The Telecommunications industry is one of the sectors that has been greatly impacted by the advent of the Internet. As Clayton Christensen described in the Innovator's Dilemma case, "the Internet looms as an infrastructural technology that is enabling the disruption of many industries". This disruption has started with text messaging, but it is already progressing into voice communications being disrupted by VoIP (Voice over Internet Protocol).
For many years, Telecommunication Companies (Telcos) dominated the field and took advantage of the Oligopoly that they have created in many markets around the world. The barriers to entry were particularly strong in this industry, as time and investment required to setup an infrastructure to compete with the established giants was almost non-viable. Two revenue streams that have been particularly successful for Telcos over the years, have been the text messaging or SMS (Short Message Service) service and roaming services. SMS was introduced in mid 1990s and allows users to send text messages from one phone to another. Roaming allows users to continue to use voice and other services when traveling outside their area of coverage.
The advent of the Internet, and the appearance of new OTT (over-the-top) players, as for example Whatsapp, revolutionized the Telecom industry. Whatsapp was born in 2009 by former Yahoo employees that wanted to create a product that would allow people to communicate anywhere in the world without barriers (www.whatsapp.com/about). Whatsapp first disrupted the text messaging business of Telcos, and is now in the process of disrupting the voice and roaming services as a consequence of having introduced voice calls through VoIP technology.
Whatsapp fits within the perfect definition of a disruptive technology as described in Christensen’s article: “disruptive technologies are typically cheaper, simpler, smaller, and frequently more convenient to use”. In the case of Whatsapp all of these are true. In its origin, Whatsapp was a small startup providing a very simple free texting service, based on a simple interface with no adds, using the phone’s data channel. This was at a time when Telcos were charging per message and making a lot of money with SMS services. In a similar fashion, Skype introduced a disruptive VoIP technology threatening the Telcos voice services. Whatsapp is now taking advantage of this technology to offer voice calls over the Internet to their huge user base.
In line with the behavior described in the case, the incumbent Telcos first ignored the new players and their services that were deemed inferior products. However, as the new players gained traction and started to erode revenue from text messaging and roaming services, Telcos realized this was a real threat. Telecommunication companies considered and implemented various strategies in response to this threat, including: switching to unlimited voice and text plans, international plans with more favorable international roaming agreements, and in some cases the elimination of the roaming altogether (as it is the case in the European Union and between US and Mexico). Some Telcos tried copying the OTT Apps but it was too late. Players as Whatsapp got the so called "First Mover Advantage".
In my opinion, incumbent Telcos will not die as a result of the new entrants. In contrast with other industries, Telcos still own the network infrastructure, the transport layer required for all the valued added / OTT services to operate and run. However, if they cannot re-invent themselves and find ways, services, offerings to provide added value, they will be condemned to become only bandwidth providers, a commodity business.