The Telco-OTT Opportunity

Transcription

1 The Telco-OTT Opportunity Kineto Wireless, Inc. Worldwide Headquarters 670 N. McCarthy Blvd., Milpitas, CA 95035, USA Kineto Wireless, Inc. All rights reserved.

2 Introduction The evolution of mobile telephony and messaging from legacy, circuit-switched systems to a newer, wider range of all IP-based communications services is happening right now. However, it is the new, internet-centric Over-The-Top (OTT) players that are acting as first movers in this space, rather than the mobile operators themselves. Having realized the potential for simple, purpose-built applications on smartphones, these new OTT service providers have, in a relatively short period, carved out a sizeable niche of the mobile communications market. As the number and popularity of OTT services increases, so does the impact to mobile operators in reduced voice and messaging traffic, revenues, brand image and customer mindshare. To recapture the high ground, mobile operators must develop and/or accelerate plans for a competitive portfolio of new services of their own, taking maximum advantage of their key differentiators as the mobile network provider. This paper discusses the pro-active steps that mobile operators may take to address these near-term challenges, focusing on the path to deployment of a competitive, branded, Telco-OTT services portfolio. An Uncertain Future Mobile operators face an unprecedented threat to their business models from a confluence of disruptive new technologies, applications and players in the market. While their basic role as cellular access network provider is not at risk, their more lucrative role as trusted communications services provider most certainly is. Operator Services In the near-term, the primary threat will be from OTT services providers seeking to supplant the operator s own core telephony and messaging products. This is intensified by the emergence of WebRTC as a tool for enabling (initially) consumer-to-business voice communications from any capable browser directly over the Internet, again bypassing the operator s traditional telephony service. As the mobile network becomes ever friendlier to web-based services and tablet-based computing, Internet giants, such as Apple, Google and OTT Services 0-3 Years WebRTC 2-4 Years Internet Giants: Google, Apple, Microsoſt... >3 Years Microsoft, will surely seek to extend their influence over both the network and user to the detriment of both native mobile service providers and OTT providers alike. If mobile operators, either acting alone or together as an industry, are unable to respond effectively to the near-term threat, then their ability to respond to subsequent challenges will be just that much more difficult. Near, medium and longer term threats to the mobile operator. 2

3 The scale of the OTT threat in each market varies based on two factors: the level of smartphone penetration; and the prevailing tariff structure for basic communications services. Smartphones empower the user to choose alternate services that compete with the operator s core offerings; high tariffs for telephony and SMS provide the reason for them to do so. Increasing Smartphone Penetration POTENTIAL END GAME Operator at risk of becoming purely lowestcost bidder for data service. Can compete only on coverage, capacity and price of data. OPERATOR RISK: LOW Has time to create value for own services and matching tariff structure prior to the inevitable rise in smartphone usage. In general, those markets with a fast-growing percentage of smartphone users and with higher tariffs for telephony and messaging are most at risk of short-term erosion of their services revenues as users rapidly switch to using third party OTT products. Conversely, markets that have low smartphone penetration (often due to regulatory blocks on operator-subsidized phones) and already low rates for telephony and SMS are less likely to be facing an OPERATOR RISK: HIGH User base will rapidly move to use of OTT apps and services to bypass expensive domestic and roaming tariffs leading to rapid operator revenue decline. OPERATOR RISK: MEDIUM Has short time to prepare for inevitable rise in smartphone adoption and follow-on drop in revenues. immediate OTT challenge, but must still plan for the inevitable rise in smartphone adoption. Those markets where the operator already experiences high smartphone penetration and relatively low tariffs may face a tough battle to reverse the trend in declining revenues per user. The rapid growth in third-party OTT services presents several problems for the mobile operator. Average Services Tariffs Lower to Higher Risk assessment: the OTT threat to operator revenue. Reduction in Voice and Messaging Revenues Messages and voice minutes carried over an OTT service represent lost revenue opportunity and, as importantly, lost margin as these services are generally profitable. For example, Ovum predicts that by 2016, OTT social messaging alone will cost the global mobile business $54bn in lost income. 130% CAGR Global mobile OTT communications. $ 50B $ 40B $ 30B $ 20B $ 10B 3

