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Will This New Technology Help the Telcos?

cell phone Over-the-top (OTT) messaging services like Whatsapp, Facebook Messenger, and Apple iMessage are gaining in popularity with mobile users, at the expense of the short messaging service (SMS) market.

According to research done by Informa, it was revealed that an average of 19.1 billion OTT messages sent per day in 2012, compared to an average of 17.6 billion SMS messages. By the end of this year, Informa estimates that 41 billion OTT messages will be sent every day compared to an average of 19.5 billion SMS messages.

What will be the effect, if any, on a telecommunication company’s revenue model? In Singapore, whether a consumer is a customer of SingTel (SGX: Z74), Starhub Limited (SGX: CC3) or M1 Limited (SGX: B2F), they are typically locked into plans with bundled data and copious amount of SMS. It is unlikely that the three telcos will see any significant blows to their revenues in the near term. Furthermore, telcos offer increasingly lesser amounts of bundled data so that they can stand to gain incremental revenue as data usage increases.

It also seems like SMS is still widely used.  It is widely viewed as secure, reliable, and ubiquitous, unlike OTT services like Whatsapp. Businesses like banks still utilize SMS to send one-time passwords to their customers. For Whatsapp to work, both parties must have the application. To ride on the benefits of SMS, there is an answer in the form a new technology, called Rich Communication Services (RCS), backed by the GSM Association.

RCS offers users an innovative set of features that enhance the capabilities of traditional SMS and MMS technologies. Users can undertake individual and group chat sessions and exchange images or videos during voice calls or chats, launched from the address book. RCS provides cross-talk from mobile-to-PC, PC-to-mobile and even PC-to-PC. RCS touts that it can help to increase the average revenue per user and also enhance customer stickiness for telcos.

Only time will tell if telcos that go on the RCS bandwagon can really help to combat the proliferation of OTT messaging and boost their revenues in turn.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.  Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.