No over the top (OTT) application is having a bigger impact on the mobile industry than WhatsApp, which is literally reshaping mobile services in emerging markets. Although WhatsApp is still trying to discover its own business model, it is having a significant effect on the business of mobile operators.
What’s happening is Brazil is a good example. A recent drop in mobile termination rates is shrinking the total number of connections in the country. Pre-paid subscribers used to have multiple SIM cards to call friends and relatives on the networks they used, staying “on net” and so saving the interconnection fees. Operators promoted on-net calls and the formation of a community of users to retain customers. High interconnection rates discouraged calls from one operator to another, hence Balkanizing the subscriber base.
When telecom regulator Anatel recently pushed down termination rates, with more cuts planned later, the on-net community effect dissolved. Pre-paid customers are settling on a single SIM thanks to the new low interconnection fees to other networks. And both pre-paid and post-paid users are flocking to mobile broadband. The graph below captures the linked trends of a declining number of connections, a stable number of unique subscribers, and a rapid increase in mobile broadband subscribers (HSPA and LTE).
But what does a Brazilian user of mobile broadband do with his or her data package? Among other things they join WhatsApp and use the app to send messages and make calls. The number of unique mobile broadband subscribers as of September last year (95 million) is very similar to the number of WhatsApp users in Brazil (93 million).
Source: TechPolis, with data from GSMA Intelligence and BBC
Brazilian telecom operators are reacting differently to this challenge. While one operator called for WhatsApp to be considered an illegal operator and banned, a rival has leveraged the application to expand its pre-paid mobile data business by bundling it with WhatsApp. A new net-neutrality law in Brazil is likely to assure the continuity of WhatsApp and other OTT services in spite of the well-publicized tensions. The app is also gaining political support in Congress where some MPs coordinate their legislative staff using WhatsApp, effectively running their offices on it.
The business model of mobile operators is being challenged, as traditional voice and SMS revenues face a powerful over-the-top competitor. And as the government is highly unlikely to protect the status quo, the operators will have no choice but to adapt and change, making their profits from large volumes of data traffic.