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SingTel mulling response to WhatsApp challenge
Group CEO says that the telco is looking at VoIP-based app to reclaim its leaking SMS revenues.
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SingTel is mulling over beating the WhatsApps and Vibers of the world at their own game.

The telco has not ruled out coming up with a voice over Internet protocol (VoIP)-based app of its own to reclaim some lost mobile communication territory, its group CEO Chua Sock Koong told BT in an exclusive interview yesterday.

Mobile applications such as WhatsApp and Viber have steadily picked away at what telcos could have been earning in SMS revenue, by allowing users to send messages through the telcos' data plans.

'I won't rule out our offering our own VoIP services . . . Even on fixed lines, we have offered our own VoIP service, so it's not something new. And obviously, doing a VoIP offering on mobile is not unthinkable,' Ms Chua said.

This shift in how we talk to one another is costing telcos dearly. Tech research firm Ovum estimated in February that operators lost US$13.9 billion in SMS revenue last year, up from US$8.7 billion in 2010.

Adding insult to injury, Viber - another popular app - offers the ability to both send SMSes and make calls for free. The app runs on the VoIP platform that SingTel has its eye on if it chooses to do battle on the same terms.

While Brian Acton, the co-founder of WhatsApp, denies that this development comes at the telcos' expense, firms such as SingTel have little reason to believe him.

For the nine months ended Dec 31, 2011, SingTel's average revenue per user (ARPU) on the postpaid front dropped year-on-year from $89 to $86.

At the same time, proportional SMS revenue was in retreat. Non-SMS data as a percentage of ARPU jumped four percentage points to 20 per cent.

Even more galling is that while ARPU might be declining, the average user is not getting any cheaper to keep. The very infrastructure that data apps are running their business on is being paid for by the telcos that own and maintain them.

Even so, SingTel appears to acknowledge that this shift in consumer habit is the new normal and that the sensible thing would be to jump into the data fray.

It has, in recent months, signalled strongly to the market that this is what it will do, with the recent group restructuring that placed SingTel veteran Allen Lew at the forefront of the newly created digital division.

'In the end, a customer is not going to be prepared to spend more on communication even though they may be consuming more and more of the network capacity,' Ms Chua said.

'Mentally, people have set a limit as to how much they want to spend on their phone bill each month. To get people to exceed that limit will be a challenge unless it brings significantly more value.'

Even as SingTel keeps its app options open, it has not conceded the other front on which the battle against margin erosion is fought. While it appears as if the app upstarts have got the telcos in a software stranglehold, it is the telcos that have the upper hand on hardware.

With the leverage of physical infrastructure, SingTel and its competitors will be making generous data bundles a thing of the past - a quid pro quo move for the consumer used to cheap overseas calls and bulk streaming of movies.

'Data consumes a lot more network resources than voice. And if the network providers are not adequately compensated for building the networks, they won't build the networks,' Ms Chua said.

'If you don't have a good network, all your apps are not going to work. A lot of network operators are coming to the conclusion that if I cannot adjust data pricing, I don't have a business case to justify making more network capex.'

This story was first published in The Business Times.

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