Understanding OTT - Why Carriers dislike BBM, hate iMessage and fear Skype (updated)

I was just speaking in the Netherlands doing a keynote at the Mobile Convention. As I was in town, the news broke that the local incumbent fixed and mobile operator, KPN, was laying off 5,000 employees in an austerity measure, and simultaneously, Carlos Slim's America Movil was making an offer to buy about a quarter of the company. KPN has significant telecoms presence in several European countries like Germany and Belgium. America Movil is the giant telecoms giant out of Mexico, and Carlos Slim is obviously the richest man on the planet. Why would this be relevant to OTT, Over The Top business? Because KPN was the first major telecoms operator to report a significant decline in its core SMS text messaging business, that drives more than half of the profits for most European mobile operators. KPN made that announcement a year ago. Since then they have had disappointing market news quarterly, and their share price had fallen so much, that clearly Carlos Slim felt they were a good value in terms of a step into the European telecoms market.

GET DOWN WITH OTT

With that, rather clumsy intro, lets look at OTT. What am I talking about. I'm talking about BBM, Blackberry Messenger. I'm talking about iMessage and Facetime on the iPhone. I'm talking Google Talk, MXit, Whatsapp. And of course I'm talking about Skype. Over The Top providers will offer bypass services, typically for the most profitable parts of the telecoms business, via apps loaded to smartphones. If you want to save money from your SMS messaging costs and you have a Blackberry, then use BBM. If you have an iPhone, then its the iMessage. In those cases, your friends will also need to have the same service that exists only on that same platform. Or if you have friends with different smartphones, you can install Whatsapp, and send and receive mobile messages free, shared with any friends who also have Whatsapp. 

Skype we all know, we can do free phone calls via the internet, in addition to the messages, and we can also do videocalls over the internet. All free.

Consumers love OTT services, obviously. And businesses like those savings too. But the telecoms operators hate them. And then the hatered comes in flavors, depending on who it is and what they do.

OPERATOR ECONOMICS 101

So lets look at the very basics of telecoms operator business. In 2011 the mobile industry earned 1.3 Trillion dollars. Most of that was not the costs of our handsets or other 'hardware' such as the telecoms networking infrastructure. Most of the business - 77% of it actually - was on the services side. Most of that 1.0 Trillion dollar service revenue pie, went to the telecoms operators. And of their income, 65% came from voice calls, and 19% came from messaging. So out of the total mobile telecoms revenue pie, 84% came from voice and messaging. That a large share for essentially just two services.

But more important than revenues is profits. Roughly speaking 50% of global mobile operator profits came from voice calls, and 45% came from mobile messaging. So voice and messaging generted 84% of revenues, and 95% of profits for the mobile industry's biggest players. Now you see? These are truly the 'cash cows' that keep the industry alive. A dramatic threat to either one of these two services would be a catastrophic menace to the very survival of the mobile operator involved. If anything were to actually jeopardize both voice and revenues - that would be the existential threat to the very industry.

UPDATE - May 12 - AT&T CEO Randall Stephenson was interviewed at NY Times. He says he stays awake at night because of OTT services like iMessage. (So I'm not just making this stuff up, it really is an existential threat here we are discussing. OTT services are the biggest headache for mobile operators/carriers worldwide)

Now the rapid rise of iMessage or Whatsapp takes a brand new meaning. It is nice for us consumers to make calls on Skype but the revenue and profit drain is enormous. Lets now look a bit at recent stats reported about the OTT business.

WAY, WAY OVER THE TOP

The UK is a highly competitive telecoms market with many similar-sized real network operators, and also many viable and sizeable virtual operators (MVNOs) and a market where voice call tariffs and SMS messaging tariffs tend to be among the lowest in Europe. The bundles to get big buckets of free voice minutes or messages are plentyful on all networks. Roughly speaking half of the market is with prepaid customers and half postpaid accounts. There are both subsidised handsets and unsubsidised handsets. There is no dominant domestic player and unsually for most markets, the past national monopoly service, British Telecom, sold its mobile asset, so there is no dominant major legacy player with both a fixed and mobile network to run. The UK has been near the lead in most of the major technical and user-adoption issues for mobile, an early indicator market for Europe and considered one of the more advanced mobile markets also globally. The UK is a very good test case for many mobile matters. A test laboratory, if you will.