4 Voice Telephony Relevance to the User As their reliance on traditional communications services declines, users will likely begin to perceive these services largely as backup options rather than as their primary communication tools. For example, as peer-to-peer VoIP, messaging and WebRTC voice make their presence felt, traditional telephony services may be relegated to the voice communications method of last resort and will no longer be as highly valued. Customer Relationship & Brand Loyalty While new entrants such as Skype, Viber, WhatsApp, and even more established players, such as RIM with their BBM product, have a clearly identifiable brand associated with their service offering, mobile operators in the past have had no such compulsion to brand their own basic communications services. Consequently, the future user is more likely to associate their smartphone and the services they use with the OTT brand, further weakening the operator s relationship with the customer. Therefore, as core mobile messaging and telephony products are supplanted by newer OTT services that appear only as streams of data over the operator s packet service, there is a substantial risk that the mobile business becomes that of a cellular internet access provider only. With few other tangible, value-added services, operators will end up competing only with each other based on coverage, capacity and price per megabyte of data, rather than being well positioned to compete with the new entrants for higher value services. Operators should therefore realize that: Core telephony and messaging usage is heading into a gradually steepening decline. To continue to be perceived as vital communication services providers, they must further differentiate, add value and be recognized as leading the same path on which their users are treading; and just as their users communication choices are changing, so must the operator s tariffs plans change to accommodate the swing towards data-centric, IP-based communications services. Addressing the OTT Challenge Aside from a do nothing approach, there are four positive actions that operators may consider to address the OTT challenge: Block, Bundle, Joyn or Telco-OTT. Block Operators can attempt to block user access to, or charge premium access rates for OTT services. In the few cases where this has been applied to date, it is both wildly unpopular within the user community and detrimental to the business (e.g. strongly negative publicity) and is no longer to be considered as a recommended course of action. 4

5 Bundle Several operators are experimenting with packaging existing services tactically in such a way as to make the financial benefits of OTT less clear in comparison. In the short term this may be enough to retain some level of customer loyalty. As a longer-term option this does not address some of the primary use cases for OTT apps, such as to fill the feature gap in existing services (for example, for efficient group messaging). Joyn TM Joyn, the GSMA s IP-based communications specification and brand, is the default industry approach for its member companies to introduce new, competitive services such as chat, image sharing and file transfer. Its primary differentiation compared to thirdparty solutions is that the community spans all Joyn-enabled operators in much the same way that telephony and SMS does today, making the service ubiquitous throughout the operator community. Joyn does have its challenges, however, with several of these outside of an individual operator s direct control. A long time in development and with a very slow introduction to the market, it relies heavily on device manufacturer commitment to the technology (availability out of the box), offers a very prescriptive definition for how the service will appear to the user (some operators may not care to be limited by the requirements of the Joyn brand) and really comes into its own only when all of the operators in a single market are inter-connected (Joyn is only available directly to subscribers of each operator offering the service). Joyn as it exists today may therefore best be considered as a necessary but insufficient approach to tackling the OTT threat. Telco-OTT Traditionally, access to mobile services has been via the mobile operator s closed access network only. Telco-OTT describes a new approach that operators must likely adopt to be able to compete effectively with the new OTT players. Operators, too, must now make their services available over any IP access network anywhere in the world, just as their users are becoming accustomed to from third-party providers. While this is certainly a radical departure from the closed and localized mobile environments of the past, it is perhaps the key to maintaining the role of the operator as the primary communications services provider to their own subscribers. Not only that, but the use of alternately-funded access networks brings potential additional benefit by reducing load on the expensive and complex mobile access network at what is a relatively low cost to the mobile operator. Of the four alternatives highlighted above, Joyn and Telco-OTT are the most realistic and forward-looking options. Telco-OTT as a viable operator strategy is discussed further in the remainder of this paper. The Telco-OTT Option Operators should, of course, plan for the prescribed GSMA path through Joyn to the eventual goal of a globally inter-connected network. However, they may also hedge that bet by undertaking a parallel Telco-OTT track where success is not quite so dependent on factors outside of their immediate control. There are several different paths to a Telco-OTT product, including openly partnering with existing third-party OTT service providers, private labeling an existing OTT service, or to build and deploy a new, wholly-owned service. 5

