Keeping your enemies close: Telecom operator partnerships with mobile instant messengers
Authors: Marc Van den Broucque and Feroz Khan
The worst of enemies…
Instant messaging has arguably been the most significant evolution of consumer behaviour since mobile telephony began. The popularity of IM platforms is phenomenal - Line was able to register over 600m users within three years of launch. IM has been the ‘killer’ use case that has integrated the Internet into peoples’ everyday lives. In doing so, it has decimated SMS traffic. Furthermore, as IM players expand their offering, they are increasingly posing a threat to voice traffic, particularly higher revenue international traffic. Ovum estimates that over the next three years alone over $180m of voice revenues will be lost to OTT VoIP platforms, much of this to IM platforms that have transitioned into voice (e.g. WhatsApp).
Once at the epicentre of subscribers’ social lives, telecom operators are increasingly finding themselves circumvented by instant messaging and social media applications. Operators’ and regulators’ reactions to this have generally been negative. Some have banned certain instant messaging services on their networks (e.g. Etisalat and du) while others have called for equal regulation and the ability to charge platforms for access to consumers via the abolishment of net neutrality. On the whole, IM players are value destructive to the communications value chain, taking more revenues away from MNOs than they are able to capture for themselves.
…to the best of friends
Is partnership an appropriate response to the threat IMs pose? We argue that, if correctly executed, a partnership with an IM platform makes sense for operators for a number of reasons:
Staying relevant in a constantly evolving connectivity environment
Keeping the connection between operator and subscriber alive
A meaningful opportunity to increase a MNO’s ARPU
Potential for churn reduction
Mutually beneficial relationships
Relationships between operators and IMs can endure as value accrues to both parties. While we have examined the value that accrues to MNOs so far in this article, it is important to realise that the IM platforms also have much to gain. For them, a local mobile operator:
- Will provide access to their subscriber base and beachhead in to a new market
- Possesses regional experience/expertise
- Will provide access to their established network and infrastructure
- Is able to provide assistance with any regulatory hurdles
Opportunity still untapped
With the right execution, MNOs can use the growth of instant messaging for their benefit to supplement and strengthen their core business. MNOs who have executed effectively are already reaping these benefits.
It is increasingly clear that MNOs should not expect a strong regulatory response to their new IM competitors, and therefore learning to embrace their former enemies is more important than ever. We expect potential IM partnerships to attract further attention from mobile operators in the future, in spite of the threat that IMs continue to pose to the established status quo in the telecommunications industry.
About the authors:
Marc Van den Broucque is a Director in Delta Partners’ Corporate Finance business in Dubai. Marc has over 10 years of corporate finance experience, both as advisor and principal, working across Europe, the Middle East and Africa, where he has executed in excess of US$50 billion in M&A and capital markets transactions. Marc holds a first class honours degree in Accounting and Finance from the London School of Economics.
Feroz Khan is a Senior Analyst at Delta Partners where he works on Corporate Finance and M&A engagements. Feroz has over four years of corporate finance experience focusing on the TMD industry specifically within emerging markets. Prior to joining Delta Partners, Feroz worked at Macquarie Investment Bank as well as Standard Chartered in their M&A practice.
© 2019 Delta Partners.