Competing on price alone does not create market value for telecom operators. However, there is now emerging a more positive way to exploit the influence price has over subscriber behaviour.
This white paper considers the current situation and emerging model, exploring the benefits for operators and steps needed to realise this alternative approach.
Executive Summary
Recent price-wars between telecom- operators have left them nursing wounded margins: the only apparent winner is the consumer. While most operators already realise the need to re-introduce value-adding differentiation, pricing still has a significant role to play – but a new approach is clearly needed.
The relatively untapped model now emerging hinges on an operator’s capability to dynamically respond to market conditions and network and service utilisation, with timely and well-focussed short-term pricing promotions to address a variety of “spot- markets”.
With this capability, leading operators have uncovered exciting and rewarding opportunities for themselves and their customers: for subscribers, the rewards are the promotional offers themselves; for the operator the prospects include:
More revenue generating traffic without system expansion
Retaining existing subscribers and attracting more
Cost-reduction through more efficient use of charging systems
Exceeding forecasts for new service uptake
Exceeding service revenue targets
However, the dynamic nature of the new price-promotion model is not easy to support on core charging systems where stability is critical and change is restricted, slow and expensive. Therefore, operators like Smart Communications in the Philippines are turning to OpenCloud’s Rhino platform to defend the stability of core charging systems and simultaneously provide the agile and low-cost environment needed to deliver these innovative promotions.
Rewarding for both the network operator and for its subscribers, this new model presents an exciting win-win opportunity. With the upsides outlined above, and the chance in many markets to take the first-mover advantage, operators can look forward to a business-case that really stacks up.
For more information about OpenCloud, the Rhino platform, and how it can help deliver quick-wins in your network please visit www.OpenCloud.com.
Price-wars: A Dead-end?
In all corners of the world, in every industry there is a ubiquitous truth: Price matters to consumers. With the recent economic situation giving rise to ‘austerity’ measures, consumers are becoming increasingly disciplined when managing their disposable income – and, unsurprisingly, this discipline includes shopping around for the best price. Within the whole telecommunications industry, service providers and network operators alike, the influential role of price has been played out as a series of price wars across the service portfolios, with ever increasing call minutes for the same price-point; unlimited texts; “unlimited” data bundles; and multi-service bundle discounting – all aiming to attract greater market share towards the operator.
While reducing the cost per-call (or per-message or per-MB) makes great news for consumers, the result for operators is less fortunate: Price-points have hit the floor and margins have been cut-back to the bone. In order to protect profitability, any further pricing reductions need to be supported with reduction of the operator’s cost-base. However, with the recent squeeze on budgets, operators are getting close to exhausting their options for further cost-cutting: Service pricing has essentially bottomed-out with operators in each market offering similar deals. With little service and pricing differentiation in most markets, subscribers have grown accustomed to shopping (and moving) around for the best deal as determined by secondary factors (for example the type of handset they’ll get), and now churn rates look set to pose a real problem for the operators (Analysys Mason’s “Connected Consumer survey, 2011” highlights this issue.)
“However ‘price’ remains a valuable tool in the marketing tool-kit – the influence it has over consumer behaviour remains as potent as ever …”
Thankfully, we may well be at the lowest ebb – the tide looks set to turn. Recognising that the industry has neglected genuine innovation in core services, leading operators have started to re-invest in creating core service differentiation that delivers real customer value-add in order to lift their services out of “commodity” and at the same time enable further revenue opportunities (see OpenCloud’s White Paper “Fast-track Innovation” for further details). However ‘price’ remains a valuable tool in the marketing tool-kit – the influence it has over consumer behaviour remains as potent as ever, and it still has a significant role to play.
Taking a much more constructive and positive course than the traditional price-war, some innovative operators are now harnessing the power of price in smart alternative ways – and they’re finding that not only can their new price-promotion tactics help them hit their targets for new subscriber acquisition but leveraging price can also help them create increased loyalty to combat churn and, importantly, it can help them meet or even exceed their revenue targets.