We just heard from a survey by MyVoucherCodes of the UK's OTT market. 81% of British mobile phone users have installed an app for at least one OTT service. Four in ten UK mobile phone owners with an OTT service, have also shifted away messaging traffic from traditional SMS, either partially or completely. That means 33% of the total mobile phone user base in Britain.

One third of British mobile phone owners has not only installed an OTT app, and uses it, but likes it so much, they have already shifted part or all of their messaging traffic away from SMS. That is massive. Remember, 19% of mobile operator revenues and 45% of profits globally come from SMS. And in Britain already today, a third of the user base is shifting or has shifted away from this vital piece of the mobile operator business, sapping revenues and profits.

The even more damaging part of this evolution is, that the shift is most rapid and most complete, with the heaviest users. The youth. The heavily travelling. The expat foreigners. Those who used to generate a disproportionately large volume of the total messaging traffic (and revenues, and profits).

How big is the damage overall globally? Ovum measured for 2011 globally and found OTT cannibalization of lost revenues to mobile operators out of text messaging at 14 Billion dollars. When the remaining real SMS market was worth 126 Billion dollars, the theoretical revenue pie would have been 140 Billion. And messaging OTT provider have thus cannibalized about 10% of the total global revenues of SMS text messaging. How rapidly did this threat emerge and materialize? I count the start of mass-market OTT service in mobile from the year 2005, when Blackberry Messenger started to be adopted in many markets by the youth. So in the next 6 years the cannibalization of SMS revenues and profits has gone from zero to 10%. And if we project a standard S-curve to this number and the past 6 year growth pattern, we get the cannibalization level at about 20% by the end of this year 2012.

BAD BADDER BADDEST

Yes, I know thats bad English. I just like the Badness of it all. This is a blog, I can be a bit more casual with the language, get over it. But yes, lets look at a few of the OTT providers. The UK survey by MyVoucherCodes revealed that the biggest OTT provider in Britain is iMessage which is used by half of all who use OTT services. Blackberry Messenger came in second, used by four out of every ten people. Whatsapp had 37% and Skype 33% of UK messaging users who use OTT services. Kik was ranked 5th at over a quarter of all OTT users.

UPDATE May 11 - I have just spotted US stats to help further understand the market

A day after this blog went up, I found a US survey by Acision, which says that of US messaging oriented OTT services installed specifically on smarpthones (remembering that OTT apps also often are available on mid-range featurephones) Acision measured the US adoption rates among smatphone users as follows: Facebook 37%, Skype 17%, Twitter 17%, iMessage 11%, BBM 10% and Whatsapp 5%. And similar to the UK finding, most who use SMS have not stopped doing so even with OTT services. In the USA, even among smarpthone users, 91% send SMS regularly and 45% of smartphone-owning SMS users, (and many in this group even while having access to OTT provider solutions) say they would be lost without SMS. I should point out, that the survey was commissioned by a mobile messaging provider (Acision) but the survey size was significant at 1,000 US mobile phone owners. There is tons more data and findings about US messaging users both SMS and OTT in the survey, which was reported at Mobile Enterprise 

BIG REGIONAL DIFFERENCES

The OTT market is still quite fragmented and there are many regional or local players. The domestic market use of OS brand-specific OTT providers, iMessage and BBM specifically, depends very strongly on domestic penetration rates of that platform (iPhone, Blackberry) in that country (and specifically among consumer users when we consider Blackberries). iMessage is big in France but nearly invisible in India. BBM is nowhere in China but huge in Venezuela. And so forth.

So if we want to consider the level of fear and loathing from the side of operators/carriers, then there are roughly four levels of threat.

First there are the small players and regional players. These are certainly a threat, and in some markets - take MXit in South Africa for example, they can be a huge disruptive player. But globally, a carrier group would rate them still as the least dangerous threat.

Secondly come the OS specific platforms, specifically currently Blackberry Messenger and iMessage. Blackberry has some 75 Million users worldwide, so it is less of a threat than iMessage, which reaches about 150 million users of iOS devices, not just iPhones but also iPads and iPod Touch devices.

Third are the global cross-platform messaging companies, specifically currently Whatsapp. While the user number is still less than BBM or iMessage, Whatsapp has the threat to be on all smartphone platforms breaking past the barrier of one OS family. The global installed base of smartphones is over 900 million today (plus you can double that easily, if you add Java/Brew capable 'featurephones'). But still, Whatsapp has a long way to go to approach anything near that large a number of active users.