6 OTT Partner Several operators have already chosen to openly partner with existing, popular OTT service providers (e.g. 3 Hong Kong with WhatsApp). The operator may add value by, for example, offering to their users unmetered Telco-OTT transactions from the partner service in their network so that existing data plans are not impacted. While this may rapidly introduce a Telco-OTT service, it provides the operator with little control over the direction or quality of those services, weakens the relationship with their customer base (do customers that prefer to use a different OTT app feel marginalized?) and is only as strong as the longevity of their partner s brand. Private Label Operators can choose to private label a third-party service to represent the operator s brand rather than that of the background service provider. This approach can also provide a quick time to market to get the operator into the game. However, as a longer-term strategy it is likely that the operator will at some point have to migrate or recreate the service inhouse to bring the cost structure in-line with the needs of the business. Deploy Own The optimal long-term approach is for the mobile operator to deploy a homegrown Telco-OTT service over which they have complete control, but which is able to interact fully with similar initiatives within the wider operator community. As this may not be the fastest route to market given the organizational and technical challenges that accompany this choice, the mobile operator may have to be prepared to change the way in which they approach new service deployments. Early Telco-OTT initiatives, such as the Tu Me service from Telefonica Digital, have already shown this to be the case. While several years ago such a move would have meant a large-scale, internal IT program to develop the infrastructure for this type of service, the more recent availability of numerous vendors that provide standardized building blocks to choose from means that the cost, time to market and risk factors of this type of program may be reduced. The potential benefits of electing to deploy-your-own Telco-OTT service include rapid innovation of new features and services, a lessened dependence upon device manufacturer support and greater control over the product roadmap, brand and market positioning of the Telco-OTT service, compared to the alternatives of partnering and private labeling. Clearly, then, the option to deploy a fully owned Telco-OTT service is likely to be the preferred longer-term strategy for the mobile service provider community. But how should such a service be presented to the user, what features should it have that separate it from existing OTT apps and services, and what baseline technology and architecture will provide the best return on network investment? Envisioning the Operator s Telco-OTT Solution The Deploy Your Own Telco-OTT strategy is by far the most interesting in terms of the operator having the greatest influence and control over the long-term success of the service. Operators planning for this course of action should understand and utilize their key differentiators over third-party OTT platforms and services; they have several clear advantages as the user s primary service provider. The potential to inter-connect with other network operators for ease of any-to-any communications, just as with telephony and SMS today, A desire to include their existing services and capabilities within the new Telco-OTT service, rather than an intention to exclude them, 6

