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August 10, 2012
In 2012, Pyramid Research expects that 29% of total mobile service revenues in Latin America will come from mobile data. This represents about US$28.7bn, with SMS contributing 45.5% of that amount. From the MNO perspective, it is clear that any OTT activity in this space would pose a serious threat to its potential growth. Recently, one of the two Latin American telecom giants, Movistar, launched TU Me, an MNO-owned OTT app enabling instant messaging (IM) communication and data sharing via iOS and Android smartphones, much like established OTT apps such as WhatsApp and Viber. It was a clear statement that MNOs can play the OTT game.
Are MNOs vulnerable to OTT apps?
The fast uptake of smartphones and data plans are already putting pressure on MNOs to spend on network upgrades, but it is also opening the door for OTT messaging providers to provide mostly Web-based services. In order to deploy a service and do it successfully, three components are needed: access, a device and the app. The first two (not considering Wi-Fi hotspots), are provided by the MNO — the OTT providers worry only about the development of the third.
From this perspective, MNOs might look very vulnerable because nothing can stop the OTTs from deploying their messaging apps.
Exhibit 1: Average SMS per month per user, select LA counties, 2010-2017
Source: Pyramid Research
In order to assess what to do, the first question MNOs should ask is this: Are these IM services a real substitute for SMS? We generally do not believe this to be the case.
The success of SMS is associated with the reliability of the service and more importantly with the fact that SMS does not need access to a data network to work properly. This is especially important in a region where less than 14% of subscribers have a smartphone and 80% are prepaid.
It is true that OTT messaging is negatively impacting the growth rate of SMS revenue. However, the long-term effect will depend on a number of factors ranging from the prepaid/postpaid mix, smartphone penetration and the different SMS plans created by MNOs in order to counterattack the OTTs.
The constant growth of SMS in several emerging and mature markets — despite the success of OTT messaging apps in the very same markets — proves that OTTs are not direct substitutes for SMS. For example, Venezuela, one of the leading BlackBerry markets in Latin America, has seen tremendous uptake of BlackBerry Messenger (BBM), the most popular device manufacturer OTT messaging app, but at the same time SMS traffic has continued to grow (see Exhibit 2). In 2011, the average Venezuelan sent 258 SMSs per month, and in the two years to Q2 2012, Venezuela has been the leading Latin American market by SMS usage.
Exhibit 2: Venezuela SMS traffic, Q2 2010 to Q2 2012
Source: Conatel
In the US market, where operators offer unlimited SMS plans, IM usage, although increasing, has not caused users to stop using SMS as a one of their main communication tools (see Exhibit 3).
Exhibit 3: US SMS usage and subscribers, 2008-2012
Source: Pyramid Research
Since the vast majority of mobile devices will lack any semblance of an operating system, we believe SMS will remain the main messaging platform for a large base of mobile users. SMS services have also proven more reliable than IM platforms and, lastly, SMS services are multiplatform, which means that almost each one of the 700m mobile subscribers in Latin America is a potential user.
Given these reasons, we still forecast SMS usage in Latin America to show a positive trend from 2012 to 2017, with an average CAGR of 4.5%.
What can MNOs do to address the OTT challenge?
The second question that an MNO needs to ask is this: Since the OTT messaging trend is destined to grow, should they confront it or integrate it into their development strategy and service portfolio? Confronting it — meaning restraining users’ access to mobile apps (IM) — will only mean angry customers, and it will result in a corresponding increase in churn rates. Integrating — meaning offering the most sought-after IM apps via application-based plans — will help MNOs to migrate customers to more lucrative data plans by exploiting OTT demand. Another advantage for the MNO providing access to OTT IM is that the high value of the service perceived by the user corresponds to a low traffic impact on the MNO network, as IM apps are typically very light.
Charging fees to OTTs for the usage of the data network could represent a short-term solution, but it will situate the MNO away from the revenue stream coming directly from users. If the MNO decides to adapt and incorporates the OTT trend, it can do so in several ways, including partnering with an OTT provider, for example, or developing their own OTT app. The former strategy (developing an operator’s own OTT app) has been already adopted by Latin American operator Movistar with the launch of TU Me. This follows on the heels of Latin American giant America Movil’s own IM app, Claro Messenger, when it launched back in 2010.
The development of a Rich Communication Suite (RCS) by MNOs is, from our perspective, the best solution. Although RCS is not new, it has taken too long for MNOs to develop and deploy. The incorporation of RCS into the OTT ecosystem implies not only developing an OTT app but also a blended solution, which incorporates value-added services together with quality of service.
--Latin America Research Analyst Daniele Tricario contributed to this blog.
— Jose Mercado, Senior Analyst
Related resources:
Latin America Mobile Data Forecasts
Forecast published quarterly
Our Mobile Data Forecast products provide complete pictures of demand trends for 19 geographical markets in Latin America. The Excel output includes five years of historical data and five years of market projections for metrics such as penetration, mobile subscriptions (by type of package, by operator or MVNO and by network technology), users of specific data services (SMS, music, etc.), MOU, ARPS (by operator, by subscription type, by service, by application) and revenue (by messaging and non-messaging applications). The Forecasts are based on extensive field research and use a consistent methodology, aiming to capture the total spending on mobile data services in each market. Data from these Forecasts is available online for subscribers to our DataTracker service.
Venezuela: Ample Room for Growth for Broadband and Multiplay
Country Intelligence Report published December 2011
Venezuela: Ample Room for Growth for Broadband and Multiplay offers a precise, incisive profile of the Venezuelan converged telecom, media and technology sectors based on proprietary data from our research in the Venezuelan market. It provides detailed competitive analysis of the fixed and mobile sectors, tracks the market shares of technologies and services, and monitors the introduction and spread of new technologies. Published annually, this study provides a comprehensive view of the communications market by analyzing key trends, near-term opportunities and upcoming risks factors.
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