Fourth, and on the top with Over The Top, is one and only one: Skype. Skype has over 900 million users today, so just by virtue of being the biggest, it is the biggest threat. But where most OTT providers are single-service plays (mostly on messaging), Skype is a triple threat, doing voice calls, messaging and videocalls.

 

METCALFE'S LAW

 

And now we gotta come do some math. Don't worry this is not going to hurt. But telecoms operator staff tend to be engineers and they love their math. And they all know Metcalfe's Law. Metcalfe's Law is a law about communication networks. The law says that the utilty of any network increases in the square of the increase in its users. When you double the network use number, you increase the network utility to all users, not by double, but by quadruple (2 times 2, or in math terms, '2 squared' or 2 to the power of 2). So if your network user number grows by 3, the utility to all users grows by 3 x 3 = 9. This now gets interesting.

According to pure user numbers, iMessage is roughly twice (when measured by number of current iOS device owners, not necessarily active iMessage users) as big as BBM. But according to Metcalfe's Law, iMessage is four times as dangerous to carriers simply as a network to transmit messages.

What about Skype? It is 6 times bigger than iMessage (ie 36 times more dangerous) and it is 12 times bigger than BBM (ie 144 times more dangerous).

You notice how this gets frightening really fast. If carriers/operators 'disliked' BBM and tried to stiffle its growth, they honestly fear iMessage and are doing all they can to prevent its growth. How then would they react to Skype? Pure terror might be an appropriate term for their spontaneous unprompted reaction, I would say. 

And hey, that is Skype today, before Microsoft gets into bed with them. Now Microsoft is promising to integrate Skype into all their platforms, starting with Windows 8. Soon it will be on Xbox360 and on Windows Phone etc. Take you 900 million current active users, and add in 1 Billion Windows desktops. Yes, there is bound to be significant overlap, but even if we say the resulting Skype plus Microsoft juggernaut comes out at 1.5 Billion, that is 10 times bigger than iMessage - yes, not 36 times more threatening as Skype is today, but yes, 100 times more a threat when powered by Microsoft.

Thats just messaging. Messaging which delivers 19% of operator revenues and 45% of operator profits. Skype also kills voice calls where 65% of revenues and 50% of profits are today. And finally, Skype also destroys the future, because it cannibalizes consumer videocalls, something operators/carriers wanted to be a future revenue and profit stream in the 3G and LTE networks, using smartphones with the second, forward-facing cameras.

For whatever dislike, mistrust, fear and hatered any mobile operators have for BBM or Whatsapp or iMessage, that is simply exponentially more towards Skype. And I have not even started about the role of international calls and international call roaming to the profits of the mobile operators. Skype is like a guided missile, aiming for any place where a mobile operator has its best profitability.

THE EMPIRE STRIKES BACK

So how is the carrier community reacting. Any operator can react to low cost or cheap or free voice or messaging provider, by the obvious marketing tool - cutting its own prices. The operators tend to not lower their main public price for the voice minute or SMS text message, for example, but rather they use other methods by which they can focus the damage, for any price cut means directly a cut in profits too. So they give big (or ever bigger) bundles of free calls and messages at some price plan or point.

Then the operators try to set up something similar. For Skype VOIP calls and various Skype clones like Vonage, the operators have already been deploying VOIP based discount call services, such as those used for international calls. Typically you would need to dial some special prefixes on that operator's network, to access those cheaper VOIP technology based international calls. And on the messaging side, some operators have been starting to roll out clones of OTT messaging services like Whatsapp. In the USA, T-Mobile launched Bobsled, while in Spain, Telefonica has launched Tu Me.

And of course the operators also try to limit, cripple, shut down or charge extra for uses of those services, just like TeliaSonera in Sweden is now doing for Skype. Their (new) contract terms say their unlimited data plan explicitly excludes access to Skype and if Skype is used, those data charges will be above the standard all-you-can-eat package.

