THE FACT THAT A messaging app (albeit one with 465 million users) can be worth $19 billion American dollars is certainly top of mind among most delegates at the Mobile World Congress here in Barcelona.
It was just about standing room only in a morning panel session that featured the CEO of the acquiree, Jan Koum of WhatsApp (so we got in line early on Monday for the keynote address of the acquirer, Facebook CEO Mark Zuckerberg) and while the cellco network owners were quick to say they know they must provide excellent, unfettered access to all sorts of over-the-top messaging services, the networks they've built and are building aren’t free, like Facebook and WhatsApp…
In fact, GSMA chairman Jon Fredrik Baksaas told delegates in a session before Koum`s that he expects the wireless business to spend $1.7 trillion globally by 2020 to upgrade its networks which, among other things, will bring another billion of the world`s population wireless broadband connectivity. The mobile business, he added, directly contributed 3.6% to global GDP, $336 billion to pubic funds and 10.5 million jobs.
With all that investment, it stands to reason the wireless companies – whose networks deliver Facebook and WhatsApp and myriad others – are now saying partnerships must be pursued in order to make the future work for everyone. This growth in wireless broadband and all the positives it can bring in terms of education, telemedicine, banking and so on, "Cannot be funded only by the telecom operator,” said Ahmad Julfar, CEO of Etisalat, the UAE-based wireless company with over 150 million subscribers in Africa and the Middle East
“If we are not careful, we stand the risk of being totally disinetermediated," added Sock Koong Chua, CEO of Singapore-based SingTel, a company with more than 500 million connections. “Services and networks have to be paid for one way or another… we need to find the right model or the right way to sell it because of course we can not give our network away for free."
Baksaas, also CEO of Norway-based Telenor, added the investment made to bring WhatsApp to market "is minimal" compared to the trillions that have been spent and will be spent to deliver wireless data connectivity to everyone. While many apps are free and people “want (connectivity) to be free, it’s not free,” said Baksaas, likening it to the trains most Europeans take to work. It would be great if those were free, too, but they must be paid for.
He then noted that in presenting his chairman's award to chipmaker Qualcomm the night before, he lauded the company for spending $19 billion in research and development – the same amount WhatsApp has now been valued at – a company with 55 employees which has existed since 2009.
Of course, no one is talking about any sort of drastic next step with any ultimatums or anything like that, but there is clearly tension in the air because of these new OTT wireless services who are nailing a customer demand (for a free service they used to pay for), and causing business plans to change because of that. Tele2 CEO Mats Granryd explained how his company no longer charges for voice or texting at all in many of its markets as it switches all of its pricing over to different buckets of data packages instead. The Swedish company serves 34 million customers in 10 countries and revels in its reputation as a disruptor.
One would think that as more free messaging and voice apps gain mainstream status in North America, (Koum announced during the show that WhatsApp will add free voice to its free texting offer in Q2 this year), pricing for data-only looks to be the way of the future for many of the world's cellcos, especially when Koum says, as he did this morning: "Our goal is to get every single smartphone user to use WhatsApp."
One of the many issues that irk telecom operators when they look upon the various global OTT service providers is the money and resources they must spend to support networks and regulatory demands in each country they operate while the software-based newcomers ride on those nets, essentially, at no cost.
Telecom companies "are local and heavily regulated," VimpelCom CEO Jo Lunder noted, speaking on the same panel as Koum, while "a lot of the new players are not regulated and are global."
Granryd illustrated the paradox of the whole developing, ongoing issue with two comments he made, close together. On one hand, earlier in the panel, he said the OTT services are great for his business because they drive people to purchase his buckets of data. However on the other hand, the regulatory burden they face running networks in Russia, Austria, the Balkans and Kazakhstan can be difficult. "Either they need to be regulated in some way or we need to be less regulated," he said.
Sounds like those partnerships they all talked about need to get done because while everything sounds pretty light and hopeful on the surface, those telecom companies employing 10.5 million people spending $1.7 trillion on network improvements are going to tire quickly of freely providing the roadway for multi-billion-dollar companies launched just five years ago and with few network assets, eating their collective lunches.
A shakeout is coming. Soon.
