Staying relevant in the age of over-the-top services

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1 Staying relevant in the age of over-the-top services A triangular value proposition Visit us under Industry Landscape -When everything is changing

2 The emergence of over-the-top service providers as a hugely important force in communications changes the game for traditional operators The companies that provide services on top of networks are driving much of today s innovation. Unlike conventional communications service provider (operators) businesses, where the services and infrastructure are linked and network operators control the value chain, OTT services are delivered without any affiliation with the network. But opportunities are open to operators that add value to the use of over-the-top services. OTT providers today wield immense power in the market and include household names in content (YouTube, Netflix or Lovefilm), advertising (Google), communications (Skype and Facebook), commerce (Amazon and ebay) and device platforms (Apple, Microsoft).. There are huge rewards at stake. For example, Facebook had more than 800 million subscribers in January reaching more than half of the online population in many countries. Skype s VoIP service increased its share of international call minutes from 8% to 25% between 2008 and Results like these mean that revenues for over-the-top service providers are predicted to grow by more than 40% between 2010 and Traditional operators built their businesses on communications networks, but OTT providers have decoupled services from networks in terms of both the technology and business. Broadband connectivity is a growing business, yet operators must find ways to generate new revenue streams and avoid losing relevance within the value chain. The good news is that with the right approach, operators can evolve their business and occupy key parts of the value chain, even as the relationship between OTT players and end users gets stronger. Imagine what the industry would be like without Yahoo or Google or Facebook and so on. [...] We can help other industries and bring value to them. [...] We are ready to take up the over-the-top approach to enrich our customers experience. Olivier Baujard, CTO of Deutsche Telekom interviewed by unite Feb Staying relevant in the age of over-the-top services

3 Competition and co-operation through the value chain Most OTT providers began by focusing on one link in the value chain, such as Google s search engine or Apple s devices, but they re now broadening their influence. So Google is expanding from its original position into apps, social networks and devices, while Apple is expanding into apps, content and social networking, for example. Their aim is to support and protect their core businesses, so not every area of operations is viewed as a standalone profit generator. There might therefore be opportunities for operators to compete against them successfully in areas outside their core competence. There might also be opportunities for partnering with OTT providers in areas where they do not have a core competence. An obvious example is the provision of managed connectivity services. For instance, cloud services work better when connectivity is managed endto-end and that s something that only network operators can provide. Creating long-term partnerships is another possibility. A good example for a win-win situation: operator billing brings consumer convenience with the effect of an increase in paid downloads of 70% resulting in OTT revenues raise of 49% - despite higher transaction cost of 15% while credit card company takes 3%.. Operator Content* Hosting VoD itunes, Apple TV UGC; Facebook APIs Google apps YouTube Portals & stores Commerce Apps store Virtual Money Checkout Billing & payment services Key questions for operators Communication Ping, VNO intention? Google Voice, Google+ Live Messenger, Voice & messaging HW (device) & SW platforms Kindle; iphone App Android SW & Moto HW? What are sustainable value propositions in the new business environment? How can we maintain a relevant position in the ecosystem? How can we adapt the business model to benefit from OTT? How can we benefit from partnerships with OTT players? ipod, iphone, ipad Widgets Windows phone7, xbox Branded UIs Advertising Amazon.com Search Portal & mobile Adv. Connectivity Dark Fibre Transport services Source: Nokia Siemens Networks Business analysis 3. Staying relevant in the age of over-the-top services

4 Competition and co-operation between operators and OTTs How OTTs see the operator role Network supplier Joint service/ application offering Payment and billing 15 OTT is driving the operator business, not vice versa. However, operators can be much more than a utility in the age of OTT, because they still retain key assets. Networks: Only network operators can provide the quality of service that the new generation of videodominated OTT services and applications demand. Customer relationships: operators enjoy an unrivalled intimacy with end users. They can leverage the resulting insight, trust and access to provide enhanced services for both their upstream customers (OTT providers) and downstream customers (end users). Source: Nokia Siemens Networks Business Evolution Study What OTTs expect from operators Higher flexibility / speed level *) Optimize internal responsibilities &processes Implement cultural change Business: Agility is the key word, with faster time to market for new offers and a flexible approach to forming strategic partnerships. And how operators see the OTT role Threat Threat and partner Partner Neither threat nor partner 6% 12% 32% % We re incredibly co-dependant We ll move much faster than any government Eric Schmidt Executive Chairman of Google at e-g8 forum Paris, May 2011 The operators that can adapt to the fast-moving culture of the OTT environment will be the ones that are most successful at exploiting the opportunities. 4. Staying relevant in the age of over-the-top services Copyright 2011 Nokia Siemens Networks. All rights reserved.