LEAST THREATENING OPTION

Now we are approaching the point where operators are making those hard choices. The actual decisions depend very much on what is in their home market, what kind of smartphone platfroms are popular etc. But consider for example BBM and iMessage. Clearly both are undesirable for the operator. But consumers want smartphones. Which one to support in marketing terms (from in-store promotions to handset subsidies)? So first, iPhone is already bigger by reach than Blackberry. But when you add the global iOS family of product to the iPhone side, and the few sold Blackberry tablets to the BBM side, you get a very lopsided picture, the reach of iMessage is far bigger. Then lets add data loads. A Blackberry often has a smaller screen, it is less optimal for web surfing, they are very well suited for messaging which has a trivilal data load footprint compared to modern web content like YouTube videos. Then compare to iPhones. They have excellent data consumption elements, a large screen, great intuitive browser and typical Apple goodies. And for messaging, an iPhone with its touch screen is never gonna beat a Blackberry QWERTY keyboard. Remember the UK stats, for most users who have installed OTT messaging services, they don't quit using SMS. So having a good messaging phone will increase the traditional messaging traffic versus a bad messaging phone. 

So an iPhone causes heavy data loads and is not causing increased messaging to the same degree as a Blackberry. Meanwhile a Blackberry has on average less web traffic but has far higher uses of messaging, both on BBM and on SMS. Then add the data compression which on the Blackberry solution is far better than any other smartphone. Finally add BBM and other Blackberry data plans, with most Blackberries, there is a revenue opportunity for the operator already built-in on BBM, which Apple of course does not give to the operator. On all these things, while yes, operators hate BBM too, the overall Blackberry package is far far less harmful for the operator total business, than an equivalent iPhone.

The same goes for Whatsapp, and yes, for Skype. Whatever option is out there, Skype is literally the most dangerous, the most harmful and most threatening. That is why carriers hate Skype above all others. That is why when Microsoft bought Skype, they were faced with an instant, global sales boycott of all Windows Mobile and Windows Phone smartphones - even as these did not come with Skype pre-installed. The carriers know that VOIP and OTT messaging are inevitable. But Skype is not inevitable. They will fight Skype till the last minute and message and videocall. And mark my words, the operators win in this game. We've seen this movie before. Nokia tried to bypass carrier services and make revenues for itself with something called N-Gage. The carriers said no you don't. Nokia's market share had a severe drop globally from 40% of all mobile phones to 24% and Nokia went back to the operators, apologized, and immediately ended the N-Gage app store with its side-loaded games and operator-bypassing software sales. Why could Apple then do it successfully? Its the Blackberry vs iPhone problem of today. When Apple launched the iPhone App Store in 2008, they were tiny in smartphones, only 10% of all smartphones and 2% of all phones sold. They were not a threat (then, they are now). Unfortunately it seems that Nokia's Stephen Elop has managed to fire or scare away all the senior management talent who knew the N-Gage story, as Elop clearly has not learned this lesson. As Churchill said, those who fail to learn from history are doomed to repeat it.

And if you think the carriers don't have this kind of clout anymore, ask Apple last year. Apple thought the iPhone loyalty and fan support is strong enough, that Apple could deploy a virtual SIM card to the 2011 new version of the iPhone (what later became the iPhone 4S). The carriers said no. Apple lost four months of sales, had to rush a redesign of the iPhone 4S with a real SIM slot and the carriers won. They won against Apple. Who wins against Apple?

And if you are a Microsoft fanboy, what of Microsoft then? The carriers promised to launch the Kin youth phones, Microsoft's first phones ever (two years ago). Then they didn't like Microsoft's arrogant bullying tactics, and after they took the marketing launch campaigns, and the phones hit the stores, they stopped supporting them. Microsoft pulled the Kin phone from the market - in six weeks. The shortest life of any phone ever created. Yes, the carriers have this power. They used it against Nokia when it was biggest in handsets, they used it against Apple when it was biggest in smartphones, and they have used it against Microsoft specifically, even before Microsoft angered them totally, with the purchase of Skype. Now the matters keep getting worse for Microsoft (and Nokia Lumia) as we just learned yesterday, that Nokia CEO had been telling the Nokia shareholders how dramatic world domination plans the Axis of Evil (Skype + Microsoft + Nokia) now have. But read that blog to hear the Nokia story, this blog is not about Nokia, this is about OTT platforms and why carriers dislike BBM, hate iMessage and fear Skype.

For those readers who might want to know more explicitly about the danger Skype poses to mobile operators, I wrote a blog about that last year. This is far more detailed and specific, and obviously only about Skype. Read: Why Do Carriers Hate Skype: Let Me Count The Ways.

