Telecoms' New Major Problem: Facebook Over-The-Top Phone Service

Includes: FB, T, VZ
by: Honne Capital

Facebook (NASDAQ:FB) just announced its over-the-top phone service for iOS users. Over-the-top phone services are nothing new. Skype has been around for years and Pinger made a little headway on mobile devices. A Facebook OTT service, though, is in a league of its own. Instead of calling a user name (which can be cumbersome to remember), Facebook's OTT service will allow people to call their "friends" directly. This is a subtle, yet big deal and I expect the service to catch on quickly.

This is good news for cheapskates (and nostalgics) who can deal with the inconveniences of not getting calls outside of their home. Look at how much money you can save:

1. The iPhone 5 costs $200 with a two-year Verizon contract, which costs $90 per month. The total amount you will spend is $2,360.

2. Alternatively you can buy an iPod Touch for $300, download Facebook Messenger and not have to pay any recurring fees to make or receive phone calls.

$300 vs. $2,360. That's a massive savings. The difference is so big that many people may decide to forgo the convenience of cellphones. Do you remember what life was like when the only on-the-road methods of communication were beepers and pay-phones? (That was interesting.) At least the $300 option will still allow you to receive and place calls wherever you have WiFi, which is in more places than you'd expect if you live in a metropolis.

I think anyone who owns stock in the phone carriers (wireless or otherwise) is taking on a huge risk. The economy is tough right now. What if there's a seismic cultural shift from paying monthly wireless bills to taking the cheap road? The equity of Verizon (NYSE:VZ) and AT&T(NYSE:T) might end up worthless. The bonds would take a hit as well. What's the value of 4G spectrum and cell phone towers if most people make calls via WiFi?

The market reacted appropriately Wednesday, with shares of the two biggest carriers down over 1% each.

About this article:

Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here