December 13, 2016

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Responding to the OTT Challenge

How Telecom Operators Can Thrive in the New Competitive Ecosystem

Most people today carry their opinions, cash, business transactions, and even relationships, in their mobile devices–more specifically, in a host of free, ‘over the top’ (OTT) applications cluttering their smartphones. Sure, life is more convenient than ever. But this oversimplification of human lives has significant implications for telecom operators like you, whose traditional cash cows–mobile voice calls and messaging–now face existential challenges.

In 2016, 26% of smartphone users in developed markets will make no phone calls in a given week through their wireless carriers, according to a Deloitte study. The millennial generation has taken to communication over Internet protocol (CoIP)-based messaging, social media, video and voice services like a duck to water. While users still access cellular networks provisioned by their telecom carriers, they prefer messaging and making calls through WhatsApp, Skype, Viber, Facebook, and iMessage.

London-based research and analytics firm Ovum presents a grim picture. The telecom industry faces revenue losses to the tune of $386bn between 2012 and 2018, due to the growing adoption of OTT voice applications. And, the irony is you need to enhance your network capacity to support the exponential growth in data traffic from these OTT services.

In order to reclaim your status as a trusted communication service provider, you must redefine your value proposition and business model–now.

Mapping the new ecosystem

Key drivers behind the dramatic pace of ongoing disruption in the telecom marketplace include:

  • Growth of multiple super fast, IP-based communication services that have converged data, voice, and video onto a single network, transforming mobile telephony and messaging
  • Increasingly affordable data rates and faster Internet connections
  • Gradual commoditization of smartphones; nobody thinks twice before buying one–it’s not so special anymore!
  • Operating systems including Android and iOS that have contributed to mobile devices getting ‘smarter’, with introduction of more advanced functionalities
  • Growing breed of mobile apps that have become an integral part of consumers’ lives; while OTT solution providers piggyback telecom operators’ network and infrastructure, they do not share their revenues with the latter
  • Massive growth in application programming interfaces (APIs) that enable developers to create Web and mobile apps
  • Dramatic change in the behavior of consumers, who prefer tapping into OTT apps than using the conventional mobile voice and messaging networks

Rising to the challenge

While top OTT operators have harnessed technology and intuitive user interface design to deliver compelling user experiences, many telcos still run complicated IT systems and application frameworks that hinder agile innovation. Industry heavyweights, in fact, are IT lightweights, relying on external vendors with long development cycles.

So, how can you compete in this fast-changing, hypercompetitive marketplace, and grab consumer mindshare for sustained business growth? Here are a set of pointers for you to consider:

Get bundling. It’s all about maximizing revenues while stripping the cost advantage associated with OTT services. You can start by bundling data or voice packages with an SMS plan at competitive prices. A case in point being Vodafone U.K., which offered one of Spotify Premium, Sky Sports or Netflix free of cost for six months, as part of its 4G Red packages.

Resurrect legacy services. Rebalance tariffs to make conventional voice and messaging more attractive to consumers. For instance, you could look at providing and promoting unlimited SMS plans, to compete with instant messaging apps.

Go the Rich Communication Services (RCS) way. DesignRCS for non-smartphone devices such as feature phones and low-cost handsets, eventually opening up the IP communication market far wider–something OTT providers cannot do.

Offer your OTT: Offer your own differentiated OTT services. The key to such an initiative would be to come up with attractive price points that incentivize consumers to prefer your OTT service over the competition. Another experiment worth undertaking could be to offer such OTT services over both your mobile and fixed (Wi-Fi) networks. T-Mobile USA launched Bobsled, while Telefonica Digital introduced Tu Me–both offering free voice and text services. Likewise, Orange has entered the fray with its in-house service, called Libon.

Join hands with OTT counterparts.  If you can’t beat them, join them. Enable OTT companies and developers to extend interoperable telco services throughout your network, as well as across those of your partner carriers. Provide them with aggregated data on subscribers, device and network usage. This way, you can facilitate accelerated development of unique and consumer-friendly apps, resulting in delightful experiences. Axis, an Indonesian telecom operator, has partnered with Viber, allowing its subscribers to buy a Viber data service rather than a full-fledged data plan. The strategy is aimed at getting consumers comfortable with the idea of buying bundles from Axis.

Complement your partnerships with an effective, secure and reliable network that promotes seamless user experiences across various devices. Ultimately, this will translate into revenue growth and increased customer retention for you. A major factor determining success or failure on this front will be your ability to shift from merely providing services or apps to shipping effective APIs to developers.

The road ahead

Be prepared for a long haul, when it comes to disrupting your own operating model for competing effectively against agile, innovative OTT operators. The first step in your journey must be to significantly ramp up your technology expertise. By leveraging your core competencies, and embracing new technologies based on software defined networks (SDN) and network function virtualization (NFV), you can offer diverse advanced connectivity services. It might also make eminent business sense for you to deliver cloud services to your customers, for simplifying storage and access to personal data and media.

Simultaneously, harness data analytics to better understand the ways customers access your network, as well as their usage context spanning locations and devices. Based on data-driven insights, you can fine tune your product development, sales, and marketing strategies accordingly, thus generating a higher return on investment.

Data is the new voice of your customers, and so it should be for you. By crafting truly innovative and engaging consumer experiences, while delivering real value for money, you can have a realistic shot at beating OTT operators in their own game. Are you ready?