New Paths for Price-promotions
A key feature of the emerging model is that the price-promotions are not fixed or embedded into the tariff-plans offered. This creates some advantages that can be leveraged by the operator:
The operator can play around with the promotional offer structure at will, experimenting to find the deals that work best.
The operator has complete control over which promotions are available, so, for example, unprofitable promotions can be changed or removed easily.
The operator has the freedom to react to competitors’ offers much more quickly
The operator can choose which customers to target for promotions regardless of the tariff-plan they are on – and promotions can target the entire customer base.
These benefits enable operators to create “spontaneous” promotional offers, characterised by: 
Intelligent control and
targeting, and Continual, rapid and flexible innovation and launch
In this new model, the network operator identifies and exploits multiple niche opportunities in “spot markets” – dynamically reacting to current network conditions, service usage patterns and competitive moves – to deliver ‘quick-win’ promotions.
One obvious opportunity for operators is the chance to profitably fill spare network capacity during quiet periods. Most operators see familiar usage patterns in each service – particular times of day, or days of the week corresponding to periods of high usage or low usage. However network capacity is static and typically sized for the “busy hour” load. Outside of the “busy” periods there is unused capacity which can be viewed as a (missed) revenue opportunity.
Many operators already have: “Happy Hour” offers to encourage use during quieter times, whereby subscribers on particular tariff-plans can send unlimited (or low-cost) messages, or make unlimited (or low-cost) calls to specific destinations. But these are static long-term solutions – whereas the variation in network utilisation is much more dynamic.
South-East Asia has always been an exciting hot-bed of innovation for telecoms services, so it is not surprising that SMART (Smart Communications) in the Philippines is among the first to exploit quick-win promotions to manage service utilisation and revenues much more dynamically. Taking into consideration actual service revenues, whole-network and regional loading, SMART can spontaneously push out promotions (via TV, radio, SMS etc) to some or all of its subscribers to stimulate service usage:
If service utilisation is down and revenues are below expectations for the month,quick-win promotions are used to stimulate service usage and push revenues up towards their targets
If particular regions are generating low service volumes, quick-win promotions are used for subscribers in that area to monetise that localised spare capacity
Such promotions can stimulate use of specific services: SMS, MMS, data, voice, local traffic,on-net traffic, general usage, or particular service features such as conferencing, or access to YouTube, for example. The promotions may offer periods of unlimited use, discounted charges (e.g. “50% off this hour”), or bulk-buys (“up to 200 texts before 6pm for €3”) and so on. Operators have an almost limitless number of possibilities for dynamic, creative and exciting promotions. Clearly, however, the business case must deliver more than just innovation – and in examining the rewards available we find some powerfully motivating operator benefits.
Driving Forces
Take a walk around a large supermarket and there is plenty of evidence that pricing-promotions really do help shape customer behaviour: for example, excess stock with limited remaining shelf-life is offered with large discounts for quick sale, and introductory offers supporting the arrival of new products – and each week (each day even) the offers changes as stock-levels and customer demand varies.. We’ve already highlighted the quick-win opportunity for operators to sell off “excess stock” (or, in their case, to profitably fill spare network capacity). Quick-win promotions can also support the launch of new communications services. Despite best-efforts when producing marketing plans and business-cases for new services, forecasts about uptake are intrinsically speculative.