5 A triangular value proposition to compete and co-operate 3 major impacts of OTT on operator businesses OTT services are driving up traffic volumes, while stiff competition is driving down margins. New end user experiences are arriving on the back of OTT services, with interaction and individual content creation and consumption replacing pre-selected formats.even voice services are under threat from Internet-based competitors. Brand will become ever more important in customer purchasing decisions. Business models are changing. OTT providers get most of their revenues from third parties and only a small fraction directly from end users. Operator revenues could stagnate unless they can exploit additional revenues that do not come directly from end users. and a triangular value proposition to compete and co-operate Operators can leverage the individual customer relationships to provide value from customer knowledge, trust and the relationship/ channel. Their relationship with users enables operators to help OTT partners make their offers more relevant and visible. Effective brokering Between end users and third parties Differentiated Only network operators can manage delivery network quality end-to-end, so they can deliver better quality services and optimize the customer experience. Value added retail Open play and user simplicity Experience optimization Smart delivery Operators can integrate and orchestrate services to simplify the digital lives of users. Creating attractive bundles of content, services and billing turns the operator into a valueadding retailer, providing tailored packages that focus on what the customer wants. With unique assets operators can optimize individual customer experiences to support all three value propositions 5. Staying relevant in the age of over-the-top services

6 Smart delivery OTT fuels the traffic tornado By 2020, OTT video applications will probably generate more than half of all IP traffic globally (Cisco Visual Networking Index). For many of our customers this is already a reality. The nature of the traffic is changing too. Where the bulk of OTT video used to be composed of short clips viewed on laptops, this is shifting as people watch TV shows and movies on HDTV. Many viewers may have tolerated low-resolution video that frequently froze when they were watching it for free on their computers, but when they re paying for content on theirtv sets and various mobile devices they become very sensitive to anything other than crystal-clear video and audio fidelity. Cisco VNI forecasts that by 2015 the all Internet traffic has grown 4 times and more than 50% of all Internet traffic will be video. Almost all of the video traffic can be assumed to be OTT generated. If the same growth rates continue also after 2015 then the total traffic will grow 23 times and video traffic make more than 70% by What s more, these figures could be blown out of the water by step changes in services or customer behavior, such as the transfer of offline games to the online environment or the rise of 3DTV. Internet / Mobile Internet Traffic forecast 31% Video 47% traffic 52% 64% 72% 76% Profitability under attack Capacity Demand for capacity is set to grow 4 times greater by 2015, piling on more pressure than ever, according to Cisco. Quality Best-effort traffic management is not well suited for delivering quality-sensitive video traffic. Operators can guarantee levels of service that the Internet can t. Cost/byte Operators will need to make massive efficiency savings of 70% per byte traveling through the network as their margins are eroded. Revenue A differentiated and well managed logistical service offering opens up new revenue streams from other parties in the value chain such as Content Delivery Networks, content aggregators and content providers. 69% 53% Other 48% traffic 36% 28% 24% I M I M I M Majority will be OTT video traffic Source: Cisco VNI Forecast Widget and Nokia Siemens Networks Staying relevant in the age of over-the-top services

7 Smart delivery Operators must make it profitable to deliver quality Smart delivery Video plays a huge role in many OTT services. Unfortunately for OTT providers, the only player in the value chain equipped to provide the kind of end-to-end quality of service (QoS) that viewers are increasingly looking for is the network operator. The enabling technology for this smart delivery value proposition is already available for operators. Any hesitation is more to do with market and regulatory uncertainty. For example, will the end customer be willing to pay a premium? According to the Nokia Siemens Networks broadband study, end users prefer high-end broadband offers of around 60 Mb/s for fixed and 7.2 Mb/s for mobile in mature markets. In addition, in the latest Consumer Behavior Study, 43% of Internet users in emerging markets and 20% in developed markets say they are willing to pay more for consistently high quality of service. The issue with video traffic can only be rectified by operators, because they own and operate the portion of the network between video servers and digital video players that does not carry an explicit SLA. End customer $ Access $ Quality $ Quality $ Content Network operator Global Content Delivery Network Content aggregator Content provider If operators can guarantee service quality for specific OTT video streams and provide SLAs for those streams, that s a valuable service for at least two interested parties the end user and the content storefront. $ Multi-screen & Quality $ Content Revenue opportunities Legacy revenues Whether the end user pays more for a premium OTT viewing experience or the CDN/content storefront pays for a guaranteed SLA, the technical requirements placed on the operator are identical. Identify the OTT video sessions and determine the correct policy for each session. Check the availability of resources in access, aggregation and core Allocate a specific amount of bandwidth for the duration of the video session Monitor the video quality during the session Release dedicated bandwidth and generate settlement records when terminating the session 7. Staying relevant in the age of over-the-top services

