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Across the world, mobile customers are enthusiastically embracing over-the-top applications. The value of these apps has been firmly established – witness the $19 billion paid for WhatsApp by Facebook. The predicted major threat from OTT players to operators’ service revenues is happening now, and it’s accelerating. Strategy Analytics predicts that operators could lose more than $3 billion in mobile messaging revenues alone in the next five years,* so there is no time to lose – operators must act now.
Operators are increasingly aware that these OTT threats cannot be neutralized simply by blocking the apps. Partnerships and “mash-up” services are the best way forward if operators are to prevent yet more revenue being lost to the OTT players.
But will OTTs actually want to partner with the operators rather than simply piggy-backing on their high speed data networks? Operators already effectively provide a free ride for OTT services, and the OTT players are already reaching the operator’s customer base. What additional value can an operator add to an OTT service, other than a simple co-branding partnership? OTTs are the nimble, low overhead, dynamic entrepreneurs – they can, and do, adapt and experiment, utilizing their own customer feedback. Operators have the reputation of being slow to react, reluctant to embrace new ideas. What do the OTTs have to gain from partnering? How can the operator add value to the OTT service, and increase the size of the pie?
Operators need to reconsider their business models if they are to thrive and prosper. Voice and data bundles bring in basic bread and butter cash flow, but increasing revenues from these traditional services is a challenge. In mature mobile markets the customer base is also stable, with significant subscriber growth now limited to the developing world. If new revenue streams are to be created, the popularity of OTT services must be exploited.
As well as controlling network resources and QoS, operators have decades of experience in developing customer and billing relationships. They have powerful and reliable back office systems, and they have deep insights into their customers’ behaviors and preferences. All this and more can potentially be used to add value to OTT services. But in order to make this a reality, operators need a way to open up their IT and network systems through APIs. They need to provide an open collaboration platform within their IT domain where OTTs can gain access to services such as charging, QoS and campaign management. This enables the OTT to create mash-up apps which incorporate the operator’s services in a single package, to promote these new apps to customers via targeted marketing campaigns, to sell through the operator’s channels, and to get paid. In short, operators can hold the key to profitable business models for OTTs.
This sharing of assets provides a number of benefits to the operators, including revenue share from cross-selling of OTT services and content to their existing customers, the ability to offer differentiated products and price plans that include existing popular OTT services, and the opportunity to win new customers.
Opening up a collaboration platform allows the OTTs to benefit from access to the operator’s customer base, and from highly targeted segmentation of that base. It then becomes possible to build a customized campaign – perhaps including a range of apps and features, or a unique price plan, or perhaps service differentiation with geographically based variations. All this is enabled by the operator’s open collaboration platform, with potential OTT partners simply logging in, registering their own services as APIs, and looking to see what else they could work with to create a mash-up app.
Here’s an example. An operator partners with a music streaming company that is looking for a new channel to market. Using the open collaboration platform, the proposition to the mobile customer could include a purpose-designed attractive price plan for combined music and data services. These services would be charged directly to the customer’s phone bill or pre-paid account via the operator’s established billing system. There’s also the opportunity to offer customers who opt for this proposition the chance to have enhanced bandwidth to deliver a better experience, managed via the operator’s policy control systems.
This is the route to creating a proper converged service – say 30 hours a month listening free of charge, maybe some promotions sent directly to the subscriber’s mobile device, or maybe the service and data are completely free of charge in a specific location during a music festival, with higher bandwidth made available for the streaming service.
Customers can sign up for the new music service either through the operator’s channels or via the OTT music app. The operator can offer customers new services with added value and increased QoS; the OTT gets access to a whole ecosystem of like-minded developers and organizations as well as access to the operator’s customer base and charging systems, and the end user enjoys a better experience and wider choice of services. Good news all round.
Operators gain increased revenue from their share of the OTT subscription, and a competitive advantage – while retaining control of the customer base, as all proposed services and campaigns need to be approved by the operator before going live, and are managed from the operators’ infrastructure.
However, even the most basic operator/OTT collaborations such as ‘sponsored’ data (where the OTT pays for the data traffic to deliver its own service, rather than the end customer paying from their data account) – have led some voices to raise questions about ‘net neutrality’. The principle of net neutrality is to prevent service providers offering advantage to ‘preferred’ services running over their networks. Under most people’s interpretation of the rules, operators would be allowed to add value to OTT services by providing QoS, billing and other benefits, and they would be allowed to charge for this added value, but they would not be allowed to discriminate between OTTs wanting to access these services. Access must be equal for all OTT partners who want to participate (under the same commercial terms).
This creates an even more urgent need for the open collaboration platform, because it enables the operator to cost-effectively scale up the IT-related aspects of its OTT partnerships. Manual configuration of the IT systems to enable each partnership individually is expensive and time-consuming, but with an open collaboration platform OTT partners can do most of the integration work themselves.
With today’s scalable collaboration platforms, this capability is available. Previously partnering with just one OTT would involve expensive customization of an operator’s IT systems, making multiple partnerships complicated and economically prohibitive.
China Telecom has been running just such a scalable platform since 2011, with more than 20 OTTs converging their products with the operator’s capabilities, across fixed, mobile and IPTV services. The platform enables OTTs to use China Telecom’s network assets such as the SMS gateways, as well as its back-office systems to enhance, promote and monetize their services. The business model is based on revenue share from end customers, with the APIs provided free of charge to OTT partners.
These collaboration platforms are available to help operators team up with OTTs for mutual profit, and leverage the true value of their IT and network assets. From innovative mash-up services to the emergence of sponsored data offerings, the overall trend is clear: a fundamental shift in service structure is coming, and operators need to seize the opportunity now in order to compete, gain and retain customers in the new mobile landscape.
*Strategy Analytics ‘A Vertical View of Mobile Messaging Apps’, October 2013.
