Editor’s Note: Welcome to our weekly Reality Check column where C-level executives and advisory firms from across the mobile industry share unique insights and experiences.
Since 2012, carriers have seen a steady decline in revenue and traffic from traditional telecom offerings given the popularity and rise of over-the-top services. New Juniper Research projects that wireless carriers will lose up to $14 billion over the next year as consumers increasingly turn to WhatsApp and Facebook for messaging. But what was once a fierce competition between OTTs and mobile network operators, now has both sides seeing newfound opportunity and cooperation.
An annual MNO survey commissioned by Tyntec and Mobilesquared has been steadily tracking the year-over-year impact of OTT services on the world’s largest carriers – identifying the strategies and tactics they’re employing to respond to the disruption.
This year, the global survey found that 96% of MNOs see the benefits in OTT partnerships, and 4 in 5 MNOs are now open to OTT partnerships to replace lost revenue. This is a surprising revelation from a group that once hotly opposed the growth of its OTT adversaries. But perhaps the most telling confession from the 60 MNOs that were surveyed was that hardly any carrier knows what a collaborative model with an OTT provider would look like.
OTT impact then and now
In 2012, findings from the first survey revealed that only 21% of carriers admitted that OTT services attributed to a decrease in overall revenue. Fast-forward to today and that number has doubled, with 40% of MNOs acknowledging that OTT services have contributed to revenue declines of over 10% over the last 12 months. In fact, 80% cite their most pressing concern heading into 2015 will be declining revenue from traditional calls and person-to-person messages, which is directly attributed to the increasing demand for OTT services.
Back in 2013, 43% of MNOs still thought they could compete with the rise in OTT services by building and developing their own messaging applications. Today, this number has dropped to just 5%. Similarly, MNOs who previously admitted to “blocking” OTT services by imposing surcharges or charging for data have now abandoned those tactics entirely. According to respondents, competing is no longer seen as a viable business tactic to help MNOs stand up to financial pressure from OTTs.
Cozying up and monetizing
Today, 39% of operators are already partnering or would like to partner with the likes of Facebook and WhatsApp, previously seen as the biggest OTT challengers according to the survey. In fact, by the end of 2014, over half (55%) of MNOs will have already formed a partnership or will be making inroads on developing an OTT relationship.
Uncharted uncertainty
So, how will MNOs and OTTs work together? Nearly half of operators (45%) see opportunities to monetize OTT services through the inclusion of data as part of their standard data bundles. At a high-level, these types of partnerships make quite a bit of sense:
• Operators want to regain revenue lost from traditional telco services while providing the same simple messaging experience as WhatsApp and other choice OTT apps.
• At the same time, the OTT market is maturing and a community-driven approach to user acquisition will end. OTTs will need to identify ways to generate revenue and keep user acquisition numbers up.
But when you drill down to the details, many MNOs still have questions about the logistics and implementation of these deals. Mobilesquared found that 32% of mobile operators have no idea what a contractual agreement with an OTT provider would look like in terms of margin split, staffing levels, setting KPIs and measuring the success of the partnership. Others are unsure how to deal with infrastructure complexities (26%) and overcome regulatory hurdles (23%).
For the 39% that claimed to have already forged partnerships with choice OTTs, differences in global infrastructure eliminates a one-size-fits-all approach to agreements. That said, solving partnership complexities, both from a technical and contractual perspective, will require time and experimentation – especially given the fact that OTTs think global but most MNOs have no clear strategy for overcoming their fragmented marketplace.
Conclusion
According to Mobilsquared’s forecast, the global mobile operator opportunity for OTT communication will be worth $42.9 billion in 2018. Market forces are magnetizing OTT and MNOs together, and both stand to win by partnering. Over the next year, we will see several partnership pursuits and surely some failures to learn from. Through persistent trial-and-error and help from third parties that can connect the disparate pieces of the two worlds, effective business models will emerge on the back of these partnerships and the mobile operator will once again play a central role in the communications equation.
Thorsten Trapp is the co-founder and CTO of Tyntec. He is a highly regarded mobile industry expert with over 20 years’ experience in the space.
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