Could Telcos Compete with WhatsApp if Regulations Were Relaxed?

By Gary Kim February 27, 2014

Do current regulations prevent telcos from competing with Skype and WhatsApp? Or does the value-price relationship (no incremental cost) actually shape the fundamental competitive dynamic?

Paulo Bernardo, Brazil communications minister, apparently thinks licensed telcos could compete with WhatsApp and Skype if regulations were relaxed.

Bernardo said Brazil is looking at a new telecommunications regulatory regime, to take into account the rise of services like over the top calling apps such as Skype and WhatsApp.

Precisely what that might entail is not immediately clear. But Bernardo said “quality-of-service requirements” placed on Telefonica, Embratel and Hi prevent them from responding to over the top services.

Some might argue it doesn’t fundamentally matter whether licensed tier one telcos are allowed to provide VoIP service over the top, without the burdens of carrier voice regulations. The issue is not so much quality of service rules but the business model.

Though “no incremental cost” is a major advantage of OTT messaging, compared to carrier text messaging, value is the other attraction. People can do things on messaging platforms they cannot do when using short message services.

Still, it is not clear whether relaxing rules can help incumbent telcos compete with over the top messaging and voice services. Telcos simply have cost structures too high to support viable OTT messaging and voice, even if they wanted to do so.

McKinsey analysts believe telcos can slow the incursion of OTT apps, but at the cost of providing affordable texting options.

Booz and Company analysts have argued telcos really cannot compete directly with OTT applications. Others have argued for partnering with OTT providers.

A few telcos have tried to launch their own OTT apps. Generally speaking, the argument for effective telco competition with OTT apps is to add value. Whether enough value can be added to change the value-price relationship is the question.

OTT apps continue to add functionality and value as well, the most recent example being WhatsApp announcing it will add voice calling in 2014.

And some might argue best course is to harvest voice and text messaging revenues, as has been done in the past in the communications business when a legacy revenue source faces decline.

The point is that it isn’t clear that relaxing regulations on carriers who want to offer over the top voice or messaging is a fundamental matter.




Edited by Cassandra Tucker

Contributing Editor

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