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Summary

WhatsApp’s introduction of VoIP is significant for the Middle East because regional operators are vulnerable to OTT VoIP services, despite a tendency to try to stifle these rivals. Regional operators should instead develop an innovative response to OTTs.

Operators should focus on innovation and improved services in response to OTT rivals

WhatsApp’s recent addition of VoIP calling to its messaging app – initially on Android but due to be available on Apple’s iOS within weeks – is especially significant for operators in the Middle East, because research by Ovum shows that they are particularly vulnerable to revenue losses as a result of competition from OTT VoIP services.

Nevertheless, Middle East operators could respond to the OTT VoIP threat through innovation rather than by seeking to restrict OTT offerings, as seems to have been the initial reaction to the new WhatsApp feature.

There is no doubt that WhatsApp’s voice move is significant. WhatsApp is the biggest OTT messaging service in the world, with about 700 million active users, according to research by Ovum. Although hard data for the number of WhatsApp users in the Middle East is hard to come by, the app is undoubtedly hugely popular in the region. The Arab Social Media Report, a study published in March 2015 by the Dubai government, said that Facebook and WhatsApp are the most used social-media channels in the Arab world. About 84% of respondents to a survey that was conducted for the report said they were current subscribers to WhatsApp.

For WhatsApp and its parent, Facebook, the introduction of VoIP stands to make their own service even more central to customers’ communications activity. But for operators, the availability of VoIP on WhatsApp poses a risk to their voice-calling revenues. And Middle East operators are particularly vulnerable to the impact of OTT VoIP, because of the rapid growth in broadband access in the region and the high level of demand for a low-cost means of making international calls. As a consequence, the Middle East will see the fastest drop in telco revenue as a result of OTT VoIP among major world regions, according to research by Ovum. Those losses will rise at a CAGR of 17.2% over 2012–18 to reach $7bn a year in 2018, equivalent to about 7% of total service revenue – compared to 4% at a global level.

For traditional operators, and those with a vested interest in them, the blocking or restricting of disruptive services such as OTT VoIP is a tempting option. The rules and policies around VoIP in the Middle East are opaque in some instances. In the UAE, the regulatory position is clear: The regulator says that only the licensed operators, Etisalat and Du, are entitled to offer telecoms services including VoIP. But in practice, some OTT VoIP services are available in the country, while others seem to be blocked. For example, attempts to use Skype to call landline or mobile phones might be blocked whereas Skype calls from one computer to another are not.

And there appears to be some blocking of WhatsApp’s new voice-calling feature in the UAE. With a large proportion of the UAE operators’ revenues coming from international voice calls, it is understandable that they are anxious about potential threats to that business. But in the longer term, operators in the Middle East, as elsewhere, must adapt to – or better still, lead – developments in the telecoms sector, if they are to retain their central role in it.

Increasingly, operators in the region are partnering with OTT players – including OTT social-media and messaging players – as a means of encouraging data use. In recent months, UAE operator Du has been energetically promoting its new Easy Social and Extra Social mobile packages, which include a data allowance for the major social media services: WhatsApp, Facebook, Twitter, and Linkedin.

Another option is for operators to introduce services that can compete with the offerings of the OTT players. In the UAE, both Etisalat and Du offer low-cost VoIP-based calling cards, aimed at lower-income expatriates who want to make calls to their home country. Du’s service is branded as Hello, and Etisalat’s service is offered under the Five brand.

At a more sophisticated level, the Rich Communications Suite (RCS) initiative represents a platform for operators to combine voice services with location information, messaging, and video and file sharing. However, the deployment of RCS globally has been slower than might have been expected. In the Middle East, Etisalat and Zain have run trials of RCS but not launched commercial services.

But some operators around the world have already demonstrated that they can develop services that can compete with the OTTs. Orange has done so with calling and messaging app Libon, which is compatible with RCS. In France, Orange offers Libon through a digital brand, Sosh, which has helped it win new customers and has encouraged them to reduce their use of competing OTT services such as Skype and Viber, according to Orange.

And now VoLTE, combined with RCS, presents another opportunity for operators to develop voice-based services that can compete with the OTT players’ offerings. It is still early in the deployment of VoLTE, with only a handful of operators around the world having launched the technology commercially, and none of them in the Middle East. But operators in Japan, South Korea, and the US are using VoLTE to differentiate their services and to compete against OTT providers.

And it is worth noting that the six Gulf Cooperation Council countries are also advanced telecoms markets by many measures, with all mobile operators in the GCC having already launched LTE. None of the GCC operators have yet launched VoLTE commercially, but Du ran a trial of VoLTE in the second half of 2014.

The opportunity is there for operators in the Middle East, and particularly in the GCC, to counter the OTTs with some innovation of their own.

Appendix

Further reading

“WhatsApp takes on the challenge of VoIP communications,” TE0003-000849 (March 2015)

Orange Plans Market Expansion for Libon After Achieving Objective of Reintermediation in France, TE0003-000758 (May 2014)

Consumer OTT VoIP Outlook: 2013-18, TE011-001330 (November 2013)

Consumer OTT VoIP Forecast: 2013-18, TE011-001325 (November 2013)

Author

Matthew Reed, Practice Leader, Middle East and Africa

matthew.reed@ovum.com

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