Quantifying the impact of OTT communications services in Western Europe

Transcription

1 Quantifying the impact of OTT communications services in Western Europe Webinar Quantifying the impact of OTT communications services in Western Europe January 2013 Stephen Sale

2 Quantifying the impact of OTT communications services in Western Europe 2 Forecast introduction Mobile voice Messaging Market summary and implications

3 Quantifying the impact of OTT communications services in Western Europe 3 What we forecast Fixed voice Mobile voice Messaging Traditional operator services CS voice CS voice SMS Next-generation operator services VoBB VoIP/VoLTE IP messaging Non-operator provided services OTT VoIP OTT VoIP OTT IP messaging Focus for today

4 Quantifying the impact of OTT communications services in Western Europe 4 We provide forecasts for 16 individual markets Countries covered individually for this report [Source: Analysys Mason, 2012] Detailed splits are provided for the following countries: Austria Belgium Denmark Finland France Germany Greece Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland UK. The Western Europe dataset is the aggregation of the above.

5 Quantifying the impact of OTT communications services in Western Europe 5 Note on methodology Telecoms Market Matrix Smartphone usage monitoring Connected Consumer 2013 Market sizing Service penetration across devices Traffic/usage levels Pricing/revenue trends Forecast Attention to local conditions and dynamics Model relationship between price/usage/revenue View on business models and enabling technology

6 Quantifying the impact of OTT communications services in Western Europe 6 Forecast introduction Mobile voice Messaging Market summary and implications

7 1Q Q Q Q Q Q Q Q Q Q Q Q 2012 Minutes per month Quantifying the impact of OTT communications services in Western Europe 7 The mobile voice market is entering a new phase Revenue is in decline across Western Europe There are strong indications that mobile voice usage has peaked in some countries This is a result of several factors, including: voice services are mature economic downturn renewed appeal of the fixed line alternative means of communication available on smartphones are substituting usage. The mobile voice market is entering a new phase Average mobile voice usage in Western European countries, 1Q Q 2012 [Source: Analysys Mason, 2012] AT BE DK FI FR DE GR IE IT NL NO PT ES SE CH UK WE

8 Percentage of smartphone users Quantifying the impact of OTT communications services in Western Europe 8 Call substitution to VoIP services is undoubtedly occurring Preliminary results from our Connected Consumer Survey 2013 suggest that penetration of VoIP services on smartphones is in the region of 10%. Skype continues to dominate the VoIP market, which attests to the power of the network effect. Windows Messenger was the second-most popular platform. Viber and Google Talk are the major alternatives. Some smartphone users are beginning to use VoIP apps as their primary voice service and the danger for operators is that they become relegated to providing secondary voice services for a growing group of users. Penetration of VoIP services among smartphone users, by country, October 2012 [Source: Analysys Mason, 2012] 14% 12% 10% 8% 6% 4% 2% 0% France Germany Spain UK Top-4 VoIP services among VoIP users, by country, October 2012 [Source: Analysys Mason, 2012] France Germany Spain UK 1 Skype (92%) Skype (91%) Skype (83%) Skype (92%) 2 Windows Messenger (42%) 3 Google Talk (11%) Windows Messenger (36%) Google Talk (20%) Viber (29%) Windows Messenger (28%) Windows Messenger (44%) Google Talk (24%) 4 Viber (11%) ichat (9%) Google Talk (19%) Viber (21%)

9 Devices (million) Percentage of smartphones Quantifying the impact of OTT communications services in Western Europe 9 OTT VoIP services will continue their growth across devices We expect OTT VoIP applications to continue to attract new smartphone users. By 2017, almost a third of smartphone owners will be active (if occasional) users of mobile VoIP applications, but take-up will vary significantly from country to country. Usage of VoIP services will spread across devices: VoIP usage is increasing on tablets. Migration from the desktop PC to the more portable laptop Users by device is not equivalent to subscribers; there is double-counting. The development of new features will also drive the growth of OTT VoIP services. Smartphone penetration of OTT VoIP applications in Western Europe, [Source: Analysys Mason, 2012] 35% 30% 25% 20% 15% 10% 5% 0% Usage of OTT VoIP applications by device in Western Europe, [Source: Analysys Mason, 2012] Smartphones Tablets PCs and laptops

