WhatsApp will add free voice-call services for its 450 million customers later this year, laying down a new challenge to telecom network operators just days after Facebook Inc scooped it up for $19 billion

WhatsApp to add voice calls after Facebook acquisition

5:12pm EST

By Leila Abboud and Eric Auchard

BARCELONA (Reuters) – WhatsApp will add free voice-call services for its 450 million customers later this year, laying down a new challenge to telecom network operators just days after Facebook Inc scooped it up for $19 billion.

The text-based messaging service aims to let users make calls by the second quarter, expanding its appeal to help it hit a billion users, WhatsApp CEO Jan Koum said at the Mobile World Congress in Barcelona on Monday.

Buying WhatsApp has cemented Facebook’s involvement in messaging, which for many people is their earliest experience with the mobile Internet. Adding voice services moves the social network into another core function on a smartphone.

On Monday, Chief Executive Mark Zuckerberg defended the price paid for a messaging service with negligible revenue. He argued that rival services such as South Korea’s KakaoTalk and Naver’s LINE are already “monetizing” at a rate of $2 to $3 in revenue per user per year, despite being in the early stages of growth.

Media reports put WhatsApp’s revenue at about $20 million in 2013.

“I actually think that by itself it’s worth more than 19 billion,” Zuckerberg told the Mobile World Congress. “Even just independently, I think it’s a good bet.”

“By being a part of Facebook, it makes it so they can focus for the next five years or so purely on adding more people.”

WhatsApp’s move into voice calls is unlikely to sit well with telecoms carriers.

WhatsApp and its rivals, like KakaoTalk, China’s WeChat, and Viber, have won over telecom operators’ customers in recent years by offering a free option to text messaging. Telecom providers globally generated revenue of about $120 billion from text messaging last year, according to market researcher Ovum.

Adding free calls threatens another telecom revenue source, which has been declining anyway as carriers’ tweak tariffs to focus on mobile data instead of calls.

WITH, NOT AGAINST

Since the advent a decade ago of Skype’s voice over Internet service, which Microsoft Corp has acquired, and the rise of Internet service providers like Google Inc, telecom bosses have gotten used to facing challengers whose services piggyback on their networks. But carriers complain that the rivals are not subject to the same national regulations.

Mats Granryd, the CEO of Swedish mobile operator Tele2, said he was happy to partner with the likes of WhatsApp because of the additional data traffic they generate. But he shared the concerns of other network operators that they must operate under strict national regulations that Internet companies are not subject to.

“They (Internet firms) need to be regulated a little bit more and we need to be regulated a little bit less,” said Jo Lunder, who heads Russian mobile network operator VimpelCom.

Vodafone CEO Vittorio Colao said he did not understand how such an important acquisition as the Facebook-WhatsApp deal could go unchallenged at a time when European network operators were facing intense regulatory scrutiny.

“These types of deal are a clear indication that the world is changing and the regulations don’t fit anymore,” Colao said on the sidelines of the conference.

Both Facebook and WhatsApp CEOs have cast themselves as partners to telecoms network operators.

On Monday, Koum also announced a partnership with E-Plus, the German subsidiary of Dutch group KPN, under which it will launch a WhatsApp-branded mobile service in Germany.

The European Parliament is set to vote on Monday night on a package of proposed telecoms market reforms which among other provisions would restrict the ability of carriers to charge internet companies like Facebook to give them an enhanced service in handling their network traffic.

 

Facebook CEO riding high – for now, after WhatsApp deal

3:02pm EST

By Alexei Oreskovic and Leila Abboud

SAN FRANCISCO/BARCELONA (Reuters) – Facebook Inc Chief Executive Officer Mark Zuckerberg took a victory lap at the world’s largest mobile technology conference in Barcelona on Monday, after beating out Google Inc in a $19 billion acquisition of free messaging service WhatsApp. But he faces bigger hurdles on the horizon.

Just 18 months after appearing at risk of getting crushed by the swelling mobile wave, the No. 1 social network is riding high. It gets a huge chunk of ad revenue on world-wide users of smartphones and tablets, from virtually nothing several years ago.

Now, Zuckerberg’s purchase of WhatsApp – while raising eyebrows with the hefty price paid for a company that boasts 450 million users but has little revenue – places Facebook at the heart of smartphone communications.

