The Impact of Whatsapp on Sms Revenue Essay

425 Words2 Pages
The impact of new Competition on profitability is a very important phenomenon that we learn in Managerial Economics. The increase in competition drives the price closer to marginal cost, reducing economic profit. The competition can come from more companies producing the same product or producing close substitutes. A good example can be seen from the recent profit numbers of KPN. KPN is the leading telecommunications and ICT service provider in The Netherlands, offering wireline and wireless telephony, internet and TV to consumers, end-to-end telecommunications and ICT services to business customers. In their Q1 results conference call* with analysts,CEO Eelco Blok started by saying "Q1 has seen lower than expected revenues in the Netherlands mainly in consumer and business segments". To explain the poorer than expected number he referred to the impact of services like "Whatsapp". He said, "In consumer mobile we have been surprised by the acceleration in usage of free alternatives for SMS and voice. Customer behavior is rapidly changing as a result of smart phones and new applications leading to substitution of SMS and voice by data. This trend is especially recognizable amongst young people and results in strong growth of data usage and substantially less SMS and voice messages.... This trend has a negative impact on SMS and voice revenues." He quantified the impact of the move of customers towards a substitute which is practically free: "Last year, March, we have seen a 10% growth on SMS year on year and currently we see a 10% decline year on year in March on SMS and a percentage is increasing. That’s the trend we are seeing currently in the Netherlands and accelerating over the last couple of months." More importantly, he said "What we see happening in the Netherlands in our customer base I’m convinced that will happen around the globe."

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