Can Mobile Operators Really Compete with WhatsApp?

Can mobile service providers really compete with over the top messaging apps? To be sure, some mobile service providers believe they must try. Many believe they will do best to partner with OTT app providers in various ways.

This sort of problem has happened before. How to cope with falling per-minute prices and profit margins in international voice was a precursor. How to deal with Skype and VoIP were other earlier challenges.

Broadly, the choices are “do nothing, and harvest revenues,” “partner with the attackers,” or “launch a branded competitor.”

The service provider response to voice pricing was simply to grudgingly match lower-price offers when necessary, while doing everything possible to slow the rate of revenue decline. That essentially was a “harvest” strategy.

In the case of VoIP and Skype, many service providers also have decided not to compete, preferring instead to take steps to shore up the legacy product as well as possible, without matching VoIP prices. A few launched branded OTT voice apps of their own.

At least so far, service providers have tried some of all of the earlier tactics in responding to over the top messaging. Text messaging prices have dropped, or value has increased, to some extent. U.S. mobile service providers now are moving to add no incremental cost international texting in an effort to add value, while maintaining prices.

In other cases, service providers have tried to work with OTT providers. Jajah and Deutsche Telekom took that route.

In a few cases, service providers have tried to compete with branded offers of their own. Telefonica has done that.

The dominant response arguably has been the “harvest” approach, in part because many believe telcos really cannot effectively compete with their own branded apps and services.

McKinsey analysts believe telcos can slow the incursion of OTT apps, but only at the cost of lower retail prices..

Booz and Company analysts have argued telcos really cannot compete directly with OTT applications.

A few telcos have tried to launch their own OTT apps. Generally speaking, the argument for effective telco competition with OTT apps is to add value. Whether enough value can be added to change the value-price relationship is the question.

OTT apps continue to add functionality and value as well, the most recent example being WhatsApp has added free voice calling and video calling for WhatsApp users, and now also has added calling to any phone number, for a fee.

But many will argue the best course is to harvest voice and text messaging revenues, as has been done in the past in the communications business when a legacy revenue source faces decline.

The reason is simply that service providers arguably still have more to lose than to gain were they to meet OTT prices head on.

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