10 Smartphones (million) Quantifying the impact of OTT communications services in Western Europe Operators are tweaking the voice feature set but most view any major transformations with VoLTE as a long-term plan Several mobile operators have launched their own VoIP apps, typically offering low-cost or free calling via Wi-Fi. Operators have also improved voice quality with AMR-WB now widely available in Western Europe. This has had little impact on consumer perception thus far. Smartphones by default voice service, Western Europe, [ Source: Analysys Mason, 2012] VoLTE offers an opportunity to improve the mobile voice feature set VoLTE plans are currently being decided by spectrum strategies. Most operators do not have a meaningful voice strategy. European operators are viewing VoLTE as a long-term migration rather than urgent requirement. We do not expect widespread deployment in Western Europe until Circuit-switched voice VoLTE

11 Minutes (billion) Quantifying the impact of OTT communications services in Western Europe Operators will remain the dominant force in mobile voice but will be significantly weakened Voice traffic originated on smartphones in Western Europe, [Source: Analysys Mason, 2012] A growing proportion of smartphone owners will use VoIP as their primary voice service. However, the impact will be restricted to (sizeable) niches. Full service substitution will be very limited Circuit-switched voice OTT IP voice Operator IP voice Price will remain the major driver in the voice market. Tariff rebalancing means that operator-provided voice will continue to get cheaper. We expect the market to fragment as existing IP-based communication platforms improve their voice capabilities and best-of-breed apps emerge. Each will appeal to significant market segments. By 2017, we forecast that non-operatorprovided VoIP services will generate 14% of smartphone users voice traffic.

12 Revenue (EUR billion) Quantifying the impact of OTT communications services in Western Europe 12 Voice revenue will continue its steep decline We are forecasting a sharp decline in mobile voice revenue. Decline in MNO-billed voice usage (particularly among smartphone users) VoLTE will offer more room for price competition in mobile voice and act as a further impetus for tariff rebalancing. Pressure on voice revenue will be compounded by regulatory moves to reduce mobile termination rates (MTRs). Prepaid ARPU will decline faster than contract. Mobile voice revenue, Western Europe, [Source: Analysys Mason, 2012] Retail revenue Termination

13 Quantifying the impact of OTT communications services in Western Europe 13 Forecast introduction Mobile voice Messaging Market summary and implications

14 1Q Q Q Q Q Q Q Q Q 2012 Year-on-year revenue growth Quantifying the impact of OTT communications services in Western Europe Revenue trends in the SMS market are worsening but the true extent is obscured 14 SMS retail revenue growth in selected Western European countries, 1Q Q 2012 [Source: Analysys Mason, 2012] 40% 30% 20% 10% 0% 10% 20% 30% 40% BE DK FR DE IT NL NO ES SE UK WE At an aggregated regional level, the SMS market in Western Europe is in decline However, it remains in good health in many countries, at least at first glance. A clear picture of revenue trends is increasingly difficult to achieve given the reliance on (often arbitrary) accounting methods. Much depends on the signals that individual operators want to give to both its customer base and to its shareholders. Pricing for standard prepaid usage and overage charges for contract users is much more transparent.

15 1Q Q Q Q Q Q Q Q Q Q Q Q 2012 SMS sent per month Quantifying the impact of OTT communications services in Western Europe 15 A clearer view is available when measuring SMS usage, which is faltering in some countries but not in others The SMS market in Western Europe is showing marked divergence in usage trends. There are three major groupings. Poor performers (e.g. Spain) Late bloomers (e.g. France, Belgium) Early blazers (the Nordics) The different market contexts for SMS usage is a major determining factor for: the impact of alternative services such as WhatsApp Messenger the response of mobile operators to the threat of substitution. Average SMS usage, by country, 1Q Q 2012 [Source: Analysys Mason, 2012] AT BE DK FI FR DE GR IE IT NL NO PT ES SE CH UK

