Why network operators must embrace innovation – and OTTs – to survive

Adapting to the changing world of telecoms

We spoke to Thorsten Trapp, CTO and co-founder of tyntec, about how the growth in popularity of OTT services has affected the mobile operator space, and what operators can do to survive.

TechRadar Pro: How has the rise in the popularity of OTT services affected operators?

Thorsten Trapp: The most damaging impact is undeniably revenue loss, particularly in the messaging space. In a recent study by Mobilesquared, 80% of MNOs cite this as their most pressing concern. One third (33%) of mobile operators have seen up to a 10% decline in revenue, up from 21% of mobile operators in 2013.

This rise in popularity of OTT services is driving down ARPU and consequently, operators are starting to rethink their business models and reinsert traditional telecom services into the communications equation.

TRP: How have operators reacted to this? Will they ever be able to compete with OTTs?

TT: The initial reaction was defensive with many MNOs both blocking OTT services and launching their own competitive "OTT-like" services such as Telefonica's free-to-download TU Go app. This approach has limitations, however, as it is isolated to existing subscribers reducing usage potential for customers and doing little to connect the operator with new customers.

The Joyn initiative was another defensive play. It was originally proposed as a collective initiative for legacy organisations to combat OTT services but its delayed time-to-market and integration complexities caused operators to lose interest.

Now, operators are starting to realise that partnering with OTT players is the most beneficial way forward. This approach offers advantages to both parties and provides an opportunity for combined future growth.

TRP: What are the benefits for operators in partnering with OTTs?

TT: According to Mobilesquared, OTT communication will be worth $43 billion (around £28 billion, AU$54 billion) by 2018 as long as partnerships are formed. This is down to:

  • Offering an OTT service will drive customer loyalty as MNOs will be able to provide cheaper access to value-added services. This will boost messaging, voice and data usage on the network
  • By enabling OTTs to integrate features such as seamless web-SMS chat, MNOs can terminate cross-channel traffic on their network, further increasing revenue
  • By capitalising on existing technologies through partnerships and monetising existing assets such as mobile numbers, operators will no longer need to invest in developing and managing their own services

To truly take advantage of these benefits, enlisting the help of third parties who understand both business models can make the partnering process much more streamlined for all involved.

TRP: It appears that these partnerships may be an operator's only survival strategy – are there any benefits for OTT players?

TT: OTTs can start to build a truly global user base by integrating traditional telco services. Using SMS-backup connection for their IP-based services in new markets where there's no sufficient internet connectivity is one such example.

Beyond this, depending on which business model OTTs have (ecommerce, marketplace, social network, etc.) virtual mobile numbers can also provide new opportunities to engage their users through seamless two-way communication and/or provide added protection for private transactions and interactions when used as temporary numbers.

TRP: How can operators form these partnerships? Are there any successful examples?

TT: MNO-OTT partnerships are still in their infancy. The first step is for operators to examine their core competencies as well as their limitations and work out which opportunities make the most business sense for them. Mobile operators can use OTT brands to drive data usage by including these services as part of their standard data bundle. Alternatively, they can monetise the partnership via advertising and marketing, selling content or charging for a monthly subscription.

For example, WhatsApp announced a partnership deal with German MVNO E-Plus, offering a special data tariff for WhatsApp messages, videos and pictures to subscribers. This is a limited example of what one carrier has done to offer OTT services but it gives us a glimpse of what OTT-MNO partnerships could look like in the future.

TRP: Why are some operators still struggling to form partnerships?

TT: This is still uncertain ground. In the recent survey, 64% of mobile operators said that business reasons were the primary motive for not forging a partnership with an OTT provider, followed by infrastructure complexities (26%) and regulatory issues (23%). Many also expressed concerns about the contract itself with almost a third of MNOs unsure what such an agreement would look like.

Third parties who understand the business models of both MNOs and OTTs and have already invested time in forming and implementing these agreements are often well placed to help address these concerns. OTTs need global access, and that's not something MNOs can easily provide given the international fragmentation of the telecom industry.

For many operators it would make better business sense to work with overlaying international network providers rather than to enter into separate agreements with a myriad of partners.

TRP: Is the next step a pure data offering? What would this mean for carriers?

TT: For the foreseeable future, there will be opportunities for operators to monetise the use of messaging and voice as well as data services.

Mobile phone numbers still remain one of the most valuable assets that an operator owns and can be used as unique identifiers to enable much needed seamless communication between telco and web.

In addition, the increased use of SMS-based two-factor authentication provides operators with another revenue stream, as a growing number of enterprises use the technology to verify customer data and keep information secure.

The real challenge for operators is to become agile enough to exploit the emerging opportunities becoming available to them.

TRP: Do you foresee any change in attitudes in the near future?

TT: We are already beginning to see operator attitudes towards OTTs change, as last year we saw over half of operators expecting to have formed a partnership with an OTT partner by the close of the year, compared to only 36% in 2013.

Pace is crucial, however. OTTs have displayed an innate ability to rapidly innovate and to date, operators have not been able to match this. Only by embracing innovation can MNOs carve out a new role in the modern telecommunications ecosystem.

ABOUT THE AUTHOR

Editor, TechRadar Pro

Désiré (Twitter, Google+) has been musing and writing about technology since 1997. Following an eight-year stint at ITProPortal.com where he discovered the joys of global techfests, developing an uncanny attraction for anything silicon, Désiré now heads up TechRadar Pro.