OTT Content Partnerships : TIME TO MAN UP !!

Presentation1
For some time now the OTT’s have been viewed as the anti-carrier Antichrist. Just recently the CEO of one South Africa’s leading MNO’s told a tech news agency that over-the-top (OTT) services like WhatsApp and Skype were unfairly benefiting from his company’s costly infrastructure. He warned that his network was not prepared to spend billions on its network just for the OTTs to have a “free ride”. Another Telco was quick to declare that OTT services were “skimming” its voice revenues. Without these extra revenues, the company claimed, it cannot afford to provide telecommunications to poor rural areas, where it runs at a loss….boohoo…Did these guys just wake up because the OTT invasion began 5 years ago ??

It all seems so unfair that OTT players make their money by loading more and more traffic on the operators’ networks, thus causing the operator to pay for network capacity upgrades to facilitate the OTTs’ increasing VoIP and IM traffic that was the root cause for decreases in the operators’ core voice and SMS revenues. But if truth be told circuit switched voice and SMS are on the way out, and as operators move towards becoming fully IP based digital services providers. So some clever Telcos are entering into collaborative agreements with OTTs in order to generate new revenues and provide a deeper range of services to their customers…. instead of making dire predictions and pathetic threats !!

While working with OTTs is still at an early stage for many operators the $$ opportunity is to not view OTTs as a threat but to use them to build more comprehensive offers that customers want and help to build loyalty. Instant messaging is on the rise and texting is starting to see its first decreases in usage since it was launched. In August 2014 research firm Deloitte reported that the average person sends seven text messages a day, compared to 46 instant messages. SMS texting is forecast to fall from 145 billion to 140 billion by end of 2014. According to the survey of UK consumers almost a quarter of smartphone owners use five or more messaging apps.

There are many operators who have started selling application service passes which provide a low cost means of using an OTT service from a smartphone. For example, in Kuwait, Ooredoo offers a WhatsApp service for only 750fls (2 euro) a month. This is a good example of offering a low cost service limited only to a specific application to generate a new income stream and encourage mobile data adoption. Ooredoo promote this service as an alternative to trying to find a free Wi-Fi zone. As well as offering low price services for one app, operators are also zero rating popular services, such as Facebook or Twitter in order to get customers using their services. In June 2014 TMF ran a survey of 67 operators looking at uses of real-time convergent charging and policy management. In this survey 56% of operators said they are offering zero rated deals, under which the use of services such as Facebook and WhatsApp don’t count against customers’ data allowances.

Operators can look to work with OTTs in order to develop new revenue streams to replace the traditional texting and voice revenues. It’s not a case of operators ‘versus’ OTTs. Operators have some key assets that can make them very attractive to OTTs as a route to market and develop win-win partnerships.

These include but not limited to :

• Established customer relationship often built up over years
• Established financial relationship – regular billing and subscription models, and prepayment for services
• Flexible charging, pricing and billing options – ability to provide innovative pricing plans which can help add value to the OTT’s services
• Ability to prioritize the delivery of certain services – e.g. in a congested network operators can apply traffic prioritization
• Ability to differentiate service delivery – e.g. tiered service delivery: supply certain video traffic over LTE and offload others to slower Wi-Fi networks to avoid network congestion
• Use big data and customer analytics (e.g. cell site location, customer behavior) to upsell more relevant services and finely tuned advertising

E Plus in Germany and China Unicom have launched prepaid SIM cards that lead with OTT services. The WhatsApp SIM card from E Plus and the WeChat SIM card from China Unicom offer mobile voice minutes, a data tariff and zero rated OTT IM services. Looking at the E Plus example , which was launched in April 2014, this offers a prepaid card which costs €10 / month and the main message is WhatsApp is always free, even when the subscriber runs out of credit (in the 30 day period). This is a major benefit over other networks who charge for the data required for WhatsApp (which is installed on 90% of all smartphones in Germany, giving a potential user base of more than 30 million people). By working with this OTT E Plus can leverage the popularity of WhatsApp to attract new customers and open new revenue streams.