16 Percentage of smartphone users Quantifying the impact of OTT communications services in Western Europe Alternative messaging services have gained most ground in countries where the SMS market is weakest A large and growing proportion of smartphone users are adopting alternative messaging services. The main ones are: cross-platform messaging applications such as WhatsApp Messenger platform-specific services. The greatest impact has been in countries where the SMS market is weak. According to our latest survey data, 63% of smartphone owners in Spain used alternatives.. The pricing of these services is clearly attractive in comparison with operatorprovided SMS. Cross-platform services are the most popular in the countries that we surveyed. Penetration of alternative messaging services among smartphone users, by country, October % 60% 50% 40% 30% 20% 10% 0% France Germany Spain UK Top-4 alternative messaging services among users of these services, by country, October 2012 France Germany Spain UK 1 Skype (36%) WhatsApp Messenger (76%) WhatsApp Messenger (87%) Skype (52%) 2 Facebook (34%) Facebook (49%) Facebook (31%) Facebook (43%) 3 WhatsApp Messenger (14%) 4 Google Talk (14%) Skype (43%) Skype (30%) WhatsApp Messenger (39%) ICQ (17%) Google Talk (15%) BlackBerry Messenger (23%) 16

17 Quantifying the impact of OTT communications services in Western Europe Operators are responding by offering IP-based messaging services and are adopting three main approaches 17 RCS/joyn Telco OTT Partnerships RCS/joyn is the industry s official response. It is specified by the GSMA. The feature set comprises: Messaging and group chat Address book integration and capability discovery In-session file sharing, including video RCS/joyn is intended to be offered as a native capability on handsets, but is also offered as a downloadable app. The service is typically rolled out as a coordinated operator response (e.g. service launches in Germany and Spain) with interoperability as a marketable feature. This approach is gaining currency in markets where SMS is under strong pressure and the argument for selfcannibalisation is easier to make. Telco OTT services are proprietary services offered by operators following an over-the-top model. Feature sets vary. Services are either developed inhouse (often with the help of a specialist vendor), or offered using a white-label service. They may or may not utilise the IMS core. Many operators are using telco OTT to address specific market niches that are seen as vulnerable to substitution. The service is typically offered separately from the core operator proposition. Some of the major players are experimenting with both RCS/joyn and telco OTT approaches. European examples include Orange s Libon and Telefónica s TU Me/TU Go. While not widespread in Western Europe, some operators are forming partnerships with providers of alternative messaging services. WhatsApp has entered into agreements with a number of operators The standard approach is to zero rate traffic associated with specific applications in some bundles. Roaming packages are also on offer. The brand strength of the partner is chiefly used to support the operator s data proposition rather than bolster the existing messaging service. The partnership approach particularly appeals to smaller, disruptive players with less exposure in legacy voice and messaging revenue.

18 Quantifying the impact of OTT communications services in Western Europe The outlook for the messaging market varies according to four main groups of countries 18 Characteristics Outlook for OTT alternatives Likely actions from operators Examples Grouping 1 Historically low SMS usage. Very exposed to substitution. Push for substitution as smartphone penetration increases. Belated attempts to rebalance tariffs. Co-ordinated RCS launches. Germany Netherlands Spain Switzerland Grouping 2 Data-centric mobile markets. Weakening SMS usage. Potential to wrest large share of communications market from operators. Emphasis on innovation. Some telco OTT and RCS. Potential partnerships to differentiate in mobile data. Austria Denmark Finland Norway Sweden Grouping 3 Strong growth in data. Buoyant SMS market. Potential partnerships with disruptive operators. Short-term experiments with telco OTT to address niches. Longer term portfolio protection with RCS. Belgium France Ireland UK Grouping 4 Weak data market. Buoyant SMS market. Success targeting niche opportunities. Mainly tariff adjustments to minimise arbitrage opportunities. Greece Portugal

19 Messages (billion) Percentage of smartphones Quantifying the impact of OTT communications services in Western Europe Growth of OTT services will fast outstrip operator-provided IP-based services OTT messaging services will continue to grow strongly from 2012 to We expect service penetration of smartphones to increase to nearly 60% by Price is a major driver in the market, but will diminish in importance. A key decider in outcomes is the battle for the address book. Specialists such as WhatsApp have demonstrated demand for a low-cost crossplatform service with a strong user experience. This is the principal target of RCS initiatives. Messaging services are more vulnerable to substitution than voice. Smartphone users of IP messaging services in Western Europe by type of service, [Source: Analysys Mason, 2012] 70% 60% 50% 40% 30% 20% 10% 0% Operator OTT Messaging volumes on smartphones in Western Europe by type of service, [Source: Analysys Mason, 2012] OTT Operator IP SMS 19

