Free Voice Calls vs. Telcos

It is debatable but one may argue that ever since Apple Inc. popularised the idea of smartphone and apps, consumer’s behavior online and on mobile shifted drastically.

Globally, smart devices represented 21 percent of the total mobile devices and connections in 2013 and they accounted for 88 percent of the mobile data traffic. (Source: Cisco Visual Networking Index: The Mobile Network in 2013)

As of January 2014, of the total internet population of 195 million in South East Asia, 133.7 million are active social media users accessing it on mobile devices. In Malaysia alone, 58% of the mobile users use social media apps on their phone, while on average spending 3 hour 17 minutes on social media each day. (Source: We Are Social)

In the past year, there have been reports and studies that show a strong growth in the messaging apps market, fast gaining popularity among teenage users.

In December 2013, referring to the usage numbers from the second to third quarters of 2013, Facebook’s Chief Financial Officer, David Ebersman, confirmed that teenagers were becoming less active on the site.

It didn’t take long before Facebook made the announcement of the USD 19 billion WhatsApp acquisition deal (13 times Facebook’s entire 2013 net income). Just less than a week into the news of the acquisition, WhatsApp’s CEO Jan Koum announced at Mobile World Congress in Barcelona that WhatsApp will add a voice-calling function "within months".

The app already offers voice messaging, that allows users to send short audio clips to recipients, facing head to head competition with WeChat and Line that are already offering a free voice call feature to their users, on top of other social features including games, stickers, official brands account and more. Now that Facebook is in the picture, in the market of mobile messaging apps, it is now officially a face-off between the East (WeChat, Line, KakaoTalk) and the West (WhatsApp), but that’s a story for another day.

From a user’s point of view, an app that allows us to send free text message and to make free voice calls is no doubt a plus point — the best way for average consumers to tackle the rising cost of living without having to worry about too huge a chunk of monthly income channeling to the phone bill.

The free text and voice call features that are provided by these apps though, have been hitting the telecommunication industry really hard by threatening one of the telcos’ revenue sources as subscribers increasingly turn to voice and messaging apps. In recent years, revenue for telcos has been declining. Increasingly, telcos tweak tariffs to focus on mobile data instead of voice calls.

A research from Ovum Ltd. reported that chat apps like WhatsApp and the like, cost telcos around the world USD 32.5 billion in texting fees in 2013. That figure is projected to reach USD 54 billion by 2016. (Source: Bloomberg)

The news about WhatsApp’s move into voice calls is unlikely to sit well with telecom operators. At 450 million monthly active users, the rise of WhatsApp is a classic example where a smaller player gaining an edge in the face of established, bigger and deep pocket telecommunication giants. While WeChat, known as Wei Xin in China, is in hot pursuit with 272 million monthly active users (Wei Xin and WeChat combined).

It is important to note that WeChat is a business owned by China’s Internet giant, Tencent, a Nasdaq-listed Chinese company with a market cap above USD 100 billion, whereas WhatsApp was initially a startup founded by two under-the-radar, and elusive co-founders in 2009, and is now growing its user base by 1 million people a day.

With the imminent telecommunication disruption taking shape, SingTel’s chief executive Chua Sock Koong called on regulators to give telcos like Optus (Australia's second largest provider of telecommunications services owned by SingTel) the right to charge WhatsApp and Skype for use of their networks.

Quoting Chua, ”the main problem we have as an industry is we have been unable to monetise this increased demand ... and [average revenue per user] has fallen over time," she said. "Our ambition must be to become the preferred network partners of customers and OTT players," she said. "We must create sustainable revenue models.”

Seeing one of the leading telcos in the region directly addressing the “brutal facts of reality” (as Jim Collin explained in his book Good to Great), it is important for the telecommunication industry to note that the Internet and technology is enabling new and smaller players opportunities to disrupt an industry.

Bringing this into a local perspective, perhaps it is high time for local telecommunications giants to realign their strategies in this dynamic landscape. The question is how will local telcos react and create new opportunities for growth? Their next move is going to be the determinant hit or miss that will affect their bottom line.

All eyes are now on you. Over to you telecommunications giants.