OUR PREFERENCE IS NOT THE ISSUE

Please note, I am here to explain how carrier business works. Obviously for us, normal people, consumers, the OTT services are excellent and help drive innovation and lower costs. Those are all good things. I am not in any way suggesting OTT is not coming or will not take over for messages and calls. I do want my readers to understand why there is such a big difference among the OTT providers, and why the carriers are so nervous about this matter. As I mentioned, MY PROJECTION says 20% of all messaging revenues is going through OTT within a year, doubling from what it is today. I am not in any way suggesting we try to go back to a previous decade haha.. I am not saying what we want. I am saying what the operators/carriers think, and they decide which handsets are in the stores and which are sold to their customers. Thus the carriers control this situation. And if Microsoft were, for example, to put a premium price Skype on Windows 8, where the calls are not free, then nobody would use that, they'd go to free alternatives, obviously. So the purpose of this blog was to answer the question from many on this blog and on Twitter, who asked me to explain this part of the telecoms economy and competitive landscape. I am not here to defend carriers or suggest OTT should or even could be eliminated. What I AM saying, is that the carriers have power to pick one over another, and in that contest, Skype is already doomed.. 

WHO IS THIS GUY?

Oh, and those who ponder who is this silly Ahonen with his weird views? I'm the most published author in the mobile industry with 12 books out already and explicitly, I wrote the industry's first business book, how to make money with mobile (M-Profits a multiple bestseller, translated etc). In that book I discussed this opportunity and threat - literally 10 years ago - so I didn't discover the OTT issue with iMessage last year or BBM a few years ago, haha. Before I worked at Nokia, I was employed at Elisa Corporation (Finnish carrier/operator) in the 1990s. and as the head of our international products I oversaw our trial of an early VOIP service in 1997. I've been personally actively involved in the BUSINESS of this opportunity for 15 years, literally, and written 'the book' about the mobile carrier/operator business. If you think Tomi is a weirdo, think again: I am referenced in over 120 published books already, by my peers. If you think my thoughts here are weird, the real experts of this industry - the ones who write the books - they trust me. You might consider re-reading this blog with that in mind.. And I'll be here in the comments to chat with you too. Just remember my rules of comments on this blog - don't be rude to my readers, stick to this topic of this blog article (you must illustrate in your comment that you read the full article else I remove your comment as a waste of the time of my readers) and don't use profanity. I also remove spam and some obvious troll comments but you don't have to agree with me, I keep very hostile comments here on this blog critical of me and calling me mad etc. Thats all fine, I will be here ten years later after another 10 books and those comments will be very petty by then haha..

Comments

[Dan]

I'm in the US, and pretty much only contact folks in the Philippines. They’re not on data plans, and prefer texting, so that counts out Skype and other OTT’s. They text me to my Philippine Smart SIM phone number, roaming T-Mobile or AT&T, lodged in a Nokia 3110c, and I text them back using Rebtel.

I’ve been giving out my Google Voice number since I got it, instead of my Verizon Wireless number. I've dropped my text plan, and get charged by text. At $.20 / per text incoming/outgoing, the most I’ve paid for texts is like a dollar for the month. I’m grandfathered into unlimited LTE on my Nexus, so it's Google Voice all the time. I even use GV to call the Philippines.

Now, I'm on a 700 minute family plan with my son, we've never exceeded 200 minutes. He's got an LG featurephone, and $10 texting plan. I'm looking in getting him a used T-Mobile Galaxy S and get him on the $30/month no-contract plan. That way, he gets web access, and starts to give out his Google Voice number. Who knows, we may drop his Verizon text plan later. Carriers should just admit that they're going to be dumb pipes, lower their data prices, and that may get more people to sign up for data.

About the carrier hate for Windows Phone, apparently AT&T is doing a major marketing push for it, so maybe it's an exception.

[joel]

@Tomi,

“What I AM saying, is that the carriers have power to pick one over another”
=> I agree and it should be until MS establish network in global for their Skype.

By the way, if we consider VoLTE against this Skype thing, then what can be appeared?

When I give my mind to VoLTE by simple, then other things could be appeared from the comments of Elop although the conclusion is same so far.

“The feedback from operators is they don’t like Skype, of course, because for those operators who have a traditional wire-line business, traditional telephone business, it could take away from revenues”
=> In my opinion, this comment of Elop is still wrong. All operators, not some, don’t like Skype of MS due to it will be disaster for them by extorting money from them absolutely or letting them be left at mercy of Microsoft.

