The year 2012 was an exciting time for the Malaysian telecom industry. Mobile penetration in the market crossed the 140% mark. Broadband household subscriptions grew by a solid 9% and the penetration reached a healthy 66%. On the revenue side, the mobile revenue for the industry grew by a strong 5% mainly driven by data. Contrary to popular expectations, even voice revenue grew slightly. It was a good overall performance by the industry. But does everything look bright and sunny? Are we missing out on something?
OTT lightning strikes the Malaysian SMS
Yes we are. Dense OTT (Over-the-top) clouds are hovering over this bright sunny day for telcos. Mobile data traffic has skyrocketed in the networks. The majority of that mobile data traffic is caused by mobile internet and not SMS. Not entirely a favorable sign for the telcos for whom SMS has traditionally been a core high margin service.
In the year 2012 SMS revenue from the Malaysian telecom industry declined by a steep 3%. This is the first time that the Malaysian SMS revenue has declined in the past many years. This should set alarm bells ringing for the Telcos because this SMS decline may just be a harbinger of what’s to come next.
It’s like a lightning strike which precursors a heavy downpour. Yes, a downpour of OTT services which the consumers would access through their mobile internet connections causing the data traffic to surge further and compelling the Telcos to invest more in their network and in turn hitting Telcos’ net margin. The telecom operators would be left with none but one question to answer: Are we extracting the optimum monetization from that data traffic that we are carry?
The onset of the messaging monsoon
SMS revenues have not declined because consumers are now talking more and texting less. In fact consumers are now texting more than ever before. It’s just that now they are texting over the OTT Instant messaging services of the world such as whatsapp, wechat, viber and social messaging instead of the good old SMS. So, the inevitable question is: What’s driving the adoption of these IMs all of a sudden? The answer lies in these 4 key drivers:
1.)Cost - Instant messages are a lot cheaper than SMS
2.)Devices - Increasing smartphone penetration
3.)Data - Availability of affordable of daily/weekly/monthly mobile internet plans
4.)Usability - Richer texting experience offered by IMs (group chats, profile pictures, status messages etc)
At Frost & Sullivan we believe that as the penetration of smartphones increases and the competition amongst Telcos pushes data prices further south, consumers would increasingly prefer IM applications to pure SMS. We also believe that such IM applications would further create greater value by adding capabilities for richer communication experience.
How to combat this OTT downpour?
Last year we saw that DiGi realized this danger and partnered with Whatsapp. Recently DiGi also partnered with Twitter and Opera. Celcom on the other hand tried to encourage SMS usage through its SMS based social networking service called ‘Kolony’. While Maxis launched new TextMore plans and Super saver offers to push the SMS usage on its network. Are these steps enough to combat the OTT threat? Are the Malaysian Telcos just setting ‘fire to the rain’? We believe a lot more can be done. The key to solving this problem is INNOVATION. Amazingly, a lot can be learned from operators around the world.
1.)Innovation around core services
NTT DOCOMO recently launched “Mobile-network-based voice translation service” (Hanashite Hon’yaku). It the first service in the world for automatic translation of voice calls via a mobile network. We all know that achieving a high accuracy on such translation is a great challenge. But if NTT DOCOMO manages to pull this off then they would have a service not cannibalized by OTT Voice (VOIP) or even OTT texts. Consumers who need this would have to talk on DOCOMO’s network. It’s a prime example of how a telecom operator can differentiate by leveraging on its greatest asset, the network. Other such noteworthy services are: Mobilinks’ (Pakistan) SMS based literacy program and Telkomsels’ (Indonesia) mChoice Soltura (subscriber driven portal to create SMS based applications).
These avant-garde offerings showcase the fact that there is still a lot of fizz left in the core Telco services. The onus lies on the Malaysian telecom operators to believe in it and show the value to the consumers.
2.)Coopetition with the OTT players
Consumers go for services which offer them most value. One way for the telecom operators to offer higher value to the consumers is through shrewd collaborations with the OTT players. Some co-opetitive examples on these lines are: Skypes’ partnerships with various carriers, Facebooks’ partnerships with multiple Telcos for discounted FB messaging and NTT DOCOMO’s partnership with Baidu.
3.)Telco homegrown OTT services and inter-telco alliances
Telecom operators can leverage on their existing strengths, relationships and come out with differentiated value rich offerings. Together they can offer services in the areas of mobile commerce, M2M and smart devices. They can expand their horizon of products & services to other sectors such as healthcare, automotive and transportation. Some visionary offerings on these lines are: KT’s (Korea) smart financial service MoCa, GSMA’s Joyn RCS (Rich communication suite) service, Cross border e-money service alliance by KT & DOCOMO and Oranges’ fleet management service.
It’s not true that the pipes are completely dumb. The pipes are getting ‘smarter’ and rising up to the challenge. However, the Malaysian telecom operators still have a long way to go. They should see this daunting OTT challenge as an opportunity. It is an opportunity to become the best integrated service provider of the world. The telecom operator who successfully executes these above mentioned strategies can win not only against OTTs but also against other Telcos globally.
Nipun Jaiswal is an industry analyst for Asia Pacific IT at Frost & Sullivan. For more information, visit www.frost.com/