This piece originally appeared in The Future of Mobile, an exclusive Analysys Mason publication for Mobile World Congress 2012.
Voice and messaging services are undergoing major changes for the first time since mobility transformed where we communicate. Portable computing power in the form of smartphones now has the potential to transform how we communicate. Driving the changes so far have been the OS and applications providers with services such as FaceTime, Google Voice, Skype, Viber and WhatsApp Messenger. Mobile operators, on the other hand, appear to have been ill-prepared for the smartphone revolution and have reacted with indignation to incursions into their territory (by blocking VoIP, for example). In 2012, with smartphone penetration already in excess of 30% in Western Europe, operators are finally gearing up for their response, chiefly in the form of RCS-e services. The first commercial RCS-e services are due to be launched by Orange, Telefónica and Vodafone in Spain in the first half of this year.
According to our Connected Consumer Survey, usage of over-the-top services has already gained significant traction among the customer base, as shown in Figure 1.1 Approximately 11% of smartphone owners are regular users of a mobile VoIP application, and around 29% use an IM service. Overall, around 32% of smartphone owners regularly use an over-the-top (OTT) communications service that directly rivals the operators’ own offerings.
Figure 1: Usage of mobile VoIP and IM services by handset type, six European countries and the USA [Source: Analysys Mason, 2012]
RCS-e services will be aiming to tackle this threat head on. The services will offer more-advanced messaging capabilities across the operators’ customer bases with support for file and video sharing during a voice or messaging session. These services will also be supported natively in the address book, where contacts that have these features enabled will be flagged. A fuller feature set, including support for presence, is due with the full implementation of RCS at an unspecified later date. In short, RCS-e allows mobile operators to match (but not exceed) many of the standard features of OTT services, while attempting to differentiate by providing a universal interoperable service.
RCS-e goes some way to address operators’ vulnerability to OTT services, but should not be regarded as a panacea for the following reasons:
- It fails to adequately address time-to-market issues. RCS-e services are mainly geared towards defending against SMS cannibalisation. Applications such as WhatsApp Messenger and Apple’s iMessage (native in iOS 5) have demonstrated that they pose a real threat to operators’ SMS revenue: they give customers good reason to reduce their reliance on operator-provided messaging and to downgrade their SMS bundle where possible. KPN’s experience in the Netherlands is a case in point: SMS overage revenue declined dramatically, leading to a profit warning in the first quarter of 2011. Operators need to be more responsive to these threats, both in terms of pricing, to reduce vulnerability to cannibalisation, and in terms of improving the user experience. Many seem to take their core revenue streams for granted and are content to cede the reputation for innovation to the OS and applications players. This is quite a gamble, given what is at stake: EUR115 billion in voice and messaging revenue in Western Europe in 2011. With penetration of mobile IM already approaching one third of smartphones, RCS-e seems to be solving last year’s problem. What about operators’ ability to tackle next year’s problem? The roadmap for RCS offers little ground for optimism.
- The focus on interoperability obscures the need to segment services better. Operators are clearly hoping that the provision of a universal (or near universal) service will be their trump card in this market. PC-based IM services have struggled to overcome the limits imposed by closed user groups and SMS shows an example of an easy-to-use universal service with very high adoption rates in most markets. Operators do need to concentrate on this issue, but not exclusively. In so doing they risk failing to address a key emerging trend: people are increasingly adapting their communications profiles for different audiences, that is, one size no longer fits all. The more basic a communications service is, the more important is the need for universality. However, richer communications are more likely to be with richer contacts, that is, people with whom you want to do more. It is these sub-sets of contacts that are being addressed by Apple and Google via their OS and applications capabilities. Operators still used to the mind-set of marketing services to a single national customer base are in danger of restricting themselves to serving the lowest common denominator. Operators can relegate themselves to universal support, but many will have ambitions beyond that. If they are to succeed, then they need to free themselves to be able to address smaller segments and to let go of the default drive for interoperability.
The launch of RCS-e highlights how late mobile operators are in coming to the game. Many have been myopic in their approach to pricing, thereby opening the door to alternative providers of core communications services, and there has been a collective failure to innovate in the provision of core communications services. Operators need to take a longer view on pricing and they also need to find ways to harness innovation, perhaps by developing their own OTT services. At the moment, operators are failing to fully participate in the smartphone revolution and, on current form, will have little say in its outcome.
1 See Analysys Mason’s The Connected Consumer Survey 2012.