Consumer smartphone usage 2014: OTT communication services

Research Report Consumer smartphone usage 2014: OTT communication services April 2014 Stephen Sale and Martin Scott

2 About this report This report analyses the smartphone usage of consumers in France, Germany, the UK and the USA between mid-august and the end of October 2013. The analysis is based on data provided by Nielsen, using an application developed by Arbitron Mobile. Where appropriate we make comparisons with an analysis that we conducted with data from 2011. This event-level data allows us to produce in-depth analysis of information including foreground app usage ( face time ), data traffic (cellular and Wi-Fi), location (home, away and travelling), as well as voice and SMS usage. This report focuses specifically on the use of IP communications services and their relationship with traditional voice and messaging services. The main objective of this report is to understand how smartphones are changing communication habits. Mobile phones have evolved into capable computing devices and many of the services that people developed for use on PCs now coexist with traditional telecoms services. In some countries IP messaging services are rivalling social networking services in terms of penetration with potentially dramatic impact on legacy messaging services. European observers have witnessed strong adoption curves for WhatsApp in the Netherlands and Spain, and now in Germany, where 90% of our panellists used it. The UK messaging market is currently on the same trajectory. Who needs to read this report: Strategy, finance and marketing executives, and directors and managers within mobile operators who are developing the business case for responses to OTT voice and messaging substitution. Vendors and software developers involved in the development and integration of IP voice and messaging solutions who wish to better understand the demographics of service take-up. Industry experts and observers who need real-world data that shows the degree of IP voice and messaging disruption in granular detail. Key questions answered in this report: How is the relationship between consumers and smartphones evolving with respect to core communication features? How significant is the substitution effect of IP messaging and VoIP services on traditional voice and messaging? What demographic factors account for the significant difference between IP voice and messaging take-up in different countries?

3 Contents Slide no. 7. Executive summary 8. Executive summary: IP messaging services are growing rapidly; they have achieved mass adoption in Germany, and the UK is set to follow 9. Executive summary: WhatsApp and the social messaging apps are rivalling Facebook in terms of user engagement 10. Executive summary: Full service substitution of legacy services remains rare despite high penetration levels of IP communications apps 11. Recommendations 12. Recommendations [1] 13. Recommendations [2] 14. Multiple communication services co-exist on smartphones 15. The amount of time spent communicating on smartphones is increasing but has diminished in relative terms as entertainment comes to the fore 16. Smartphones are bringing a variety of communication services into competition; legacy services must compete for users attention 17. Tracking usage by time of day highlights the various characteristics of different communication services 18. Analysis of communications app usage 19. IP messaging services have been very successful in Germany and are establishing a strong position in other countries 20. WhatsApp has achieved mass-market status in some countries and is challenging the dominance of Facebook 21. WhatsApp Messenger adoption in the UK is following the same trajectory as in Germany, the Netherlands and Spain Slide no. 22. Skype benefits from its multiservice proposition, but voice and video services remain limited to niche use cases 23. Despite the availability of Apple s imessage, ios users are almost as likely to use alternative messaging services as Android users 24. Countries with higher levels of IP messaging penetration also show higher usage of multiple apps 25. WhatsApp rivals Facebook for user engagement and far outperforms Facebook s own Messenger app 26. WhatsApp also demonstrates its potential for very frequent usage, further enhancing its appeal as a platform 27. Usage of popular messaging apps is higher among younger users; this tends not to be the case for VoIP services 28. Apps that enhance the SMS/MMS user experience are well established in the USA, but are probably losing out to IP messaging apps in Europe 29. Voicemail services were used by 19% of panellists, and most used an app provided by their operator 30. A number of telco OTT initiatives registered in the study, notably BT SmartTalk, TU Go and Libon; joyn had yet to gain momentum in Germany 31. Quantifying the impact of substitution on legacy services 32. Mobile operators are not equally affected by communications app adoption; the clearest market segmentation by operator is in the UK 33. 41% of users of IP messaging services used these more than SMS/MMS, but full substitution was limited to a small number of users

