Thursday, 27 February 2014

WhatsApp to offer voice svcs: Should telcos start sweating?

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The world's biggest messaging service WhatsApp now plans to add voice calls to the application by the second quarter. With 450 million users across the globe, they have already made a hole in several telecom operator's revenue. Now, what impact will this added feature of voice calling have?

CNBC-TV18’s Menaka Doshi and Senthil Chengalvarayan spoke to Sanjay Kapoor, former CEO of Bharti Airtel , Jaideep Ghosh of KPMG and Prasanto Roy, editorial advisor, Cybermedia to find out their take on the matter

Below is a verbatim transcript of the interview

Menaka: What happens when WhatsApp launches voice services? How much of a dent could they potentially make for Indian telecom service provider revenues?

Ghosh: WhatsApp and similar applications have already made a dent in the SMS and the basic texting services globally as well as India. So, we have estimated that roughly the person-to-person text message market was about Rs 6,000 crore last year. We believe about Rs 1500 crore or 2000 crore is something, which probably was taken away by WhatsApp. Now, if voice calls are provided free-of-cost and voice is the main stay of Indian telecom operators business, in the medium-term it should impact to a large extent. Possibly, due to regulatory aspects, due to lower penetration of smart phone, it maybe limited in the near-term.

Menaka: What you are saying is that the Indian telecom service providers lost potentially Rs 2000 crore to WhatsApp in revenue last year?

Jaideep: Not only WhatsApp, but on the others as well.

: How serious a threat is this to voice calls because we have had Skype, others in the voice space?

Kapoor: Let's go step-by-step. There are three revenue streams that of messaging, that of value added services and that of voice which the operators as a fraternity globally have really not developed over past couple of decades and they have been milking these revenue streams. It's the over the top (OTT) players who have come and added value in many of these services and that's why there has been a attack from several OTT players on messaging, on value added services which have now become applications and now voice. Now obviously if somebody has paid USD 19 billion for WhatsApp, he has not paid it for messaging alone. He is going to develop that platform and put new services tomorrow and will have everything going including payments. Mobile commerce (M Commerce), voice because he has an access to 415 million active users and growing and therefore you will see an attract across the globe and not only Whatsapp other OTT players as well.

Menaka: What does it mean for telecom service providers like Bharti, Idea and Vodafone that will eventually lose potential revenue to players like WhatsApp? Can you quantify for me what kind of loss these players could possibly be staring at?

Kapoor: I can give you a very macro view. If you take globally, the trillions of dollars that operators make the value added services player which includes Google and others make about 6-7 percent of that and their dominance increases and as consumer pool and devices proliferate I think they have clearly a road map to move and chew more and more into the uncovered area.

So, that is the sort of potential they are sitting on. But, on the other side operators have to move in their mind set from voice to data and today about 85 percent of the revenue of all operators at an average comes from voice. The moment they start moving to data, you will see that voice will relegate itself to becoming another app. It's better that the operators do it than they get pushed towards it.

Menaka: We make it sound easy when we say Whatsapp will launch voice and that might take away traffic from the erstwhile players or telecom service providers in the country. But there are also regulatory issues to keep in mind. Recently our colleague Malvika spoke with the DoT secretary and he said he will look into the concerns that telecom operators have with regards to the fact they pay for the spectrum and license fee etc. but all of these OTT players don't have any of those regulatory expenses to deal with?

To breach the gap to around USD 20 which is assuming they will two billion users in terms of numbers, no reason why they shouldn't. That's not going to come from WhatsApp user fees. People were asking where they are going to make money from. I think this is going to be it and if you see what WhatApp has done to multimedia. You know people are very easily uploading lots of videos. There's a lots of pictures of course, lot of videos, which is shared among groups. Everytime you share a video in a group of 30-40 users that's that much of traffic.

Now, some of this has gone back to operators because people are ultimately using data traffic although they prefer to do heavy in WiFi but this is going to hit the operators hard and like Sanjay was saying its really up to them to anticipate that disruption and disrupt themselves rather then sit back and complain and wait for it to happen and then do something about it.

Senthil: The only argument against that is Voice over Internet Protocol (VoIP) has been around for years so why should it be different this time? Is there any comfort in that?

Roy: VoIP has completely disrupted long distance traffic not so much based on the mobile but companies like VSNL here and then AT&T in the US they fought it and they finally had to join and at one point VSNL lost 40-50 percent of its revenues to various players for VoIP. On the mobile the thing is there hasn’t been a simple, fluid, easy way on a messaging app that people are used to. People are used to Skype and they are used to Skype on the PC. It was simply not easy enough to setup SIP and these apps which use SIP; there are lots of those apps. The difference this time is Whatsapp has a predominant base out there of people who are familiar with it. It is very easy to use, they are simple, focused, fast, it just simply works and if Facebook allows Whatsapp to keep that focus and I am really hoping it would then voice too is going to work as smoothly and easily. I think that is the difference. Using messaging app, just like if Facebook were able to take up a service it would be very different from small little apps trying to do it; that is the difference. I think the adoption will be very high. The trial will be very high so everybody is going to try it and they have very high engagement rate. 70 percent of those users come back everyday. This is serious stuff.

Menaka: From a consumer point of view I would not like for any regulatory interference in allowing for a Whatsapp voice call product release. Have you crunched any numbers on what impact this could potentially have on Indian telecom companies?

Ghosh: I don’t think we have estimated anything on the voice as such but let me also say that it is not that Indian telecom operators or worldwide telecom operators are coming to know of this like yesterday morning. Voice on messaging application has been there and operators have also been reasonably well prepared. So, if Facebook can acquire Whatsapp, the operators can also acquire someone similar or create it. So, the impact will be mitigated by counter strategies; that is something we should see in the near term.