“ok there, is this Skype thing, is there a different type of partnership we can do that recognizes that voice over IP like Skype is coming no matter what, but maybe we can do something creative that generates incremental revenue for you.”
=> Yes. The VoIP apps/services are coming no matter what. It’s also true. By the way, we need to know that it doesn’t mean that it can be a reason why operators will accept the pre-installed Skype on windows phoned devices because accepting pre-installed Skype on WP and promoting it will let them be left at the mercy of the Microsoft.
Anyway, let’s see Elop’ comment more to know how Skype can be handled creatively for operators.

“Some operators are looking at bundling Lumia, Skype and their own services with higher-bandwidth allotments to actually charge the consumer more and generate more revenue for them. So by actually controlling the Skype asset, we can begin a conversation about how we can have a better Skype-based relationship, which was impossible for operators to do before. So it’s actually quite a bit more advanced than whether operators like or don’t like Skype”
=> Some operators are already providing their VoIP services for balancing and other operators will try to provide those things. But important thing what operators should trying is finding a way how they can keep balance by preventing VoIP services are extorting money from them because absolutely, the networks what we are using have been established by operators and network development and deployment will also has to be done continuously by them.

However, what I can see in here is that Elop is saying about controlling Skype asset. Why? Can Elop and Nokia control the Skype asset?

Absolutely, Skype is good entry point to start conversation with operators for MS but not sure for Nokia because MS can take some advantage because it(Skype + MS) is survival threat to the carriers as Tomi wrote before.

Then what Elop is doing?

Anyway, just keep going on.

“they actually want to engage in a conversation about what does this mean and how could we do something that we couldn’t do before.”
=> Ah….Elop mentioned that they are trying to lure operators by into the conversation entry point what MS, not Nokia, can take an advantage and Elop is saying some operators also want to engage in the conversation now.

And, about the how, maybe, in my opinion, the one chance what MS has, not Nokia, is VoLTE but WiFi related things will has to be resolved in a case what MS really want to make a win-win solution with operators and remove the survival threat against their customer (operators).
(Tomi. You already point it out via your blog “Why Do Carriers Hate Skype? …” that it(Skype + MS) is survival threat to the carriers. Thanks for that.)

Questions what we can have are ….

Will Skype of MS be the only way to handle VoIP things?
If a wood gives its branch to woodcutter, then what will be happened in the end?

Even if MS provide a good way to let their Skype is not extort money from operators, then will it be enough to accept pre-installed Skype although it is being controlled by Microsoft, not operators even if, eventually, it will let the operator be left at the mercy of the Microsoft.

So, in my opinion, even if we consider VoLTE and accept that the VoIP apps/services is coming no matter what, then still Skype of MS will be a bad solution for operators and their industry because MS will or can try to monopolize the entire operators without installing any networks.

Believing that all operators want to provide their own VoIP services based on their plan and schedule or by making requirements to keep themselves by letting OEM/3rd party provide VoIP app as default if need arise based on user’ demand and their requirement is more makes sense.

Then what will be next step of Microsoft? Will they just see it?
Maybe, in that case, Microsoft is willing to take a threatening attitude like a footpad with their Skype and their power over PCs market share, Xbox, Windows Live, offices, and so on, to push operators support their Windows Phone platform against that case.

And at this point, I would like to point one wired thing amid Elop’ comment out, again. The word “we” in “we can begin a conversation about ….” and “they actually want to engage in a conversation …” bring me some questions.

Can Nokia control the Skype to let user use it via only mobile operator networks instead of WiFi?
It couldn’t. However, Elop said “we” and didn’t hesitate to make a comment which operators can consider it as threat.

It told me that two possibilities are there.

One is Nokia and Elop are trying to be S/W platform company what can earn money like Microsoft’ business model by riding Microsoft’ platform. Maybe, through uses Map service? Or put their software solutions into Microsoft platform?

Another one is Elop misunderstood his position or he is working for Microsoft, instead of Nokia.

My opinion is that Elop and Nokia want to be S/W Platform Company by riding Microsoft’ platform and it makes sense. However, it was quite devastating to know that Elop did it without plan B, though.
And, still some questions are being there.

With assumption that Elop and Nokia could be, then can Nokia control MS platform for guaranteeing their profit continuously as the company concerned? -> I believe the answer is No.

Was it valuable to dump Meego and all others at once even if those can bring money to Nokia for a while and still some possibility is in there? -> May be not and absolutely not for doing it without plan B.

