Facebook-Whatsapp Deal to Hurt Mobile Firms’ Revenues – Fitch

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Written by Kevin Mwanza

From The Star via AllAfrica

Telecommunication firms might encounter reduced ability to increase free cash flows to their balance sheets due to the recent acquisition of WhatsApp by Facebook, Fitch Ratings has forecast.

The international think tank said intense pressure on mobile service providers across the globe will arise because of the announcement that the messaging service would expand to include voice calls on what was previously an instant messaging service.

“The resulting surge in data use is not translating into proportionally higher profit before tax for telcos but weakening cash flows from traditional services such as voice calls and short message texts means that they have to spend more capital simply to maintain profits at the same level,” Fitch said.

The popularity of Whatsapp, which boasts over 450 million active users, and its current move that will make it an over the top operator similar to Skype is likely to create an unnerving situation for the local top sector players such as Safaricom and Airtel.

Fitch said such mobile companies could still be justified to invest in data services but it would not necessarily be a major solution to the projected sink in profits because revenue from data services is at lower margin than the traditional services about to be replaced by the over the top operator.

Written by Richard Mungai| Read more at AllAfrica