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Home >Technology >Tech-news >Messaging, free calls apps yet to hurt Indian telcos revenues

Singapore: Mobile phone companies in India are unlikely to face a serious threat from free calling apps or instant messaging platforms such as WhatsApp, Line, Viber or WeChat in the immediate future, in contrast with developed markets and most other countries in Asia, where these applications are hurting the profits of telecom operators.

Instant messaging apps are growing exponentially in India and revenue from SMS has shown a marginal dip for all operators. In April, free chat apps officially overtook SMS in popularity globally.

Yet, why is the Indian market different? The primary case is India’s unique business model.

About 96% of India’s 900 million mobile connections are on pre-paid. To use either the free calling platforms that use IP platforms to route their calls, or to avail free instant messaging apps, customers must first buy a data plan. Be it a daily, weekly or monthly data plan, this is close to what mobile phone companies were making by selling SMS packs.

Admittedly, a customer buying a data plan may send out a lot more messages using a ‘free’ instant messaging platform like WhatsApp or Viber, and while the potential revenue loss (if these messages had been sent using the SMS platform instead) for the operator may be significant, the real revenue loss is not high. Since over-the-top apps (OTT) are free to use once the customers buys a data plan, it would also be incorrect to assume that each message sent on Line or Whatsapp translates to the loss of revenues for traditional SMS.

Second, unlike most global markets, SMS accounts for less than 5% of the total revenues of all major operators in the country, while for some telcos, this figure is as low as 2-3%. In comparison, SMS contributes 43% of the telcos’ sales in the Philippines, 23% in Indonesia, 18% in Singapore and 14.3% in Malaysia. Therefore, the prospects of free instant messaging apps cannibalising SMS revenues is yet to become a major threat in India. Put simply, OTT is only additional new messaging and not cannibalized SMS.

Mobile phone operators like Reliance Communications Ltd have countered the threat by offering flat rate bundles to their customers for Whatsapp use.

Critically, to buy a data plan and use free calling or instant messaging apps, customers need to own a smartphone. According to a recent Nielsen report titled ‘The smartphone adoption gap in Asia Pacific’, India has one of the lowest smartphone penetrations amongst leading economies, as only 18% of its mobile base use such devices. In comparison, leading European countries and the US all have over 60% smartphone penetration, and closer home in Asia, China boasts of 71% smartphone usage, while the corresponding figures for Malaysia is 80%, and both Singapore and Hong Kong have 87% smartphone adoption.

Free instant messaging apps may eat into the telco’s sales, but less than a fifth of India’s mobile customers have access to devices to utilize and exploit this platform. The actual base is even smaller as not all of the 18% mobile subscribers who own a smartphone have it in combination with a mobile data plan.

The same factors which help Indian telcos mitigate threat from instant messaging or OTT platforms also helps them mimimize losses when it comes to free calling apps such as Viber and Skype which are extremely popular in the West and developed Asian markets such as Singapore and Hong Kong.

Unlike these locations, Indian operators do not offer large or unlimited data plans, and according to a recent study by Credit Suisse, ‘free’ voice call on these IP platforms costs roughly half a regular voice call based on the amount of data consumed. Besides, Indian consumers also face a major disadvantage when using these free IP platforms for voice as the quality is poorer than regular cellular calls even when both users are on 3G networks.

Worse, India’s 3G networks coverage is patchy even in metros and large cities and is virtually non-existent beyond these places.

“IP calls we tried on a 3G network in Mumbai used up 450 KB of data per minute, for each user. Using the average revenue per MB reported by Bharti/Idea (at 32p/MB—which incidentally is close to the rate implied in the popular 103/300MB 3G plans), we calculate that a one minute VoIP call on Line works out to 30p/min—split evenly between the two parties. This comes at a 52% discount to the outgoing call rate of 62p/min implied in Bharti’s voice RPM," Credit Suisse analysts Sunil Tirumalai and Chunky Shah wrote in a 16 September research note.

Their report titled, ‘Free VoIP: How ‘Free’ is it really?’, further added: “We found the VoIP call quality significantly poorer than regular cellular calls, including issues around: latency (of around 1 second), noticeable ‘blank spots’ during the conversation, and frequent call set up failures leading to repeated attempts. All the above parameters were worse on a 2G network compared to 3G."

Another constraint for Indian consumers, be it instant messaging apps for free IP calls, is that cross-platform usage is not possible, thus severely limiting the utility of the service to a few contacts in the customer’s contacts list, point out Tirumalai and Shah.

For mobile phone companies in India, while legacy issues, poor infrastructure as well as poor smartphone penetration may offer a temporary reprieve, their failure to wake up and smell the coffee could turn out to be a deadly weakness inspite of overall strength.

Falling smartphone prices make India the fastest growing market for these devices. Hike, an OTT app from Bharti-SoftBank allows its users to send free messages to people in their contract list who are not on this platform, breaking the traditional barrier most of these apps face, not just in India, but globally too.

Reliance Industries Ltd’s upcoming pan-India 4G will enable the company to offer video services on its networks, similar to that of Skype, at very low rates. Following the migration to unified licence, smaller operators may also launch internet telephony and disrupt revenue streams of larger players, forcing them to follow suit.

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