China Unicom has worked with the OTT IM service WeChat to offer a WeChat China Unicom SIM card that offers additional services over the traditional WeChat mobile IM service. These additional services include increased group chat limits and extra free icons. By differentiating the WeChat service available with the China Unicom WeChat SIM there is another clear incentive for WeChat mobile customers to switch to China Unicom. This service was launched in August 2013 in Guangdong and it was reported that in one month it gained 1 million customers.

The most recognizable players in streaming music , Spotify, Beats Music, Deezer and Napster have all partnered with mobile operators. his may help explain Spotify’s increase in paying customers from 6M in March 2013 to 10m in May 2014. Deezer has probably been the second most prolific in terms of mobile partnerships and they say their paying subscribers increased by 4M to 5M between May and November in 2013. Sprint have added Spotify to their Framily (friends and family) plan. All Family customers get a six-month trial of Spotify and they will get Spotify at the discounted rate of $7.99 a month. For family groups of 6 to 10 members, the rate falls to $4.99 a month.

Telecoms operators have a choice – they can collaborate or compete with OTT service providers. Operators in the Middle East are taking both approaches. While incumbent operators in Saudia Arabia (STC), the United Arab Emirates (Etisalat) and Qatar (Ooredoo) are competing with OTT providers by either extending their IP TV services to OTT platform or by emulating popular OTT services, newer entrants to the market such as Saudi Arabia’s Mobily and Nawras in Oman have collaborated with WhatsApp to launch specific packages. Because launching in-house OTT services or partnering with OTT players can be a double-edged sword, taking the precautionary step of adapting the services to the operator within the competitive context is highly recommended.

The recent interconnect deals with AT&T, Verizon and Comcast that Netflix has struck illustrates that in order to deliver video at the speed and quality that the content providers (and consumers) want then telecoms operators and customers cannot be expected to pick up the delivery bill all the time. Perhaps this illustrates that content providers are recognizing (and will pay for) differentiated service delivery. With over 50 million subscribers Netflix is enjoying substantial growth and has established payment of a monthly subscription fee. With viewing behavior changing and more consumers watching videos and TV shows on tablets and smartphones, companies like Netflix are seeing the potential for working with mobile operators (and vice versa). If operators are looking at partnerships with video / TV content providers then the first thing they need is real-time data collection, rating and notification systems.

Rather than just have all video traffic on a LTE network an operator could offer options to offload onto available Wi-Fi at a lower (or no) cost. This is done by having on device ANDSF (Access Network and Discovery Function) software which enables operator controlled offload by assisting devices to discover access networks in their vicinity (e.g. Wi-Fi) and provide rules to prioritize and manage connection to all networks. This allows operators to dynamically control and define preferences – that is how, where, when and for what purpose a device can use a certain radio access technology – e.g. under what conditions is traffic offloaded to Wi-Fi.

Having data delivery charges picked up, or subsidized, by the content provider or by advertisers could be a possible way to take the sting out of data heavy content charges. The delivery of media content has been traditionally subsidized (television, cinema, newspapers, radio) and it could be argued that this will not change for digital content delivered on mobile networks. If a customer was to watch a 30 minute TV show each day / month on a LTE network then the data charges would be around US$70 / month (for 4GB). Most customers would eschew this. If part of the cost was picked up by advertisers then maybe the retail costs could come down, with the resultant increase in active subscribers, content usage, and advertising revenues.

However the systems required to support much more diverse and dynamic business will need to be very different from the traditional legacy BSS that were designed to collect, rate & bill for circuit switched voice calls and SMS text messages in batch mode. Legacy BSS systems are the perfect recipe for bill shock and some very angry customers besides being inflexible when it come to dynamic service creation , delivery and monetisation.

Telecoms operators in Western Europe could generate an additional €2 billion in profits from working with over-the-top (OTT) companies if they are willing to take an open platform approach to collaboration, according to recent study published by Northstream. Why not the same windfall for Telcos in MEA if they were to adopt the platform approach of partnerships, and facilitates more innovative service offerings ??

Bottom Line : You can’t wish the OTT’s away anymore than you can do the same with your mother in law !!

….So…. Adapt , Innovate , collaborate or PERISH

Sadiq Malik ( Telco Strategist

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