Uptake in some market segments will lag behind expectations, regional variances emerge and service adoption patterns build up dynamically. Quick-win promotions provide operators with the opportunity to drive new service uptake as the situation develops helping the operator to reach targets for growth in both customer numbers and revenues
From the subscriber’s point of view, for both new and established services, these promotions are opportunities for them to benefit from special deals. Everyone likes to get a bargain, and this is what drives the high-levels of offer take-up experienced by operators running this type of campaign. For operators the valuable benefit created is “goodwill” within its customer-base, with subscribers feeling that the operator is rewarding “loyal customers” with special offers. Not only does this help foster brand-loyalty, but it can also act as an important source of differentiation – with the potential to attract customers from other networks. The really interesting point here is that essentially the customers are delighted to pay extra to benefit from the privileged deals being offered by their operator. Of course the differentiation potential and increased loyalty help operators in their drive for market share and churn reduction. However, the key operator benefit lies in the revenue opportunities. As illustrated earlier, SMART has found that quick-win promotions can be used to push up
monthly revenues, and enable them to hit their service revenue targets – in effect this is almost as simple as just turning on the tap when a little extra is required.
So with these potential rewards heaped on the table, it seems surprising that operators haven’t been filling their coffers this way for years. The reason is simple: most operators don’t have the capabilities needed for promotions of this nature.
The Need for Stability
As described earlier, one of the two central characteristics of quick-win promotions is the ability for “continual, rapid and flexible innovation and launch”, and since pricing is involved this ability is dependent on the operators charging systems. Unfortunately, this is where the challenges start.
Since charging systems are responsible for managing the life-blood (the revenue) of the operators business, charging system stability is paramount. Operators prefer not to make changes to these systems because any change represents a significant new risk. If change is needed, system vendors pour time and effort into ensuring system reliability, with painstakingly managed processes to keep any risk to an absolute minimum. It is not surprising then that charging system vendors typically command very high prices for the equipment, for capacity licences, for support and maintenance and for implementing change requests.
Considering the defining attributes of quick-win promotions (the need for continual, rapid and flexible changes) we can see that attributes of charging systems (and to some degree their vendors) are not well-aligned: The risks, costs and time taken to implement even a single promotion on the core charging systems would probably kill the business case; and the idea of repeatedly devising, implementing and running a series of promotions at high-speed is essentially untenable. Furthermore, if that isn’t bad enough, the final blow for many operators is that they have two charging systems – one for pre-paid and one for post-paid customers. The time and cost associated with making changes to support promotions on one system must be doubled to cover the whole subscriber base.
Despite the significant upsides possible with quick-win promotions, the speed and cost of implementing dynamic changes on the existing charging systems makes that approach a non- starter. Keen to not lose those benefits, operators are now turning to a more adaptable, lower- cost solution.
A Dynamic Response
Operators need a solution that will support the two key characteristics of quick-win promotions:
The solution must enable continual, rapid and flexible innovation of new promotional offers
The solution must enable promotions that can be flexibly targeted at particular services, or particular times, specific locations, customer groups or any combination of these.
… but moreover, to build a healthy business-case,
The solution must support these promotions at a low cost
As noted, existing (and often multiple) rigidly-managed charging systems don’t naturally exhibit these three traits, and therefore it is essential to augment the network with a platform that does.
Scottish-born Robert Thomson patented the pneumatic tyre in 1846. However, it wasn’t until 41 years later (1887) when, in an effort to prevent the headaches his son had while cycling on rough roads, fellow-countryman John Dunlop re-discovered this invention and took a lead in adapting it for the emerging motor industry. At that time road surfaces were extremely uneven, and travel even at low speeds on solid- wheels was extremely uncomfortable. Pneumatic tyres, however, enable faster travel, with better traction and steering control, and help protect the carefully crafted vehicle and its occupants from bone-shaking vibration.
The solution adopted by SMART and others is to deploy OpenCloud’s Rhino platform as an intelligent, scalable and extremely flexible enabler, augmenting charging-interactions before they reach the core charging system(s) The carrier-grade Rhino platform can be connected into the network without large scale change and risk, only touching charging interactions specific to the services involved in the promotions, leaving the rest unchanged. The core charging systems and other network elements can continue to use their existing protocols because Rhino appears ‘transparent’ to these elements, and when Rhino has finished delivering the intelligent charging controls needed, subsequent charging interactions that no longer require it can be handled as before, without involving Rhino.
