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<h4 style="text-align: justify;"><b>Publish a personalised profile. Build an online community of friends. Exchange photos, videos and music. That might sound just like Facebook, but hundreds of millions of tech-savvy young people have instead adopted a group of smartphone-based mobile messaging apps that are now sweeping across the globe. These apps are the fastest growing phenomenon of the Internet age and are challenging the primacy of SMS as the preferred mobile communications medium. This trend represents a significant challenge for the mobile operators in Indonesia, who are already facing intense revenue and operating margin pressure</b></h4>
<h5 style="text-align: justify;"><b>What are these apps?</b></h5>
<p style="text-align: justify;">The hot apps include Kik and Whatsapp, both products of North American start-ups, as well as Kakao Inc's KakaoTalk, NHN Corp's LINE and Tencent Holdings Ltd's WeChat, which have blossomed in many Asian markets including Indonesia.</p>
<p style="text-align: justify;">Messaging is increasingly seen as the ‘killer app’ for mobile and the popularity of these services is evidenced by the fact that they will overshadow conventional text messaging (SMS) transmissions as the globally-dominant data communications medium in 2013.</p>
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<p style="text-align: justify;">By 2016 the technology research firm Informa predict that text messages will outstripped four to one by the number of OTT transmissions – sent ‘over the top’ of the standard chargeable methods of text messaging by using cellular data connections.</p>

<h5 style="text-align: justify;"><b>Why are they so popular?</b></h5>
<p style="text-align: justify;">First and foremost they are free to download and use (although WhatsApp has an annual subscription fee of one US Dollar - with the first year free).</p>
<p style="text-align: justify;">They offer ‘plug and play’ functionality on any smartphone model (regardless of the operating system) in combination with a cellular data package or Wi-Fi access. Users can then make unlimited voice calls and conference calls in addition to sending standard text and multi-media messaging.</p>
<p style="text-align: justify;">All of the services offer a wide variety of distinctive emoticons, stickers and ring tones which in turn enable users to create a personal identity amongst their peer groups - family, friends and business associates - when they are active within the application.</p>
<p style="text-align: justify;">As a result, Informa estimate that on average each app user is currently sending 33 messages per day compared to just five standard text messages per day, in excess of a 6X uplift in the typical engagement level.</p>

<h5 style="text-align: justify;"><b>What is happening in Indonesia?</b></h5>
<p style="text-align: justify;">Indonesians are highly social digitally and as such have embraced this new generation of instant messaging applications with great enthusiasm. The latest available numbers illustrate the explosive demand in Indonesia:</p>

<ul>
	<li>LINE has attracted 10 million users since launch in early 2013, with 25 million  app downloads from the LINE suite already recorded</li>
	<li>Kakao Talk added 120,000 new users per day in the second quarter of 2013</li>
	<li>WeChat has grown its Indonesian user base fifty fold since their February 2013 launch</li>
</ul>
<p style="text-align: justify;">The OTT providers have already recognised the criticality of in-market localisation and service innovation in Indonesia. This effort is necessary in order to sustain the rate of adoption and engagement - principally through positive word-of-mouth.</p>

<ul>
	<li>Kakao Talk has hired Indonesian designers to conceive and implement a portfolio of local emoticons</li>
	<li>LINE has mounted a series of localised sticker campaigns, including a WWF Earth Day donation drive and a Ramadan-themed campaign</li>
</ul>
<p style="text-align: justify;">The market in Indonesia is ripe for further penetration as smartphone adoption accelerates (currently at around 20% of the installed base) and the middle class demographic group continues to expand (growing at 9 million per year).</p>

<h5 style="text-align: justify;"><b>What’s next for chat apps?</b></h5>
<p style="text-align: justify;">What is most intriguing for industry commentators and investors is the potential of these providers to ‘move up the stack’ i.e. by integrating the individual chat/IM apps into a unified social networking platform. Given their current momentum, the potential exists for these new generation platforms to go head-to-head with the Internet giants such as Facebook, Yahoo and Google.</p>
<p style="text-align: justify;">In response to market demand, these chat/IM app providers are already offering an ever-broader array of features, ranging from ‘basic’ communications i.e. messaging and content  sharing content (photos, videos, location information) to ‘advanced’ functionality such as the exchange of virtual goods (e.g. emoticons, stickers, graphics), apps download (games and puzzles) and collaborative content origination (e.g. sketching).</p>
<p style="text-align: justify;">With their embedded position at the core of the social circle of millions of users, these service providers are becoming hot acquisition targets. Google were rumoured to be readying a near-USD1bn. bid for WhatsApp earlier this year.</p>
<p style="text-align: justify;">In effect, the ‘winner takes all’ race has already begun.</p>

<h5 style="text-align: justify;"><b>How will the mobile operators respond?</b></h5>
<p style="text-align: justify;">This shift in technology and customer sentiment has big implications for mobile operators, with significant traffic volumes for conventional voice calling and text messaging being switched to these new applications. Moreover the impact on top line revenues and operating profits is an increasing cause for concern for their shareholders.</p>
<p style="text-align: justify;">Initially, the OTT providers were competing on price alone, but as they have broadened their service offerings they are demonstrating a stronger value proposition to their customers. As such the operators are being forced to respond - there are a number of strategic options open to them:</p>
<p style="text-align: justify;"><b>Compete </b>- By enriching the perceived value of existing service plans and data packages, thereby incenting subscribers to favour existing network operator voice and messaging services</p>
<p style="text-align: justify;"><b>Collaborate</b> - Partner with OTT providers to provide blended service propositions and usage plans, while maintain separate brand identities for network operator and OTT services</p>
<p style="text-align: justify;"><b>Emulate</b> - Integrate operator-branded OTT-equivalent services into existing portfolio and encourage switching of users from OTT platforms</p>
<p style="text-align: justify;">In Indonesia the operators are actively engaged in countering this threat from the OTT providers and winning back lost messaging activity:</p>

<ul>
	<li>Axis has partnered with Viber to offer customers a ‘Viber-only’ user plan, thus avoiding the expense of subscribing to a full service data plan.</li>
	<li>XL Axiata provide a free activation and data package for all users of WeChat</li>
	<li>Telkomsel,  Indosat and XL each offer free data usage for KaKao Talk users</li>
</ul>
<p style="text-align: justify;">Meanwhile BRTI, the telecoms regulatory body in Indonesia, in partnership with the leading mobile operators is planning to implement a ‘Messaging Indonesia’ platform. This initiative is designed to deliver a multi-carrier, cross-platform instant message and multimedia content delivery network - with domestic routing in order to minimize operating costs and to offer consumers a high quality and secure messaging solution.</p>
<p style="text-align: justify;">The position of the mobile operators as the main providers of real-time communications for the consumer market is being seriously undermined by the innovation and agility shown by the OTT providers. In order to reassert their dominant market position the operators will need to outsmart and outpace this new breed of competitors - it will be a fascinating battle to watch.</p>