20 EUR (billion) Percentage of mobile revenue Quantifying the impact of OTT communications services in Western Europe SMS revenue will ultimately decline as markets mature and alternative messaging services gain importance 20 Messaging retail revenue peaked in 2011, and will fall rapidly in most countries thereafter because: the prevalence of large, flat-rate bundles the increasing popularity of IP-based services We are usually reluctant to forecast inflection points around the base year, in this case In the case of messaging services, we believe that this is well-founded. Traffic substitution will be faster than revenue substitution. Overall, we expect messaging revenue to decline by 39% between 2011 and Messaging revenue by type and its share of total mobile revenue, Western Europe, [Source: Analysys Mason, 2012] Retail revenue Share of revenue Interconnect 18% 16% 14% 12% 10% 8% 6% 4% 2% 0%

21 Quantifying the impact of OTT communications services in Western Europe 21 Forecast introduction Mobile voice Messaging Market summary and implications

22 Handset ASPU (EUR per month) Quantifying the impact of OTT communications services in Western Europe It is likely that the marketing (and accounting) of mobile services will be very different in Handset ASPU by revenue source, Western Europe, 2011 and 2017 [Source: Analysys Mason, 2012] We depend upon operator reporting for revenue splits between voice, messaging and data. Current reporting methodologies are flawed Data Messaging Voice We continue to forecast each individual service while recognising the implications of a changing revenue mix. Tariff rebalancing (in favour of mobile data) will have implications for how services are marketed. 6 4 The service elements that operators use to demarcate value to users will change during the forecast period. 2 0 Overall handset spend will depend on operators ability to segment the market and manage the perceived value of the elements that are within their control.

23 Quantifying the impact of OTT communications services in Western Europe Operators have a better chance of protecting primary voice services than messaging services The flat, value-based, pricing model is becoming dominant in all areas of retail telecoms services. Messaging services are in a weaker position than voice. Characteristics of voice and messaging services [Source: Analysys Mason, 2012] Strength of onnet versus offnet Voice Requires broad addressability Messaging 23 Relatively recent medium with greater concentration of usage. Accordingly, we believe that operatorprovided messaging services will be largely subsumed into data plans, whereas voice services will continue to be offered as default options in mobile bundles. Faced with a choice between a EUR15 dataonly plan with DIY voice and a EUR20 data plus (truly) unlimited voice plan, we believe most customers would opt for the latter. Barriers to entry Differentiation Full service substitution Fit with web business models Multi-device Relatively high. Operators control many of the means for differentiation. Unlikely for most users. Less well established. Acoustic capabilities are required; limited by ergonomics. Relatively low. Easier for new players to differentiate. Feasible for many. Text-based format offers strong fit. Good fit across devices.

24 Quantifying the impact of OTT communications services in Western Europe 24 Summary Mobile voice revenue will continue its steep decline. Operators will remain the dominant force in mobile voice but will be significantly weakened Operators are tweaking the voice feature set but most view any major transformations with VoLTE as a long-term plan By 2017, we forecast that non-operator-provided VoIP services will generate 14% of smartphone users voice traffic. It s the end of an era for SMS as IP-based messaging goes from strength to strength. SMS retail revenue peaked in 2011 and will fall rapidly in most countries thereafter Traffic substitution will be faster than revenue substitution Overall, we expect messaging revenue to decline by 39% between 2011 and Messaging services are in a weaker position than voice.

25 Quantifying the impact of OTT communications services in Western Europe 25 Contact details Stephen Sale Principal Analyst Boston Tel: Fax: Cambridge Tel: +44 (0) Fax: +44 (0) Dubai Tel: +971 (0) Fax: +971 (0) Dublin Tel: +353 (0) Fax: +353 (0) Edinburgh Tel: +44 (0) Fax: +44 (0) London Tel: +44 (0) Fax: +44 (0) Madrid Tel: Fax: Manchester Tel: +44 (0) Fax: +44 (0) Milan Tel: Fax: New Delhi Tel: Fax: Paris Tel: +33 (0) Fax: +33 (0) Singapore Tel: Fax: