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Is Smartphone growth a threat and not an opportunity ?

March 19th, 2014

SmartPhone Growth ThreatThe increasing penetration of Viber, WhatsApp, Line, Skype, WeChat and other OTT Apps with Voice & Messaging Facility with push of a button using the underlying IP Data Network is a big threat to the Telecom Companies Voice Revenue Stream.

How quickly will this potential threat crystallise? Very importantly, for customers to make OTT voice calls, they will need to be in areas served by 3G coverage, and have 3G smartphones (and the app downloaded). This gives markets with low smartphone penetration some time to adjust pricing should the competitive environment allow this sensible move, but there could still be a near-term revenue disruption as smartphone penetration rises. Operators also receive some protection from relatively low voice price points, and in some markets, notably China, regulatory protection can also be expected.

The potential change in the mindset is that rather than this representing an opportunity for data revenue growth, this could represent a threat to voice revenues in addition to the better-recognised threat to SMS revenues. Since customers will tend to respond to the communication they receive (i.e. answer a voice call with voice, an SMS with an SMS, and a Whatsapp, say, with a Whatsapp), it is probably too early to expect a wholesale shift in voice revenues towards VoIP in 2014. However, as we look towards 2015 and 2016 critical mass may be reached in Thailand, Indonesia and China.

A second consideration is the tariff level (and, in particular, the voice tariff on a ‘per minute’ basis). As previously mentioned, many consumers have found it worthwhile to go through the (modest, but still noticeable) inconvenience of using Skype and similar VoiP offers for international calls, because of the high price per minute incurred on those calls. Yet they have been less willing to do so for domestic calls.

Aggressive price wars (triggered by rafts of new entrants) in Thailand in in 2005-6, Indonesia in 2007-8, India in 2009, are to blame for this, and together with the gradual pace of smartphone penetration growth, this could act as further brake on voice cannibalisation actually occurring.

Of course, we remain big believers in sharp ongoing declines in smartphone handset price points to drive penetration higher; we expect smartphone penetration in China, Indonesia, Thailand and India to reach 51.1%, 47.8%, 80.9% and 17.7%, respectively, by 2015.

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