As India's operators expand their 3G and 4G networks, they are inadvertently helping the OTT players, their new rivals, to reach more customers with higher-quality services.
Mobile messaging upstarts, such as WhatsApp, Viber, Facebook and Skype Ltd. , have been reporting a dazzling rate of growth in India. WhatsApp, which was acquired by Facebook last year, has more than 70 million subscribers in India, and is used by 64% of mobile Internet users and making it the country's most popular messaging service. Used by 53% of mobile Internet users, Facebook Messenger is a close second, according to the latest data.
These services have been making a huge dent in the SMS revenues of the operators. Traffic volumes had fallen from around 5.3 billion messages in June 2013, when SMS was a key revenue generator for an Indian operator's non-voice business, to 4.3 billion in June 2014, according to a report from the Telecom Regulatory Authority of India (TRAI) .
But the OTT players have now struck where it hurts the most -- at operators' voice revenues. Between 70% and 80% of revenues for an Indian service provider comes from voice services. With the launch of the WhatsApp voice-calling feature a few months ago, operators stand to lose a significant chunk of those revenues.
VoIP technology is hardly a new thing in India, of course. But while users have been taking advantage of VoIP for some time, most calls until now have been international. That has had little impact on the traditional service providers, which generate just 4-5% of their revenues from international calls.
Services from the likes of WhatsApp have yet to make a huge impact on operator revenues. That is partly because connections are lost and quality suffers when users move outside WiFi coverage. But as these services mature and come to rely more heavily on the growing availability of 3G and 4G networks, they will invariably become a much bigger threat.
Operators are increasingly looking to voice-over-LTE (VoLTE) technology as a potential savior. The thinking is that VoLTE -- which allows 4G networks to support voice calls -- will help operators to provide voice services at a much cheaper cost to customers. Although prices in India are among the lowest in the world, traditional voice services are thought to be at least ten times as expensive as those offered by OTT players.
"I believe VoLTE is a major opportunity for Indian telcos to at least partially recover the market they have lost to OTTs," says Deepak Kumar, the founder analyst of market-research firm BusinessandMarket. "These developments are part of the bigger changes taking place in the industry like IP-fication and upgrading of the network. Once these technological improvements pick up, the telcos are likely to experiment with VoLTE to defend their turf."
In such a scenario, it will make greater sense -- in the long run -- for Indian operators to move 2G subscribers using 900MHz and 1800MHz spectrum on to their 4G networks, and then re-farm the 2G frequencies to support more profitable services in the Internet of Things and cloud services markets.
"Indian telcos are definitely exploring the VoLTE option because the time is not far off when VoIP calls will significantly bring down their revenues," says a senior executive from a Tier 1 telecom equipment maker. "Yes, the data revenue is increasing but not at the pace where it can compensate for the loss of voice revenue."
— Gagandeep Kaur, contributing editor, special to Light Reading