Do they have some evidences or well-grounded information that becoming slaves of Microsoft by dumping Meego and all others at once is the only way for Nokia? -> I don’t know it.

In my opinion, Microsoft will lose nothing through the deal with Nokia but Nokia won’t, absolutely.
And I can’t sure that Nokia will has to get high return in proportion to this high risk even if Nokia can be survived in later. Wow.

So..my conclusion is about Elop……….... Hum....

[Greg vP]

@DEKRA

Perhaps you missed it in Tomi's post - he didn't talk about it in great detail - but besides international calls and messages, carriers make a lot of profit from their corporate accounts. It's their other big profit centre.

Now, a role-playing mini-game: you are the telecommunications manager in a Fortune 1000 company. You have been told to cut costs. You consider Skype, Facetime, and Whatsapp. You know that Skype is owned by Microsoft, and Whatsapp doesn't appear to have any big backers.

Do you opt for Whatsapp (and, e.g. Viber), and present to senior management a recommendation that the company transition its telecommunications to Whatsapp?

Yes? OK - you are laughed at a lot, and you are not a telecommunications manager at a Fortune 1000 company any more.

Do you present a recommendation in favour of Facetime + iMessage?

Yes? The marketing manager loves this but the chief financial officer points out that maybe one-sixth of your suppliers and customers have Apple hardware. (Really, he just hates Excel on the Mac.) Oh, there's a Facetime app for Android? Made by Apple? Oh, it's made by three teenagers in a garage in Chennai. Are you seriously promoting that as something we can run the company on?

You come out red in the face and are sidelined from the promotion track.

Do you present Skype?

Everyone understands Microsoft (or so they think). And Microsoft understands your business (or so they think). Support and training will be there. And two clinchers: you don't have to spend endless hours working out how to fit Skype into the ICT infrastructure - all you have to do is wait for Windows 8, which is coming in a few months. Microsoft has done all the hard work (or so you and they think).

But, most important of all, Microsoft is a big strong company that will still be there in 20 years, still supporting its products (or so you and they think). It's someone to sue if things go wrong.

The answer comes back: OK, give us some detailed numbers and if the savings are there, we'll try it out. Good work!

Mobile vendors can play this role-playing game, because they understand their customers the Fortune 1000 companies.

Now, Sprint.

Consumers? Who cares about them? Well, we do, says Sprint, if they start spending more, and spending it with us. They're not as profitable as the big corporate accounts, but if we can't get those, we'll take try to take high-spending consumers from other carriers. (It's called cherry-picking.)

That's why Sprint "bought" Apple's phones. They bought cherries.

---

If corporations move to Skype, and it cuts into profit as much as Tomi suggests, operators won't be able to afford deluxe network maintenance. Costs will be cut wherever they don't affect the most important customers. That means worse service for most of us. And it means a longer service life for network equipment: think forty-year-old rusty cell towers with dead batteries and corroded wires, that stop working in the rain.

Cost competition can be a good thing in a mature industry. In an evolving one like mobile, each company lies awake at night worrying *not* about what its competitors are doing, but about what they might do next year. They need high profits so they can reinvest, reinvest, reinvest. That's what forces them to get better. That's what we stand to lose with Microsoft Skype. Maybe the industry has matured, but it seems very soon to be making that call.

Maybe the coming decline in mobile service won't be a problem: we'll just use VOIP and IM via wifi instead. After all, open wifi access points are everywhere, right? And it's no hassle to create an account with each and every one on the fly, right? And they're just so reliable, right? And having eight messaging apps on your was-a-phone and remembering who uses what is effortless, right? Yeah - no problem.

[Louis]

@Greg: AT&T's 40% margins aren't enough to fund caper, I'm sure. Also, too, it is the union's fault. It always is. Time to fire up the government lobbyists.

Sufficice it to say I am confident that somebody (maybe Carlos Slim) has figured out how to make money in that space without pricing gimmicks.

@Tomi: The process of competition rationalizing prices may be slow, but it can have jumps too. It only takes one desperate "defector", which will be the first carrier where the bottom falls out of texting. I think we know who this is http://www.forbes.com/sites/terokuittinen/2012/05/11/coming-attractions-telefonica-is-a-dark-mirror-of-europe/ and why they launched TU ME yesterday.

[William D.]

Great blog entry, as usual.
A comment or two about iMessage & OTTs, if you please. I work very closely with the Mobile Messaging industry, so I can report, that in the US, SMS traffic rates have only declined very, very slightly - essentially are flat.