8 Effective brokering OTT threatens to disrupt core business models Operators lose out in the customer relationship Pay for device or application Consumers OTT Pay for connectivity Operator Operators risk losing touch with customers and being left unable to leverage end-user insights. The trend for OTT offers to include connectivity is a good example. Notebooks: The Google Chrome Notebook is sold in the US including a Verizon Wireless 3G deal with 100 MB free per month. ereaders: Consumers buy the Kindle reader and content from Amazon and Amazon pays the operator for connectivity. Gamingconsoles: Consumers pay Zeebo for the console and games, while Zeebo pays the operator for connectivity. Operators main revenue sources threatened Even traditional telco services such as voice, SMS, and broadband connectivity are becoming part of OTT services and offerings. For example, Facebook and Skype became more integrated with the launch of Skype 5.0 in October Now people can call their Facebook friends directly. In fact, it looks like Facebook is becoming the universal phonebook. In November 2010, Google announced that users with a Google Apps account will get Google Voice for free. Voice share of total operator revenues Source: Global Connected View Forecast, Yankee Group 4Q2011 Effective brokering The key for operators is to retain a strong relationship with customers, because without it operators will lose their access to customer insight, which is a major asset, and become pure connectivity providers. By holding on to customer knowledge, operators can offer insights to OTTs, third-party application developers, and advertisers in order to make services and ads more relevant for end users. For the operator this creates additional upstream revenues and helps build a multi-sided business model. 8. Staying relevant in the age of over-the-top services

9 Effective brokering Leverage consumer relationships for profitable partnerships Knowledge adds value The benefit of consumer knowledge lies in helping third parties to contact customers more effectively, providing value on both sides: Operators can build value for 3 rd party customers by enabling them to understand their customers better. This is essentially Google s business model, even though Google holds only a fraction of the information held about customers by a operator. They can also build value for end users by delivering the most relevant third-party services in the right way. Upstream customers pay operators to remove the distance between them and their customers. This distance results from a lack of knowledge and customer intimacy. Who am I dealing with? What services might they like? Can they pay? How do they like to pay? Partnering based on such win-win relationships will be essential. Operator billing has prompted 100% more app downloads and 70% more payments Tobin Ireland, Commercial Development Director, Vodafone Group, Aug Staying relevant in the age of over-the-top services Effective brokering: leveraging operator assets Trust Relationships and channel Operators are among the most Operators face consumers trusted players in the industry. (downstream) as a one-stop shop, Customers trust operators more and OTT and content providers than OTT providers, giving (upstream) as a direct channel to operators the chance to form subscribers. Operators can billing partnerships with OTTs so maintain their consumer that consumers can pay for OTT relationships by bundling their services via their phone bills. It s own services in with OTT offerings often the most convenient into a compelling package. payment method for end users, TeliaSonera offers Spotifymusic and don t forget that most streaming with its broadband consumers around the world don t package. even own a credit card. Verizon is offering the popular Orange partners with both Nokia Pandora Internet Radio and Windows Marketplace for streaming services to their FiOS billing. TV customers and create a During 2011, Google partnered "home-entertainment with NTT Docomo and experience". Vodafone. DNA Finland offers enterprises a Telefonica has a similar billing DNA Office package incl. Google partnership with RIM / Apps. The DNA support service Blackberry. covers the whole package, so the customer gets everything from DNA as a one-stop-shop Copyright 2011 Nokia Siemens Networks. All rights reserved. Customer knowledge Operators can offer OTT providers and advertisers customer knowledge to make services and ads more relevant. O2 UK is offering, together with Starbucks, L Oreal and Subway, location-based discount coupons via SMS. AT&T is offering ShopAlerts by AT&T in US cities. T-Mobile USA offers the More for Me daily deal aggregation service with deals tailored to user preferences, location and interests.

