• Monday, February 26, 2024
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BusinessDay

Telcos plan to block Skype, Google Hangout over revenue loss

Google- Skype

Choice and greater economic benefits for holders of Nigeria’s 120 million mobile lines may soon be impeded, as some networks are planning to block free over-the-top (OTT) content services  such as Skype, Google Hangout, Vibre and Tango, on smartphones, over concerns of revenue loss on international calls and messaging.

 A source familiar with the development told BusinessDay that international calls make up a critical part of telecoms operators’ revenue because of Nigeria’s large expatriate and Diaspora population. But in the past three months, telcos have seen a 20 and 30 percent decline in revenues from international calls and messaging respectively.

 Telecommunications firms have blamed the current situation on the proliferation OTTs, our source said.

 “There is no need for telecoms managers to block free services like Skype on their networks. The rising adoption of OTT services is a global consumer trend”, said Ope Odusan, managing director, Africa.com, in an interview.

Google- SkypeOdusan said operators need to become more proactive and change their billing structure for data services. “Telcos should begin to offer unlimited data services to subscribers for a fee, like the T-Mobiles and Vodacom’s of this world. It might be a problem for them initially but in the long run they would benefit from increased data subscription and spend.”

This apprehension, according to the source, is made worse by the impact of regulatory and competitive pressures on voice service pricing in the country.

 The adoption rate of OTT content services amongst Nigerian smartphone users is growing. Skype said its users are spending more than two billion minutes per day, connecting with one another via the video-chat platform.

That’s sufficient time to watch 16 million movies or travel to the moon and back 225,000 times, according to Skype.

“The explosion of e-commerce, advertising and digital media content that now travels over the networks of telcos has created significant new value, but telecom companies have been unable to benefit”, said Roman Friedrich, partner at Booz & Co., in a new report obtained by BusinessDay. South Africa’s MTN, and United Arab Emirates’ (UAE) Etisalat Nigeria, have built content and digital media outlets.

Yet these businesses are still dwarfed by core telecoms businesses. “Telcos have been even less successful at capturing value in new services such as social media and apps”, stated Friedrich. These OTT firm are supplying consumers with sophisticated web-based features that are competing with revenue-earning services that operators are providing, according to industry watchers.

The telecom sector in Nigeria,  generated $9.3 billion in 2012, according to Pyramid Research. Mobile revenues are also expected to increase at a rate of 4.5 percent in local currency terms between 2012 and 2017, the research company further predicted. This envisaged revenue projection may fail, as telecoms firms are fighting a battle on two fronts, industry watchers say.

Firstly, BusinessDay gathered that OTT players like Skype and Viber are taking advantage of their creative business models to capture telecoms operators core voice and messaging revenue. To further worsen the situation, mobile operators are making massive financial investments in network upgrades to cope with the ever-growing deluge of data created by the very OTT players eating up their revenue.

Telecom companies were expected to spend an estimated N979 billion on network expansion initiatives in 2013. Rising smartphone penetration in Nigeria, which accounts for 10 percent of the mobile phone market, according to industry insiders, could prove to be a double-edged sword for Nigerian telecoms operators in the long-run.

Smartphone growth boosts telcos revenue from higher-paying data service. But, the proliferation of OTT content services have the potential to threaten revenue and increase carriage costs, analysts say. For Friedrich, the mobile subscriber stands to benefit more from all of this. According to him, telecoms companies would need to leverage their distinct assets and capabilities to beat OTT players at their own game. “Mobile operators would need to leverage their ubiquitous wireless networks, their millions of customers, and the data, logistics, and other services they can offer”, he said. Odusan expressed confidence in the capacity telcos to cope with the changing market dynamics.

“If operators are envisaging the changes in the environment and strategising and aligning themselves to the changing dynamics, the profitability and revenue can be sustained. Otherwise, the environment will pull the rug off the feet of operators and there would be a lot of casualties”, admitted Srinivasa KV, chief executive officer, Visafone Communications in an interview.

Africa’s mobile Average Revenue Per User (ARPU) has continued to decline by 14 percent year-on-year since 2004. The emergence of these powerful new players that successfully leverage or bypass mobile operators with their smartphones and applications ecosystem has become a matter of grave concern for operators in Nigeria, particularly from a revenue standpoint.

By: Ben Uzor Jr