Why Facebook Should Widen Its Partnership With Indian Telecom Operators

Apr.22.14 | About: Facebook (FB)

Summary

The Telephone Regulatory Authority of India is about to come up with a discussion paper on Over-The-Top players, like WhatsApp.

The Indian telecom operators want Over-The-Top players to pay a connectivity charge, as these apps utilize their network resources and are causing revenue loss.

WhatsApp has about 40 million users in India. Facebook should widen its partnership with Indian telecom operators to prevent any opposition from this industry in the future.

The Telecom Regulatory Authority of India (or TRAI) is about to come up with a discussion paper on Over-The-Top (or OTT) players. The popular OTT apps in India include WhatsApp, WeChat, Viber, and LINE. According to Ovum, the Indian telecom sector's loss in SMS revenue is estimated to increase from $781 million (INR 47 billion) in 2012 to $3.1 billion by 2016. The Indian telecom operators want OTT app providers to pay a connectivity charge, as these apps consume their network resources and are reducing their revenue from voice and messaging services. The increase in revenue from data usage is insufficient, and has limited the ability of the Indian telecom sector to invest in projects that will improve their data networks. The Indian telecom sector has a collective debt of over $34.67 billion (INR 2,080 billion). Further, Indian telecom companies have invested heavily in acquiring spectrum in the recent auctions.

Facebook (NASDAQ:FB) has 100 million users in India, while WhatsApp has over 40 million active users in the country. WhatsApp also plans to add a voice calling feature to the app service, which will add further congestion to mobile networks. Currently, Reliance Communications offers unlimited WhatsApp and Facebook access to prepaid GSM telecom users for 30 days, after charging $0.27 (INR 16). A similar plan was launched by Tata Docomo in December 2013.

India is expected to have 243 million internet users by June 2014 due to the rise in internet access through mobile phones. In 2013, there were 130 million mobile internet users in India, a growth of 92% year-over-year (or yoy). Facebook is about to receive regulatory approval from Ireland's central bank, which will make it an e-money institution. Facebook could use WhatsApp for remittances and money transfers between users in different countries. In 2013, India topped the list of global remittances, receiving $70 billion in total. Hence, India is a key market for Facebook. The messaging app should start collaborating with other Indian telecom operators and come up with more offer plans to prevent any opposition from the telecom industry in the future. A possible offer plan could be issuing WhatsApp SIM cards, as it has done in Germany.

Moves by a Competitor

In 2013, LINE earned $50 million in revenue from paid stickers, and brand engagement. LINE offers app-to-app free voice calling, and has about 18 million users in India. The messaging app is in collaboration talks with Indian telecom operators for offering special bundled data packages and carrier billing. The major revenue sources for LINE are paid stickers and brand engagement. Carrier billing will allow LINE to charge users for paid features, like stickers, as part of their mobile bills.

Conclusion

I would conclude by saying that collaboration will lead to win-win situation for the telecom operators, as well as OTT players like WhatsApp. Facebook should look for more tie-ups with Indian telecom operators, so that the company can increase its revenue from India without affecting the overall revenue of Indian telecom sector.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.