“In the U.S. you can dial 911 and get access to basic services,” Zuckerberg said, referring to the country’s national emergency services phone number.

“We want to create a similar kind of dial tone for the Internet,” he said, citing messaging, search and weather information among the essential online services that he said people throughout the world should be able to access on Internet-connected phones.

It’s a vision that is sure to have some telecom bosses in Barcelona gritting their teeth. WhatsApp and its fellow messaging apps, including Viber and China’s WeChat, have punched a hole in operators’ sales by offering a free alternative to text messages, a $120 billion market for operators. Research group Ovum said telcos lost $32 billion in text revenue last year and will lose $54 billion by 2016.

But Zuckerberg is trying to cast Facebook and WhatsApp as partners not foes of the industry.

The 29-year-old co-founder of Facebook used his appearance at Mobile World Congress on Monday to talk up his company’s recent effort to make wireless Internet access easier and more affordable in developing countries.

With WhatsApp now part of Facebook, Zuckerberg said the messaging service will have the breathing room to put its energy into garnering another 2 billion or 3 billion users, rather than trying to generate revenue.

SURPRISE DEAL

Facebook’s purchase of WhatsApp is its latest move to transform a platform and company born on the PC into a full-fledged network for a mobile generation. Zuckerberg’s progress so far on mobile has positioned the company to take advantage of the fast-growing markets. And it has helped boost Facebook’s stock roughly 150 percent since July.

But with a new crop of smartphone applications threatening to eat into Facebook’s audience, worrying signs of waning interest amongst younger users – which the WhatsApp acquisition may help address – and a tech landscape evolving more rapidly than ever before, Facebook can’t afford to fall behind again.

That is critical for Facebook as it courts the “next 5 billion” Internet users, many of whom live in places like India and Africa and who are likely to first experience the Internet on a mobile rather than a PC.

“If Facebook is not first in line when those people are firing up their devices, it stands a chance of never connecting with those folks, because there are so many alternatives,” said Brian Blau, an analyst at research firm Gartner.

Zuckerberg said the plan to bring wireless Internet access, and Facebook, to the world is a long-term project that won’t pay off anytime soon.

“I think we’re probably going to lose money on this for quite a while,” Zuckerberg said.

NO SURE THING

To some, Google wields the advantage for now.

Its Android mobile operating system comes pre-installed on roughly 80 percent of the smartphones sold in the world today. That helps ensure new users will see and use its various online services, including search, maps and its Google+ social network.

Once WhatsApp is in Facebook’s pocket, there’s no guarantee the messaging service – which famously eschews games, shopping or other popular add-ons to focus on pure messaging – can remain ahead in a notoriously fickle market.

Rival messaging apps such as Tencent Holding’s WeChat and Naver’s LINE are popular across Asia and have hundreds of millions of users. They have also expanded to allow users to book taxis, top up phone credit, and take part in flash sales, all on the app.

WhatsApp, which Zuckerberg has promised will remain independent, fits Facebook’s recent approach of designing or buying “spinoff” apps for smartphones, such as Instagram or the Paper news app, which has earned positive reviews.

“You see Facebook trying to increase its surface area, with different apps for different things,” said Josh Elman, a venture capital firm Greylock Partners. The idea is to give users multiple ways to interact with Facebook throughout the day.

To meet his ambitions, Zuckerberg could use the telecom industry’s help. He will make his case to the handset makers and operators gathered in Barcelona that they should work together to make Internet access cheaper and more ubiquitous in the developing world.

Facebook has partnered with over 150 wireless providers over the past four years to offer free or discounted access to the social network, including a deal with Globe Telecom to provide three months of free access to customers in the Philippines.

Once people experience the benefits of wireless Internet access they will upgrade to additional data services, generating more profit for wireless carriers, Zuckerberg said.

The idea, he said, is to build a “more profitable model, with more subscribers for carriers, and get everyone on the Internet in a hopefully shorter period of time.”

Not everyone is on board.

Vodafone Chief Executive Vittorio Colao said earlier this month that Facebook had approached him about waiving data charges when customers access the website from their mobiles. But Colao rejected the idea because he didn’t see any benefit for his company, which is Europe’s largest wireless carrier and also operates in India and across Africa.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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