WhatsApp: From Facebook to Voicebook

While the business fraternity was still calculating the viability of a gargantuan $16bn deal (plus an additional $3bn Restricted Stock Options, RSU’s for WhatsApp employees), out came the announcement from WhatsApp CEO, Jan Koum: “WhatsApp’s free voice call service to be rolled out in Q2, 2014.” While as many as 45million WhatsApp users took to social networking to enunciate their excitement, alarm bells started ringing loud and clear in the boardrooms of telecom companies across the globe. These slow-off-the-mark tigers have been further pushed up against the wall. At one time they imposingly ruled the wireless environment, marking their territories with unjustified tariff plans, but now they are finding it tough to hold their ground.

WhatsApp – a 12-month free application, charging a mere $1 per year from the 2nd year onwards, offers the ability to send text messages, pictures, videos and even voice messages through an exceptionally clean interface committed to ad-free content. WhatsApp has won the hearts of 450mn dedicated users across the world through its discreet style of working. No personal details are requested while registering; you just verify your mobile number and get connected to the world. Ironically, to identify a WhatsApp user, you need their mobile number, the same number that is given by a telecom operator who is now faced with the prospect of losing another revenue stream.

There are basically three sources of revenue for a telecom operator – voice calls, SMS, and value-added services (VAS). The messaging revenue had already dropped by almost 80% and a chunk of it is bagged by “WhatsApp”. The grapevine has it that WhatsApp’s total text messaging traffic is nearly equal to the volume of all other telecom providers combined. Now that is some achievement for an App which is just 5 years in existence. So what implications can voice communication via the internet have on traditional service provider’s balance sheets?

Firstly, WhatsApp is not the first in this sector. Other over-the-top (OTT) players in this space include: Skype, WeChat and Viber to name a few. But more importantly, all these applications are internet-based, the biggest and probably the only discernible difference between the two services. Frequent call drops due to low bandwidth and bad internet connectivity has never made internet voice calling a satisfying experience, especially in countries where the Internet is not as widely available as in the US or UK.

Secondly, the voice calls segment has been exploited by telecom operators worldwide for over a decade. There has been literally no improvisation or improvement by the service providers. Therefore the zero-cost voice calls will certainly have a lasting impact in the medium-term. On the contrary, because of stringent regulatory guidelines by government agencies in most parts of the world, and also due to the fact that smartphones are still not affordable to many, the impact should be limited in the near-term.

Lastly, the voice call service totally depends upon data transfer. If telecom operators have lost business to messaging, they have also gained significantly through value added services like data transmission. With the amount of pictures, videos and voice messages uploaded/downloaded each second, traffic is only increasing and adding to the operator’s coffers. The addition of voice calls will certainly change the dynamics of your mobile bills. Today if your bill comprises 70% voice, 25% VAS and 5% messaging, then it will change to 80% VAS and the rest voice and SMS. Unfortunately for the operators though, the amount of the bill will certainly be less than before.

The world is shrinking by the day, from landlines to mobile phones, from broadband to Wi-Fi, from social networking to seamless communication. Packaged deals are the order of the day; Facebook and WhatsApp are nurturing their new-born, soon to be called – Voicebook. It is no hard job to pronounce the verdict in favour of the Facebook-WhatsApp deal, just as it is imperative for telecom operators to tighten their seat belts and brace themselves for some extraordinary challenges in the near future.