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How Telecom carriers are fighting the “dumb pipes” narrative with their own OTT services June 6, 2014

Posted by bernardlunn in Telco.
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Facebook’s $19 billion acquisition of WhatsApp put the spotlight on the competition that OTT (Over The Top) ventures pose to Telecom carriers. Consumers love WhatsApp pricing at $1 a year and have no love for Goliath Telecom carriers, so we tend to cheer for upstart David vs Telecom Goliath. However, some Telecom operators have been quietly creating their own OTT services and, since WhatsApp is now owned by Facebook and Skype is owned by Microsoft, the story is really now Goliath vs Goliath.

ReadWrite has already covered 5 alternative messaging services to WhatsApp from start-ups (Kik Telegram, Tango, Line and Wickr).

This post covers three more from Telecom operators – Orange with Libon, T-Mobile with Bobsled and Swisscom with io.

Each of these Telecom operators has its own unique story to tell and a shot at winning over a lot of consumers. They need to do this. Whatsapp with its 200M base has moved more messages in the last 12 months than all the operators in both US and China combined. Battle has been joined. The Telecom carriers cannot afford to be “dumb pipes” that are used by other companies that reap the value. This has been going on for a while; the Facebook WhatsApp deal just put the issue on the front page and top of the agenda for Telecoms carriers.

Two major European carriers have adopted the same fundamental strategy. France Telecom created the Orange brand to go after global markets and Deutsche Telecom created T- Mobile to do the same thing. Both have an OTT play.

The Orange OTT service is called Libon. It has a free ad-supported and a Premium paid service. That was conventional Freemium wisdom in SaaS, but may not work so well in consumer communications services. Ads interrupting us when we are communicating are unpopular and at $1 per year who would not choose the paid option? The WhatsApp $1 per year price with no ads or stickers or gimmicks may be the communications equivalent of the Google price or China price, too low to undercut.

What is clever about Libon is that in their recently released 3.0 version, you don’t need to download an app to use it. There is only one thing worse than high costs for roaming, texting and international calls and that is not being able to communicate with people outside your walled garden. The telephone system,for all it’s faults, connects anybody via their unique number. Multiple apps that only communicate with each other would be a seriously retrograde step. Facebook is betting that this won’t matter because all 7 billion folks on this planet will use WhatsApp. You cannot fault Mr. Zuckerberg for lack of ambition! With Libon you can message somebody using their phone number. They get an SMS message that links them automatically to Libon’s cloud based service, without any need to register. It’s disruptive because it avoids the friction created by having to download an app. The app game tends to winner takes all, and the Telecom carriers cannot win that.

Deutsche Telekom may be the incumbent Goliath in Germany, but in America T-Mobile is seen as David challenging the AT&T and Verizon Goliaths on their home turf. Back in 2009 I covered how T-Mobile was challenging the incumbents using their WiFi phone, so they clearly view disruptive technology as their friend rather than their enemy. T-Mobile is the carrier for people who don’t like carriers.

The current T-Mobile OTT service is called Bobsled. It is a free service and if works on most devices but favors Android for more advanced features such as group messaging. T- Mobile is an innovative company, but they don’t appear to have cracked the code with Bobsled, there is simply not enough differentiation.

The Swisscom io strategy looks different. Swisscom did NOT launch a separate brand to go after global markets. It is very clearly branded Swiss. Why would anybody use Swisscom outside of Switzerland? One reason is simply friends and family of people living in Switzerland, but with such a tiny population (about 8 million) that is hardly an exciting story. The two other reasons are a) voice calling and b) privacy.

As I do a lot of international business and have friends and family all over the world, I have been a huge Skype fan for a long time. My perception is that Skype call quality is now declining (no data on that but I am hearing this anecdotally from others). It is certainly true that the mobile user experience of Skype is a bit clunky compared to born-mobile services such as Swisscom io. This is the other part of this story. WhatsApp maybe the leader in texting but they are playing catchup in voice (it’s coming we are told).

The other Swisscom story is about privacy. Many people do not trust Facebook with privacy. The question is, how much do consumers really care about privacy? We may say that we care about privacy and make a fuss occasionally when Facebook changes the rules, but when faced with even the smallest inconveniences or cost to get privacy, most people choose easy and free and forget about privacy. A messaging service like Telegram should do well if people are worried about privacy and they did see an uptick when Facebook bought WhatsApp. Telegram has the most rigorous approach to privacy and as is a non-profit there is no amount of money that will change their minds. It is significant that Telegram comes from Germany where memories of both Fascism and Communism make people guard their privacy more zealously than people in America who have not suffered in the same way.

The reason that OTT messaging apps take off like a rocket is simple – they get access to our mobile contacts. That makes them easy to use. To give a service access to your contacts you have to either not care at all about privacy or you have to trust that service. Swisscom io also accesses your contact data. The privacy angle relates to a) trust that Swisscom has no business model linked to selling your data (as Facebook does) and b) the Swiss legal protection for privacy. America may be the last place where Swisscom io gets traction as fewer Amercans care about privacy; it is possible that it will get traction in Germany first.

None of these services has yet leveraged the real strategic advantage that Telco carriers have, their subscriber and billing relationship with consumers. We are entering a period of disillusionment with the app economy; the degree of control exerted by Apple for example and the % of revenue going to app stores and the winner takes all nature of these stores are aggravating a lot of people. This is a window of opportunity for Telcos.