Carriers Increasingly Open To Working With Mobile Messaging Startups, Research Finds

Carriers haven’t typically been friendly with startups, especially over-the-top messaging players that circumvent native phone comms — viewing them as thieves of traditional voice and SMS revenues, as indeed (from the carrier perspective) they are. But the bad old days of telcos barring and blocking OTT services are slowly giving way to a greater willingness to partner with messaging rivals.

New research conducted by U.K. analyst mobilesquared reinforces this view, suggesting more carriers are becoming open to working with messaging startups — with more than a third (36%) of the polled telcos partnering with OTT providers this year, up from 32% in 2012. mobilesquared conducted its research between May and June this year, taking feedback from more than 40 mobile network operators, MVNOs, OTT providers and vendors.

The reason for this slow thawing of relations is partly the sheer size of the opportunity as a swathe of messaging players have grown very fat indeed in recent years, with highly engaged user-bases now numbering in the hundreds of millions, being eyed jealously by carriers. These include WhatsApp (300M monthly actives), WeChat (400M registered users, 236M monthly actives), Skype (1BN+ signs ups, 280M monthly actives) and Line (200M registered users).

This “exponential” growth of OTT services is forcing carriers to rethink their approach, according to the research. Continued growth in smartphone ownership — and the corresponding drop off of feature phones — is also fuelled an expanded OTT opportunity.

mobilesquared expects the OTT market to be worth $53.7 billion and have 2.1 billion smartphone users (out of a total pool of 3.1 billion) communicating via OTT services such as WhatsApp, Skype and WeChat by 2017. It says OTT comms’ penetration of smartphone users stands at 55% this year, which it expects to increase to 66% in 2017.

Another big incentive for carriers to work with messaging startups is of course the ongoing decline in their own messaging revenues — which is effectively forcing them to seek alternatives, as the whitepaper notes:

Operators realise they need to act sooner rather than later and most have stated they now have a plan in place and have moved away from blocking, imposing surcharges or lowering the quality of service. Their original approach to make money from charging for data is declining, and their preference is to partner with OTT players by renting out virtual phone numbers and terminating OTT traffic as they can participate in revenue streams.

According to the research, a majority of carriers are experiencing declining messaging revenues as a direct result of OTT clients being used on smartphones. The number of carriers stating they had not experienced a drop in messaging revenues for this reason stood at 62% in 2011 but that has shrunk to just 36% this year.

Interestingly, despite carriers viewing WhatsApp as the dominant OTT player, Skype is singled out as more of a threat by the research. Close to half (43%) of the carriers polled said they view Skype specifically as a major threat to their revenues — which may (at least) partially explain why carriers haven’t always been too keen to promote Skype-owner Microsoft’s Windows Phone platform.

Monetising mobile messaging

Charging for data is one way for carriers to monetise OTT messaging players but that approach is steadily falling out of favour, according to the research: the number of telcos generating revenues from OTT services this way is falling year-on-year.

In 2013, the figure was one-fifth, down from 26% the previous year, and 50% in 2011. The likely reason for that drop is more carrires bundling free access to popular messaging services as a way to attract customers to their network (customer churn being the other big threat to their revenues).

But that still leaves the question of how can carriers monetize OTT? And how can messaging startups capitalise on softening carrier attitudes?

An alternative approach to charging for data which mobilesquared expects carriers to increasingly exploit is to sell “off-net” messaging capabilities to OTT players — to allow them to offer their users the ability to send messages to people not currently using their service, delivering them as SMS or a mobile network voice call (Indian mobile messaging app Hike offers an SMS conversion feature already, as a way to differentiate its offering in its home market).

Off-net messaging gets around the inherent ‘walled garden’ limitation of many messaging services. There are messaging services that can reach off their own network, such as Yuilop, but they tend to be the exception. Major OTT players currently leverage their lock-in effect to keep customers from straying to other services.

But, in the long run, being able to offer their users the ability to chat with non-users could offer messaging giants a way to maintain user engagement (or startups a way to differentiate their messaging offerings), and also monetise that engagement — by charging their users for the ability to send off-net messages. This could be an alternative or supplement to other category business models in play, such as sticker sales, games, subscription fees and advertising.

mobilesquared reckons the global telco opportunity for “OTT off-net termination” will be worth $53.7 billion in 2017 — which it describes as “a substantial increase” from the $7.9 billion revenues generated in 2013.

For now, those figures are just a forecast, though. And it will be very interesting to see how this one plays out. Carriers may get cold feet. OTT giants may get too big for their boots — and try to build their walls even higher, rather than allowing users to reach out to other messaging playgrounds. Time will tell.

One final thought: carriers haven’t traditionally been known for having their finger on the Internet pulse but they haven’t failed to notice how much of a flop Facebook Home has been. According to the research, mobile operators put more store in Google+ Hangouts than Facebook Home.

Just 7% of mobile operators view Facebook Home as a major threat to their revenues vs 29% who worry about Google+ Hangouts.