Telcos Unite On Next-Gen SMS

Facing an onrush of free IP chat apps like iMessage and Skype, Vodafone and other international telcos unite to save their SMS profits.

Illustration by I Love Dust

Global telephone companies don't play nice. Their game isn't about cute innovations; it's about lobbying, acquisitions, patents, that sort of thing. It's a modern-day form of Risk, where stultified, protective cultures measure advances less in technological leaps than in muddy footsteps gained at the expense of enemies. Last November, as British carriers Everything Everywhere, O2, and Vodafone neared the fourth year of an arcane dispute over the rules of an auction intended to divvy up rights to the U.K.'s 4G spectrum, British Parliament member John Whittingdale sounded exactly like a frustrated customer when he urged the companies to end their "constant disagreement."

Fat chance, right? Well, since then, in one case at least, the carriers have shown that they can play nice--when their profits are at stake. This March, at the Mobile World Congress in Barcelona, representatives from $140 billion telecom Vodafone, along with Telefonica (the $70-billion-a-year owner of O2), France Telecom-Orange and Deutsche Telekom ($38 billion and $49 billion, respectively, and co-owners of Everything Everywhere), and Telecom Italia ($20 billion) announced they were working together on a messaging suite called Joyn. A chat, video, and file-sharing client, Joyn should communicate seamlessly across 800 different carriers and a wide variety of smartphones.

The hope is that Joyn will do nothing short of keeping its backers in the multibillion-dollar messaging game. Over the past five years, carriers have watched as IP messaging services such as Facebook messaging, iMessage, Skype, Viber, and WhatsApp have eroded the SMS market. These over-the-top (OTT) apps need a data connection but not a mobile carrier. Developed by smaller, agile teams of developers, the apps tend to be easy to use, not to mention free. Not surprisingly, telcos have seen SMS revenue tail off in the past couple of years, according to industry analysis firm Ovum. While the $151 billion they earned from texting in 2011 is nothing to sneeze at, that sum was down 9% from the previous year.

Enter Joyn. The program combines the best parts of what existing OTTs have to offer: Users can chat one-on-one, in groups, or with video, and can transfer files at any point during a call. Communication between the app and phone address books also allows users to see which of their contacts have Joyn and are available, further adding to ease of use.

The industry is supporting its fancy new app with all its weapons. Nine of the top 10 handset manufacturers are committed to building phones that include Joyn, many of them presenting the app on their home screen. (Predictably, Apple, whose iMessage is a leading OTT, is the only holdout.) With more than 800 carriers in the mix, it won't take long for Joyn to be in wide circulation. "Operators provide mass-market communication systems," says Kobus Smit, Deutsche Telekom's vice president of products and innovation. "That's what we're good at."

Innovation. Scale. A cool name. The telcos would seem to have this well under control. But triumphing over the OTTs won't be quite that simple.

For starters, there's the small issue of price. The OTTs offer basic functionality free of charge; users of Joyn must pay for the service. The fee will vary based on providers and plans. The carriers believe subscribers will pay for Joyn because of its out-of-the-box simplicity and presumed ubiquity, but there's no guarantee. While Vodafone Spain's beta customers are at least experimenting with Joyn, their version is free--for now. (The service is scheduled to roll out in France, Italy, Germany, and South Korea this year.)

Then there's the question of continued innovation. The OTTs upgrade their products steadily--that kind of iteration is part of today's startup culture. Smit acknowledges that the carriers can't match that velocity, so the plan is to "fast follow" the OTTs by adding new services when they gain traction. "It would be stupid to try to compete with the latest features," Smit says. "What we can do is integrate those features that are ready for mass-market adoption."

Unfortunately, the telcos have a spotty record of doing this successfully. "Take MMS," says Talmon Marco, CEO of Viber, of the messaging standard that's widely used for sharing video and photos. "MMS is a standard that was ratified over a decade ago. If you are on AT&T today and send an MMS to somebody on Vodafone, do you think they are going to get it? Probably not. With 800 carriers, I don't think it is realistic for them to 'fast follow.' They will follow. It just won't be fast."

Finally, there's the fact that Joyn users can message only with other Joyn users, creating a walled community in a world where customers increasingly demand open mobile messaging. "Joyn is an attempt to maintain the status quo for carriers," says Robert Rosenberg, president of Insight Research. "A more reasoned approach would be to open up the messaging capabilities. The only way carriers will succeed is to expose the capabilities of their networks to third parties, let the third parties create the applications, and share in the revenue."

The Joyn coalition counters that it is not opposed to OTTs building on its platform and may provide the API to third parties. It also knows that millions of people will continue communicating via OTTs. It just wants to keep pace. "We did not evolve our SMS products for 15 years," Smit says. Adds Attillio Zani, business development director at GSMA, the industry association that supported the development of Joyn: "When was the last time you saw operators innovate in a way that provided something as relevant as WhatsApp or Facebook?"

He's got a point. And in a year or two, we'll know whether it's the one he wanted to make.

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