10 Value-added retail OTT shapes end-user behavior Many aspects of people s lives have been irreversibly digitized, from banking to diaries and from keeping in touch to finding our way. But the more life s complexities are digitized, the more we need solutions to help us to manage our digital lives. There is an ongoing shift of user attention and service uptake away from operator offerings towards OTT services. For example, time spent on social networking surpassed in November 2007 and the number of social networking users surpassed users in July 2009.? Morgan Stanley s 2009 Mobile Internet Report projects the mobile internet revenue mix sliding away from carriers at roughly one percent per year over the next few years. Customers on the other hand face a plethora of services, applications, feature options, networks, devices, home appliances and technologies. Managing contacts, communication channels, community memberships, content, media, devices, bills and passwords can all lead to stress and confusion. They need to manage the proliferation of these options in an effective and secure way. And that s where the operator can help. Value-added retail There are many ways that operators can guide end users through these challenges and simplify their digital lives, acting as an assistant and problem solver. Operators can tailor services and the delivery of services to the individual s needs without users having to think about the access method, device or application they are using. Operators can work together with OTT providers to enrich and improve the experience of OTT services in ways that OTT players alone can t. Operators can improve the end-user experience of OTT services in several ways: Monitoring Talking Texting Delivering tailored services on-demand based on an analysis of the context Providing tools to manage privacy and security Delivering proactive and automated customer care, including the management of all end-user devices Jogging Socializing Entertaining Shopping 10. Staying relevant in the age of over-the-top services

11 Value-added retail Open play and user simplicity Solve customer challenges and help them recognize the value that operators provide The close relationships that traditional operators have enjoyed with their customers provide an understanding of the challenges users face in accessing their preferred services and communities. Providing solutions to overcome these challenges drives customer loyalty and higher uptake of other operator services. Managing passwords and access is a great example. Most users access multiple services, each with a different combination of user name and password. Attempting to access these services via the many devices a user owns (smartphones, PCs, tablets, internet TVs and so on) can leave people frustrated and detracts from the desired service experience. Users also have strong concerns about their privacy and unauthorized use of their personal information. Solutions that address these problems are very tangible to users and increase the user s attachment to the operator. Value-added retail Engage on-device and via app stores Users typically engage with OTT services via an application on their device, often installed via an application store. Operators can look to raise their exposure using a similar approach. Partner with selected OTT players Selective partnerships with OTT players can strengthen the operator s brand and relevance in the eyes of OTT service users. Provide tailored offerings and bundling Offer innovative bundles of content and access that are intelligently targeted and priced towards selected user groups. Extend beyond the current subscriber base Operators can explore avenues to extend their services beyond their immediate subscriber base, to widen the potential for additional revenue and subscriber acquisition. Examples Airtel s Mobile App store targeted at the Indian market achieved more than 2.5 million downloads within the first 30 days Telenor s offers carefully selected and continuously updated suite of relevant apps on the front page of Android Market, in a store-in-store concept Vodafone s integration of a Lite Facebook version resulted in a 20% increase in the number of users signing up for higher-value data bolt-on tariffs. T-Mobile USA offers Direct Carrier Billing for digital content and services. Elisa ebookstoren expanding beyond current subscriber base: open for anyone charging only content. Music streaming service open for anyone no data charge for Claro subs. 11. Staying relevant in the age of over-the-top services Copyright 2011 Nokia Siemens Networks. All rights reserved.

12 Staying relevant in the age of over-the-top services Smart delivery Operators take the roll of a modern, active and creative logistics company and provide and deliver services to the end-users in a very differentiated way matching the offer to the individual expectations and needs of each customer. Effective brokering Bring user expectations and OTT offerings together by leveraging the excellent trust, insight and customer relations enjoyed by operators to add value to OTT offerings. Building blocks to stay relevant in the age of OTT Subscriber data mgmt. Security solutions & consulting IP Edge Policy Enforcement Effective brokering Service Delivery Framework Unified charging & billing FlexiPacket microwave Identity mgmt. Cumolocity M2M app. platform Creatary: Telco asset marketplace LTE with highest throughput Value added retail Experience optimization SW defined Flexi Multi Radio Device mgmt. Customer care automation Smart WLAN Connectivity OTT TV Solution Insight and experience framework E2E QoS differentiatio n Solution frameworks & consulting Customer experience management CEM Liquid Net Value-added retail Intelligent Pricing solution 40Gbps DWDM Managed Service solutions E2E SON suite for 2G/3G/LTE CDNs Advanced Performanc e check Smart Labs Operators position themselves as partners in the digital lives of customers, making their work and private lives easier by offering a comfortable onestop-shopping experience for all their digital communication needs. Differentiated pricing Next level network efficiency Smart delivery Differentiated delivery Total Expertise Visit us under Staying relevant in the age of over-the-top services Copyright 2011 Nokia Siemens Networks. All rights reserved.