4 Contents Slide no. 34. SMS/MMS retains its position as the primary messaging service in France and the USA, but is being displaced among younger users in the UK 35. SMS usage volumes remain higher for users of IP messaging apps than for non-users 36. VoIP services are limited to marginal use cases for most users 37. Proportional usage of VoIP services is highest among US panellists and youngsters in the UK 38. Voice volumes are also higher for users of VoIP apps than for nonusers, but substitution is likely to be occurring 39. International roaming has been a strong use case for VoIP services, but panellist behaviour suggests that this threat has remained unrealised 40. Methodology and definitions 41. Methodology and definitions [1] 42. Methodology and definitions [2] 43. About the authors and Analysys Mason 44. About the authors 45. About Analysys Mason 46. Research from Analysys Mason 47. Consulting from Analysys Mason

5 List of figures [1] Figure 1: Penetration of social networking and communications apps (excluding email), by country Figure 2: Penetration of IP message apps, by age and country Figure 3: Average daily usage of selected communications and social networking apps Figure 4: Time spent using IP messaging apps as a proportion of overall time spent using messaging services (including SMS/MMS) Figure 5: Average time per day spent using various functions and apps on smartphones, 2011 Figure 6: Average time per day spent using various functions and apps on smartphones, 2013 Figure 7: Penetration rates of various communication services, 2011 and 2013 Figure 8: Time of day during which the panel initiated different smartphone communication activities, as a percentage of daily instances, USA Figure 9: Penetration of social networking and communications apps (excluding email), by country Figure 10: Penetration of IP communications apps (excluding email), by age and country Figure 11: Penetration of top-ten communications and social networking add-on apps, by country Figure 12: Active users of selected messaging apps, by age and country Figure 13: Active users of Skype, by age and country Figure 14: Active users of selected voice and video services, by age and country Figure 15: Active users of FaceTime on ios devices, by age and country Figure 16: Active users of selected IP messaging apps, by OS Figure 17: Figure 18: Figure 19: Figure 20: Figure 21: Figure 22: Figure 23: Figure 24: Figure 25: Figure 26: Figure 27: Figure 28: Figure 29: Figure 30: Active users of selected communications apps, by device type Usage of multiple messaging apps and penetration of IP messaging apps, by country Average daily usage of selected communications and social networking apps Percentage of panellists who use selected communications apps on a daily basis, and app penetration, by country Average minutes of use per day for selected communications apps, by age Penetration and daily average usage of the top-five SMS/MMS apps Penetration of voicemail platforms and apps (does not include native ios visual voicemail), by age and country Penetration and daily average usage of the top-five voicemail platforms and apps Penetration and daily average usage of selected operator communication services Penetration of IP messaging services, by network operator and country Penetration of VoIP services, by network operator and country Time spent using IP messaging apps as a proportion of overall time spent using messaging services (including SMS/MMS) Time spent using IP messaging apps as a proportion of overall time spent using messaging services (including SMS/MMS), by age and country Average SMS/MMS usage for users and non-users of IP messaging apps, by age and country

6 List of figures [2] Figure 31: Figure 32: Figure 33: Figure 34: Figure 35: Figure 36: Figure 37: Time spent using VoIP apps as a proportion of overall time spent using voice services Time spent using VoIP apps as a proportion of overall time spent using voice services, by age and country Average voice usage for users and non-users of VoIP apps, by age and country Distribution of panellists according to whether they travelled abroad and whether they used VoIP services, Europe Panellists gender, by country of observation Panellists age, by country of observation Panellists handset OS, by country of observation