Leaving the business-critical charging systems and protocols unchanged, Rhino provides a powerful and adaptable environment for executing sophisticated charging decisions with carrier-grade reliability to deliver the capabilities that enable the quick-win promotions at low cost:
With service creation based on the open JAIN SLEE standard (and with a large independent pool of developers available) operators can quickly implement new promotion templates in just a matter of days. Once created, these templates can be used, re-used and adapted at will.
Using standard adapters, all the network resources and data sources (such as HLRs, messaging systems, call control systems, specific data-sources, etc.) can be accessed and leveraged to deliver the controls needed to support targeted and intelligent promotions across all classes of service (voice, SMS, IM, data, video etc.).
Integrating with all charging systems (pre-paid, post-paid, converged online charging systems) and extensible to support charging system evolution, Rhino enables promotions that range across the whole customer base. Furthermore, Rhino protects the stability of the charging systems while operators dynamically adapt to changing market conditions, adjusting their promotional activities accordingly to establish a series of quick-wins towards their market-share and revenue targets.
Using Rhino as a dynamically adaptable supplement to the charging systems defends the stability of the core charging systems behind it and enables low-cost opportunistic price-promotions. But the benefits (revenues, loyalty and differentiation) that can be delivered through quick-win promotions are not the whole story: Deploying Rhino to augment the core charging systems also enables some potentially large cost-savings.
Charging Offload for Cost-savings
Quick-win promotions, regular tariff plans and “bolt-on’s” often share an important similarity: bundles of service-usage for a fixed cost. For example, a promotion may offer “unlimited MMS for €2 for the next hour”; A regular plan may include “free calls to 5 on-net friends”; A bolt-on may include “300 SMS for $5”. OpenCloud’s Rhino platform provides an intelligent charging enabler which can be used to identify traffic that has already been charged and traffic that is zero-rated; and because no charging is required, Rhino can reduce the load presented to the charging systems. As previously discussed, traditional charging system licencing is often a major cost-centre for operators, and with licence costs typically based on peak-loads, filtering out charging traffic to reduce the peak-load enables operators to save some of these costs.
At SMART, for a promotion offering “unlimited SMS in the next hour for just P10” for example, OpenCloud’s Rhino platform performs just one charging action (to collect the “P10”). All messages sent by the subscriber during the promotional period are then carried without further load on the charging system. This same technique can be adapted for similar offers whether promotional, bolt-on or regular, with the load-reduction potentially leading to very large cost- saving for operators.
Next-steps for Quick-wins
Quick-win promotions represent an exciting and rewarding opportunity for network operators and their customers, and as a relatively untapped model there is scope for leading operators to benefit from a “fast-mover” advantage.
OpenCloud Rhino’s enabling-technology overcomes the barriers of inflexibility and cost associated with changes to (potentially multiple) charging systems: creating an agile and low- cost environment for innovative promotions.
Deploying an agile, open and low-cost charging enabler, creates opportunities
To differentiate, to build brand-loyalty and to “turn-on” additional revenue
For increasing usage of existing services and driving uptake of new services
For licence cost reductions.
With these upsides, operators can look forward to a business-case that really stacks up, and a win-win result that also rewards their customers.
For more information about OpenCloud, the Rhino platform and how it can help your business please visit www.OpenCloud.com or contact OpenCloud using the details on the back of this white paper.
The information in this document is provided “as is” and all express or implied conditions, representations and warranties, including any implied warranty of merchantability, fitness for a particular purpose or non- infringement, are disclaimed, except to the extent that such disclaimers are held to be legally invalid. The opinions expressed in this document are those of OpenCloud Limited at the time of writing, and not necessarily those of any other party either named or implied. OpenCloud™ and Rhino™ are trademarks of OpenCloud Limited. All other trademarks are property of their respective trademark owners.
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