The evolving relationship between operators and OTTs
In recent years, there has been a significant shift in the mind set of mobile operators regarding over-the-top (OTT) communications. The perception that OTTs are a threat has been replaced with a revenue-generating opportunity and mobile operators are now more open and receptive to partnering with OTT providers. Why?
Today’s consumer wants low-cost, international communication options, resulting in major OTT players like WhatsApp, Facebook Messenger and Viber becoming choice messaging services. By 2017 over two thirds of smartphone users will be communicating through OTT services and the OTT communications market will be worth an estimated $53.7 billion. For operators, this has created an ecosystem where they need to seriously consider which type of partnership or OTT integration models will enable them to drive revenue and sustain their business long term.
The rise of smartphones and messaging apps has changed the way consumers communicate, and mobile operators can no longer depend on receiving revenue from traditional services such as voice calls and text messages. Research conducted by tyntec and mobilesquared revealed that 97.6% of mobile operators see the benefits in partnering with popular OTT communication services such as Facebook and WhatsApp. With growth of OTT services comes growth in application-to-person (A2P) revenue potential; something all operators want to benefit from to plug the hole appearing in balance sheets from the decline of SMS usage.
However, attitudes towards OTT offerings however have not always been rosy. Previous strategies to compete against OTT providers included operators developing their own competitive advanced messaging services. Telefonica, for example, launched a free-to-download TU Go app allowing users to make and receive calls and texts and access voicemail services using their existing phone number, with usage being debited from the user’s existing allowance. This approach, however, had limitations. It was isolated to existing subscribers so did little to connect an operator with a larger potential customer pool.
Operators also recognise the complexities involved in successfully integrating or launching such a service. The GSMA’s Joyn initiative is proof in point. It was 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 in it.
Consequently, the number of mobile operators implementing competitive advanced messaging services fell from 43% in 2013 to just 5% in 2014. Similarly, the number of operators looking to block customers from accessing OTT services also decreased from 10% in 2012 to zero. There is a growing interest now in partnering with OTTs, as operators recognise that this offers them the best chance of developing a sustainable business model. However, despite their eagerness to partner OTTs and operators are from two different worlds and many obstacles remain (more on the specific challenges of the OTT-operator partnership in my next post). Working with enablers who understand the businesses of both parties can help bridge the gaps and create a successful working relationship.
Globally, mobilesquared forecasts smartphone-based OTT users will rise to 2.89 billion by 2018, an increase of 130% over the forecast period. Mobile operators must enter into partnership dialogues sooner rather than later to embrace innovation and carve out a role in the modern telecommunications ecosystem. Failing to act will only put them at risk of further declining revenues, customer numbers and ultimately, a weakened position in the marketplace.
Next time Thorsten will discuss the challenges that operators and OTTs need to overcome in order to establish successful long-term partnerships.
By Thorsten Trapp, CTO and Co-Founder of tyntec