Percentage of panellists Consumer smartphone usage 2014: OTT communication services 23 Despite the availability of Apple s imessage, ios users are almost as likely to use alternative messaging services as Android users Figure 16: Active users of selected IP messaging apps, by OS (n = 1537) [Source: Analysys Mason and Nielsen, 2014] All messaging apps WhatsApp Messenger Facebook Messenger Skype Google Talk 0% 20% 40% 60% 80% Percentage of panellists Figure 17: Active users of selected communications apps, by device type (n = 1537) [Source: Analysys Mason and Nielsen, 2014] 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Low-end Mid-end High-end Android ios WhatsApp Messenger Skype Facebook Messenger Google Talk Panellists with Apple devices were slightly less likely than Android device owners to use add-on IP messaging apps. Penetration was 69% and 73%, respectively. Contemporary ios users have imessage installed by default, giving an enhanced user experience and free on-net usage. However, demand among Apple users for alternative services is high. Google Talk was used by 29% of Android users (and 22% of panellists overall). Penetration of Android users by country was between 25% and 34%, with the highest penetration in France, where it was the leading messaging app. Google is moving more aggressively into the communications market as it consolidates services in Google Hangouts and embeds it deeper into Android devices. We expect to see strong competition over control of default services in 2014 15. Penetration of WhatsApp Messenger was significantly higher among Apple users in all countries, with greater differentials at lower penetration rates. This is probably because of greater fragmentation of app usage across the Android base, and WhatsApp s clear cross-platform proposition. Penetration of messaging services varies little between low-, medium- and high-end smartphone device owners (see Figure 17). However, WhatsApp penetration was higher among prepaid than contract users, suggesting that unitbased pricing is factor, even if spending power is not.

Average outgoing minutes per month Consumer smartphone usage 2014: OTT communication services 38 Voice volumes are also higher for users of VoIP apps than for non-users, but substitution is likely to be occurring Figure 33: Average voice usage for users and non-users of VoIP apps, by age and country (n = various) [Source: Analysys Mason and Nielsen, 2014] 450 400 350 300 250 200 150 100 50 0 18 24 25 34 35 44 45+ France Users of VoIP apps Germany UK USA Non-users of VoIP apps Users of alternative VoIP services also tend to be heavy users of legacy voice services, as was the case with messaging services. This was the case for panellists across most age groups and in most countries. Direct substitution is likely to be greater for voice services than for messaging services since the feature set offers less room for differentiation and the dominant driver in the market is price. 1 Legacy voice usage was lower in two VoIP user segments. US panellists in the 35 44 age group who used VoIP services had a significantly lower average mobile voice minutes of use (MoU) than non-users (216 minutes compared to 305 minutes). This suggests a high degree of call substitution. French panellists aged between 18 and 34 also had appreciably lower levels, particularly the 18 24 age category. Penetration of VoIP services among this age group was 40% in the study, making this is a substantial market segment deserving of the attention of French operators. It may be that these users are communicating via alternative media. Orange s Libon service offering VoIP calling alongside rich messaging goes some way to addressing this trend, but the apps with highest penetration are not operator-driven. 1 For further information see the Analysys Mason report Connected Consumer 2013: voice and messaging. Available at www.analysysmason.com/ott-wwf-2013.

44 About the authors Stephen Sale (Principal Analyst) is the lead analyst for Analysys Mason s Mobile Services and Next-Generation Services research programmes. His primary areas of specialisation include next-generation communication services, over-the-top (OTT) player strategies and mobile pricing. He also has extensive experience in analysing mobile operator strategies and forecasting mobile service markets. Before joining Analysys Mason in 2004, Stephen worked in the industry on areas that include VoIP, next-generation service architecture and broadband access. He has a degree in economics and an interdisciplinary MRes from the University of London. Martin Scott (Practice Head, Consumer Services Research) is the head of Analysys Mason s Consumer Services research practice, which constitutes the Fixed Broadband and Multi-Play, Next-Generation Services, Mobile Services, Mobile Devices and Digital Economy research programmes. He also leads the Fixed Broadband and Multi-Play research programme. His primary areas of specialisation include the bundling and pricing of multi-play services, including quadruple-play bundling, customer satisfaction and consumer-facing marketing strategy. He also specialises in statistics, surveys and the analysis of primary research; he co-ordinates Analysys Mason s Connected Consumer and Consumer smartphone usage series of research. Martin has produced analysis for Analysys Mason, and for individual clients, related to many different aspects of telecoms and media, not limited to: fixed mobile bundling strategies; customer retention and satisfaction (churn reduction) strategies; pricing; market segmentation; consumer demand for present and next-generation services; and the business case for value-added services such as streaming music. Martin has a Master's degree in Mathematics from Oxford University.

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