Now, with iMessage, I have a reliable source that has direct contact with someone in Apple and they have revealed to me that iMessage is generating about 2 billion messages per day (no geo breakout provided). OK, so that's a data point.

Remember, the iMessage sends a message as an SMS, if the other party is not iOS 5.x. Globally, iPhone sales were 19.4% of all smartphone sales in 2011 (according to data from Informa Telecoms & Media) with projections of 18.9% for 2012, 18.2% for 2013, 17.4% for 2014 and 16.2% for 2015. As you can see the percentage of iPhone share of the smartphone sales drops (even though Informa does show iPhone sales overall increasing for the same period). Now that means, that the percentage of iPhones on the street among all smartphones will drop -- which means that iMessage (iOS to iOS) will likely slowly decline. So, I'm not so sure that iMessage has not peaked or will peak soon - at least the data may support it.

While all of the OTT messaging services are free and all that; however, they are NOT unbiquitous nor interoperable with each other. SMS, despite its limitations is still extremely interoperable across the globe.

In the US, the biggest OTT players don't work against the SMS ecosystem, they actually work with it by interworking with mobile operators' SMS (and each other). This is NOT WhatsApp, Kik and Skype, but Pinger (TextFree), Gogii (TextPlus), Google Voice and quite a few more. Of course, they extend SMS to non-phone devices as well such as iPod Touches, Tables and even other devices. Of course, "subscrbers" get a new identity in terms of a new telephone number, but for many that's a good thing - a small inconvenience for reaching others through SMS. But, that's one of the reasons the US market has not declined to the extent as some others have around the world. These OTT players actually expand the universe of addressable devices. The US operators are warming to these companies and their are guidelines in place to govern everyone's behavior. In Europe and elsewhere, it is more difficult to obtain phone numbers for these inter-operable OTTs to assign to their subscribers, so consequently, the gap is filled with the likes of WhatsApp, etc.

Something to think about.

[cycnus]

@Dan

Here is why OTT services will fail.

First my analogy of OTT is like this:
Carrier build a Highway. If you want to enter the highway you must pay certain rates.
The OTT build a truck that carry car. They park in front of tool gate, and after paying the rates, youre car go out of the truck again.

Carrier know that VoIP can ruin their business, but in mobile carrier as the person moves around it, the quality of internet would differ from time to time and also place to place. This is where the OTT voice service is harder to become defacto service, because voice is always the number 1 priority, the voice quality using non-OTT is always better.

People were tempted to use OTT right now because there were big different in price while using OTT. but if skype comming, the carrier could set the price of their service around 30%-50% above the skype, and providing ALWAYS better quality than skype no matter what. Microsoft will lost, but the carrier will take a big hit.

Therefore, right now, their slapping microsoft face because they already see the future that they're income gonna be down. so, they were boycotting microsoft first (per-empetetive strike) to let microsoft know, their skype is not welcome.

When skype or other voice OTT come, carrier would still win at the end (see BBM vs. unlimited SMS), and the OTT will be gone, but carrier won't be happy.

[Tomifan]

@Tomi
Did you accidentally miss Facebook? It was recently reviewed as most threatening to operators.
http://www.strandreports.com/sw4689.asp

[Louis]

@Tomifan: The ongoing theme in this blog, and also many of the comments (waves to @cycnus, @William, @Greg, and others) is that market disruptions that change the entire basis of competition can't happen, don't happen, and a symmetric response always works.

Facebook isn't better email, Skype isn't a better phone number, iOS isn't a better S40, and, in the EU, vastly more open competition isn't a different kind of local monopoly. The analysis here seems to preclude the idea that all these factors (which pull in different directions sometimes) could possibly combine in unpredictable ways. Which is why Facebook wasn't in the discussion.

[Olivier Barthelemy]

I'm kinda wondering
1- where you get your revenue breakdown from. I'm paying 16euros per month for unlimited data, SMS and voice calls to most countries' landlines, and a few for mobile.
2- how long you think my operator's model will take to spread.
3- why on earth you feel operator are so threated by Skype and such, but not by competition from other operators, or new entrants operators.

[Spawn]

@Sander van der Wal

> All their friends bough an iPhone or an Android two years ago

Maybe your friends. Remember in which markets Symbian was and still is strong. Asia, africa, latin america, russia, europe.
Symbian was not only selling well till Elop burned it but it also was growing!