group chat, emojis, stickers and audio messaging. Indeed, although Menezes noted it’s too early to tell whether carriers can fully offset these losses, even if they don’t, they are looking to generate revenue from new sources, such as Internet of Things (IoT) connections — including wearables, home security systems and connected cars — “that strategically is expected to more than outweigh what they lose to OTT providers.” Analyst Greg MacDonald at Macquarie Securities also said in an email that the increase in use of communications applications will drive data usage and translate into revenues. In response to that, Windsor Holden, head of forecasting and consultancy at Juniper Research, said in an email that, while the increased use of OTT apps will indeed elevate data usage, “the trade-off is less voice and messaging usage which have historically been the core revenue drivers.” He added: “The key for operators is therefore to transition from voice-centric pricing to a model which focuses primarily on data and is priced accordingly.” Moreover, Menezes said carriers support native voice over Wi-Fi calling without consuming monthly minutes, which removes another advantage that OTT providers once had. For example, according to research by Gartner, U.K. operators like Vodafone Group PLC have, in recent years, integrated Wi-Fi voice services into the smartphone to combat OTT services. In other cases, however, Wi-Fi calling is used for unrelated reasons, such as to expand a carriers’ footprint, to offload traffic from their own networks or to reach areas with Wi-Fi hotspots but no cell reception, according to Menezes. In addition, Voice over LTE (VoLTE) service offers a “much more pleasing voice experience” compared to OTT services because carriers benefit from quality of service use on their own digital voice traffic, Menezes said, while OTT applications must operate on a “best efforts basis.” Juniper estimated in the report that between 2014 and 2016, average smartphone cellular data usage in the U.S. more than doubled from 705 MB to 1.5 GB, while prices per additional device connected on a shared data plan has dropped with increased competition in the market. Juniper also noted in the press release that it’s “essential” for telecoms to “provide consumers with attractive, original content to differentiate themselves from the competition.” Referring to quad-play offerings, it added: “With mobile devices now regularly used for primary consumption of video content as well as snacking, operators providing popular film, drama and exclusive sports events over multiple channels are a distinct advantage.” — With reporting by Ahmad Hathout at ahathout@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

Data, new revenue sources to make up for OTT messaging impact: analysts

News | January 13, 2017

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