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Innovative and high-quality Internet-based voice and texting applications may be cutting deep into the pockets of Egypt's mobile operators, writes Niveen Wahish
"Why send a SMS when you can use applications like WhatsApp or Viber to chat," asks Rania Attia, a 36-year-old teacher and mother of three. Attia uses Internet-based applications, such as WhatsApp and Viber, known as Over the Top (OTT) services, to keep connected to people in her daily life, and she is part of at least six WhatsApp groups including mothers of her children's colleagues, her family, her friends and colleagues.
SMS, she says, would not serve her in the same way. It would be more expensive to send an SMS to all these people and it does not allow her the conversation feature of texting to a big group.
And the case is similar for OTT services which allow voice calls not only locally but internationally. In the past such voice calls were often not of good quality, discouraging people from relying on them. But today this is changing, and the recent release of a higher-quality WhatsApp voice application may be a game-changer.
"I use these applications to talk to my sister in the US more than once a day," says Inas Mohamed, a housewife. She admits that she would not have called her sister that often had she had to use the regular phone lines, whether cellular or land lines. Even with fewer calls, she would have had to pay a lot, as a call from Egypt to the US on a mobile network costs between LE2.5 and LE3 a minute.
The proliferation of the new applications may cause mobile operators huge losses as people stop using their services, even if in Egypt the situation may be contained. "The biggest chunk of revenue for mobile operators in Egypt remains voice services," says Mohamed Al-Messeiri, a research analyst at Naeem Holdings.
However, that revenue might be at risk, and to fight back some mobile operators in the region have decided to block the new services. In the United Arab Emirates both Viber and WhatsApp are blocked, though this is not the case in Egypt.
The Egyptian National Telecommunications Authority (NTRA) recently formed a committee to find out the extent of the damage WhatsApp may be causing to mobile operators. Its findings are not yet out, and it remains to be seen what will happen to the service. The Viber voice application is operative in Egypt and has not been blocked, but Skype voice services over cellular phones were blocked in 2010.
"Unlike in the Arab world, the trend in the West is not to block these services," comments communications expert Nagi Anis. "In Egypt, it remains to be seen what will happen and if there is a block what the grounds for it will be."
Instead of worrying about losses of revenue, Anis says Egyptian mobile operators should get ready for the future and focus on making profits from data services rather than the traditional voice services and SMS.
Although the WhatsApp service has not been blocked in Egypt, users report that it is not working properly. Hussein Mohamed says that when he tried to use the WhatsApp voice on his telephone, away from a wifi internet network, it was not connecting.
In fact profitability is crucial to the future of these operators. According to Erik Almqvist, a partner at Analysys Mason, a global consulting and research firm in telecoms, media and technology, "network investments are largely a function of the long-term profitability of mobile operators. The decline in voice revenues has to be partly compensated by an increase in data revenues due to more usage and higher uptake. In cases where voice revenues are falling quickly, and aggressive competition is driving data-pricing near or below cost, network investment plans may suffer."
What could be in the favour of Egyptian mobile operators at the moment is the low mobile Internet penetration in the country. Despite there being around 110 million mobile phone subscribers, there are only 22.4 million Internet mobile users, says Al-Messeiri. In the Gulf, mobile Internet users average 50 per cent of total subscribers, attributable to the fact that smart phones, which tend to be expensive, have not yet proliferated in the Egyptian market.
Some schemes are available to enable subscribers to buy smart phones at cheap prices, but these are mostly with the smaller base of post-paid customers.
A 2014 study by Analysys Mason showed that "OTT voice penetration remains low in Egypt, partly because of low penetration of smartphones and fixed broadband, and partly because of the level of congestion on 3G networks, which results in poor quality of service for VoIP over cellular."
The study adds that "operators have also engaged in fierce price competition for on-Net and international calling, resulting in the cost of calls being among the lowest in Africa." In 2014 the firm predicted that OTT IP voice services would account for only eight per cent of total voice traffic from smartphones by 2018. But these figures could differ as a result of the introduction of the new WhatsApp voice service.
For messaging, Analysys Mason forecast that OTT IP messaging in Egypt would represent 96 per cent of total messaging traffic by 2018. Globally, mobile operators lost $33 billion in 2013 as a result of texting applications, says Al-Messeiri of Naeem Holdings. "Using SMS has become rare except for business purposes," he says.
The Analysys Mason study meanwhile shows that volumes of Internet Protocol (IP)-based messages surpassed those of SMS on mobile handsets in the Middle East and North Africa (MENA) region in 2013. "By 2018, SMS will account for just six per cent of handset messaging traffic," the study says.
However, experts believe that blocking is not the solution to overcoming potential losses of revenue. OTT applications provide a valuable service, as demonstrated by the high uptake of these apps and the level of user involvement, Almqvist told Al-Ahram Weekly, adding that "given this important contribution to consumer perceived benefit, most regulators globally are reluctant to allow blocks on such applications, as well as in the light of the on-going global discussions in favour of Net neutrality."
"Consumer backlash is a concern for operators, as such a move would not be in line with the current brand positioning of operators as 'innovative' companies caring for subscribers and trying to deliver a superior customer experience," he says.
Instead of blocking such services, Almqvist argues that they are a way for operators to create "stickiness" with consumers and also have a likely long-term role in upholding prices for data connectivity, or in slowing data-price decline.
To make up for some of the lost revenue Almqvist suggests operators should rebalance tariffs in a way that ensures traditional voice and SMS services are still attractive to consumers. Using OTT voice applications is often more cumbersome than traditional voice services, he explains, adding that in many cases OTT voice services offer a lower quality of service than traditional voice services.
"Cheap voice and SMS tariffs, and innovative pricing approaches such as unlimited calling plans can go a long way in mitigating revenue decline from traditional services," he says. Mature markets with a high level of data penetration have largely shifted to selling voice and data "hard bundles" to ensure a minimum level of voice spending by each subscriber, he points out.
None of Egypt's three mobile operators wished to comment on the issue. Two declined to comment and the third could not be reached.
© Al Ahram Weekly 2015