There are a number of other OTT services apart from VoIP that have been enabled by IP and which all have significant implications for market developments. They may pose a challenge for existing providers but do not seem to be as challenging for regulators as VoIP.
Apps that enable instant messaging and voice communication via data plans compete directly with the SMS and voice services upon which operators depend for a substantial portion of revenue. The average revenue per delivered byte is dropping, as SMS bytes, are replaced by ‘over-the-top’ bytes.
Box 5.3: SMS and AT&T
AT&T provides a typical example of how lucrative SMS is for mobile carriers and how they may respond to the threat from OTT messaging apps.
AT&T charges 20 cents per text message if a customer does not have a messaging plan or has exceeded the allotted number of texts. From August 2011 AT&T eliminated the $10-per-month 1,000 messages option and the $5-per-month 200 messages option for individuals. New customers have the choice of either $20 per month for unlimited texting or paying $0.20 for every text and $0.30 for every multimedia message that they send or receive.
Given that an SMS message is at most 160 bytes in size, this cost scales to $1,310 per megabyte sent via text message. A one-minute phone call uses up the same amount of network capacity as 600 text messages, so that if the same cost-per-MB were applied to phone calls, mobile phone calls would cost $120 per minute.
To deal with OTT messaging apps, AT&T replaced its $30 per month unlimited data plan in June 2010 with two options. One offers up to 200MB for $15 per month (with additional use charged at $15 per 200MB). The other offers 2GB for $25 per month (with additional use charged at $10 per 1GB).
Sources: AT&T June 2, 2010 Press release http://www.att.com/gen/press-room?pid=17991&cdvn=news&newsarticleid=30854&mapcode and http://en.wikipedia.org/wiki/Text_messaging#Pricing_concerns
But SMS is not dead . The apps that compete with it depend upon both ends of the communication using the same app: they are closed systems. But SMS is on every phone: not just smartphones.
SMS is almost as good as email which runs on every platform and carrier throughout the world. Email is not available on every phone but in some cases it is better than SMS. For example, in Japan SMS is not cross-carrier. So a DoCoMo customer cannot text a Softbank user. But, if the phone has an e-mail client and an email address, it is the best messaging option in Japan; as long as you have a cheap data plan. And, it is more easy for manufacturers to build email clients into phones than anything else, because email has standard protocols behind it.
Traditionally, users had to physically connect devices to move, say, a photo from a smartphone to a home computer. With cloud services, as soon as a photo is taken it can be uploaded immediately to the cloud to be viewed anywhere, on any device. Google, Microsoft, Apple, and Amazon have all made significant investments in their operating systems and cloud services so that computers and mobile devices will seamlessly and silently upload files to one master location.
Cloud services put more pressure on network capacity. Traditional (physical) syncing placed no demands on the network but the cloud changes things. Now, instead of consuming no bandwidth when syncing 100 MB of photos back to a computer, cloud syncing uses 100 MB of data when uploading data and then an additional 100 MB downloading to each device connected to the cloud. While most services offer the option to sync only when on WiFi networks (e.g. coffee shops, living rooms), these cloud services could still result in significant additional bandwidth costs and potential bill shock for consumers. For subscribers who perform complete system back-up, the shock could be even greater.
There are no clear issues yet for competition and pricing and any that emerge are likely to be addressed first in developed markets.
Digitisation of broadband networks (both fixed and mobile) is causing tectonic shifts in business models. Traditionally, carriage and content went together: not any more. Video was the ‘killer app’ that prompted the building of cable and broadband networks. The network builders assumed they would be the providers of the content. But the impetus for delivering content over broadband is now coming from non-traditional sources that do not build the networks they rely on.
Box 5.4: Netflix
In 2007, Netflix started streaming back-list movies to subscribers in the USA and now has over 20m customers globally. It began offering unlimited movie downloads in Canada for $7.99 a month in 2010 and by August 2011 it had signed up 10 per cent of Canadian broadband households; a feat that took six years in the United States.
Sandvine reports that Netflix accounted for 32.7 per cent of all North American peak fixed access downstream content in the Fall of 2011. That put Netflix ahead of the other three top Internet protocols or services by daily volume—approaching double HTTP (17.48 per cent), almost three times YouTube (11.32), and nearly four times BitTorrent.
Source: Sandvine Global Internet Phenomena Report, Fall 2011
Content producers, equipment vendors and communications service providers have a ‘three screen’ strategy to deliver content to TVs, computers and mobile devices . More than half the peak-period traffic over fixed access networks is real-time entertainment with more than half going to game consoles, smart TVs, handhelds and mobile devices rather than to desktop and laptop computers.
Not only have the builders of networks been deprived of the revenues that they expected out of video but also they have to augment their networks to keep-up with the growth in video traffic; on which they earn very little. Most video traffic adapts to network congestion by shifting to lower bitrates and quality, which impacts the subscriber experience on broadband. When capacity is increased, adaptive video simply upshifts to a higher fidelity and fills the new capacity .
Regulators do not want to stifle innovation across content and devices. Carriers will have to adapt their business and pricing models.
 This part of the discussion of SMS and email draws on http://www.phonearena.com/news/The-death-of-SMS-has-been-greatly-exaggerated_id19493
 For example, in October, 2011, Microsoft announced a massive expansion in the list of content providers that will be available on the Xbox 360, including such names as Bravo, Comcast, HBO, BBC, Telefonica, Rogers on Demand and Televisa.
 One of the features of TCP is that each data packet must be acknowledged by the receiver or it will need to be retransmitted to guarantee in sequence delivery of the original data stream. If these acknowledgements are unable to quickly return to the originating server, then the TCP streams carrying the subscriber’s video will slow down. This is seen by the subscriber as a downgrade in their quality of experience.