Thorsten Trapp, CTO, tyntec, writes in this guest post that one response to the OTT threat is to become a transit hub, taking advantage of the operator ability to foster interoperability between OTT services. It’s not a solution that will work for everyone, he cautions.
FACING THE OTT DILEMMA
The threat posed by OTT services to operator revenues is well known and understood. In a recent survey by MobileSquared for tyntec, 80% of operators acknowledged that free and low cost voice and messaging apps presented a very real threat to core voice and text revenues.
Moreover, this threat is significant – the same research forecast that services such as Skype and WhatsApp will be responsible for a $182 billion hit to core operator revenues between 2012-2016.
But what should the operator response to this be?
Despite the overarching threat to revenues there is clearly still the potential for a pot of gold at the end of the OTT rainbow. Whilst OTT-to-OTT calling and messaging remains effectively a revenue neutral zone, the potential of interoperability as a revenue source is powerful. Indeed, OTT-mobile calling and messaging is already significant – nearly 120 million users globally are already using paid-for OTT-to-mobile messaging services with this number expected to rise to more than 530 million by 2016.
Operator responses to OTT
There are a range of options for operators looking to respond to the OTT phenomenon. The first is simply not to respond at all; the head in the sand approach avoids all of the complexities and potential risks of other routes, but not only lacks a long term strategic vision – it quite clearly fails to understand the severe implications of inertia in the fast-changing global telecommunications market.
The next response is to fight. Blocking or charging for OTT services brings them into line with traditional communications methods and therefore, it is argued, prevents cannibalisation. This route is proving increasingly popular – the number of operators blocking OTT services has almost doubled from 5.4% in 2011 to 10.5% in 2012, and the number of operators imposing surcharges has trebled from 5% to 15.8%. And yet, in the medium to long term, it is doubtful whether this is a viable approach. OTT services clearly enjoy strong consumer demand and if you attempt to block that demand, you run the danger that customers simply choose to move to an operator that does fulfil it.
OTT competition
Another option is the ‘if you can’t beat them, join them approach. This can take a number of forms. Operators can launch their own OTT services, as Telefonica has done with Tu Me and T-Mobile USA has with Bobsled. They can partner with existing OTT players, as Three UK and Verizon have with players such as Skype. They can even try and redefine OTT, as companies like Vodafone, Orange, Telenor and T-Mobile are attempting with the RCS-e Joyn standard.
These approaches all have their merit and are proving popular. Something like 47% of operators are rolling out IMS/LTE and will be able to offer RCS-e based services, over one third of operators have rolled out their own OTT services and nearly a third of players have formed some sort of partnership with existing OTT services. Indeed, a quarter of operators have taken a portfolio approach, with 25% opting to combine an IMS/LTE roll out with an OTT partnering programme.
However, these approaches don’t seem to tackle to core issue of the OTT threat. They may bring the operator into the ecosystem in some way, but they either fail to generate new revenues or to create a compelling proposition that will draw customers away from the established OTT players. Most importantly, they don’t help tackle the issue of fragmentation – the walled gardens of communication where OTT users can only communicate with other users of the same service. This fragmentation lies at the heart of the OTT threat as it takes users away from the ubiquity of the operator market – any long term solution must therefore deal with this issue.
Powering interoperability
A more radical solution lies in operators taking on the mantle of interoperability. Mobile numbers remain the ubiquitous identifier for person-to-person communications and they hold the key to enabling interoperability. By working with OTT players to allocate mobile numbers to OTT users, operators can facilitate seamless interoperability between OTT and mobile. This interoperability would mean that operators can bring the “lost OTT users” back into the fold and recapture some of the income that has been lost, as they generate termination fee revenue through off-net traffic. Becoming a transit hub for OTT traffic may seem like an admission of defeat for some, but for others it’s a forward-looking recognition of the potential of OTT and an innovative strategy to reclaim at least some of the lost revenue.
The benefits of this approach are unlikely to completely replace the income lost to OTT – MobileSquared’s research predicts a cumulative $30 billion benefit from 2012-2016. However, this revenue isn’t necessarily proportional to an operator’s OTT losses, meaning that the first movers in this approach have the potential to grab a disproportionate share of the income.
The answers to the OTT issue aren’t simple and none of them promises to bring back the fast disappearing world of an operator monopoly on voice and messaging. However, among the variety of approaches, leveraging mobile operators’ assets in the form of mobile numbers certainly seems like one of the top options. It brings with it the advantages of ubiquity, interoperability and the potential for termination-fee generating off-net traffic which would really help operators to join in the OTT game in a profitable and sustainable way.