7 Control over how such services are tariffed when carried over the cellular network, The necessary relationships with the device OEMs to create a simple out-of-the-box user experience. In order to maximize these advantages, there are clearly several key areas that a successful Telco-OTT strategy must focus on. Powered by RCS: The Path to Ubiquity Mobile operators will benefit if the Telco-OTT service is available as a global, any-to-any communications tool. Users don t worry whether a friend or colleague is using a compatible telephone service when making a voice call to them, so why should sending an instant message or sharing a photo be any different? While existing OTT services may be considered global in nature, Telco-OTT could enable each operator to introduce their own, targeted and branded Telco-OTT apps while remaining compatible within the global network. You won t have to know in advance if a friend is using the same or a compatible application; just like sending an SMS, it will work. Of course, this can only happen if all of the operators choose the same technology to support their Telco-OTT services. Fortunately, the GSMA s Rich Communications Suite (RCS) is a set of mobile industry-standard specifications designed to do exactly this and, in fact, the GSMA s Joyn approach to the introduction of IP-based communications is based on a subset of the full RCS portfolio. Therefore as the technology of choice for launching a Telco-OTT service, RCS should be the first consideration for the network and services platform. Recognizing that some providers may not be in a position to build their own IMS/RCS core before bringing a Telco-OTT service to market, operators may also take advantage of one of the available hosted RCS network solutions to enable a pilot, soft-launch or even a commercial launch using a private labeled, third-party network service. Hosted RCS services can operate either as standalone solutions requiring no IMS core and little integration with the operator s IT systems, or can operate as a remote adjunct to the operator s already deployed IMS core. At a later date, the hosted service may be integrated within the operator s home-grown RCS/IMS system to bring the service in-house. Play to Your Strengths: Embrace Telephony and SMS OTT communications apps are generally designed to direct traffic away from the operator s service platforms and towards the OTT provider s network and therefore to generally shield the operator s services portfolio from users of the OTT app. For the mobile operator, a Telco-OTT service represents an opportunity to create a differentiated user experience by leveraging telephony and SMS as communications options within the service itself. Not only will this provide the user a simple choice of which voice or messaging service to use from within the Telco-OTT app, it also enables the operator to firmly associate their regulated services with their Telco-OTT branding strategy. SMS 7

8 This is the first step to recapturing lost mindshare and brand loyalty back from the OTTs. Putting the operator s branding front and center for always-available and critical services can create a more positive brand image, one that is associated with successful calling and messaging outcomes rather than being considered only in times of failure. Third-party OTTs don t relinquish their key services interface to Google, Apple, Samsung or HTC, so why should the mobile operator? As the network access provider and Telco-OTT services provider, the mobile operator is in a unique position to structure attractive tariffs and packages for their subscribers. For example, to zero-rate all Telco-OTT traffic originating in their cellular access network such that it doesn t count towards a monthly data bucket. As users become more demanding in terms of messaging content and other services requiring higher bandwidth, OTTs that do not have this flexibility must rely more and more upon their user s ability to afford the mobile data plan in support of the third-party service. Follow the App Model Operators are used to working with their device OEMs to package applications and services such that the out-of-the-box experience is pain-free and positive for the user. Here, the Telco-OTT app can be pre-loaded on the device and programmed to automatically register, activate and download its configuration information when first used, making the initial user experience as transparent as possible. For smartphones already in the field, or bought through different channels, a downloadable version of the Telco-OTT should be available in the appropriate store for the device OS. Of course, the Telco-OTT service must match up to alternate OTT services in other ways too. For example, it should be available over both the cellular radio network and over Wi-Fi, at home or abroad and offer good overall feature parity. Summary Mobile operators must successfully negotiate near-term challenges from third-party OTT players in order to remain a strong, competitive force as further threats to their business emerge. To remain relevant in a world where an overabundance of new and easily accessible communications tools appear each year, mobile operators must recognize the need to deliver their own, competitive Telco-OTT service offering. The mobile industry is best served by each operator selecting a services platform that will be widely deployed and interoperable between mobile networks, and the GSMA s RCS technology is undoubtedly the preferred choice. The availability of a variety of core RCS platforms from established and new software manufacturers, in addition to a range of hosted RCS network and service offerings, means that there is a wide and diverse choice of products within the RCS ecosystem from which the operators can select. Each operator should be free to develop their own new and compelling feature set to stimulate the user experience. Existing telephony and messaging services should be incorporated into the mix to raise awareness in the user base that it is the operator that provides these key services, as well as to re-generate interest and loyalty in the operator brand in the face of the OTT threat. Operators must offer attractive pricing plans to encourage use of the Telco-OTT service in preference to third-party OTT offerings and the service should be offered widely over both mobile and fixed (Wi-Fi) networks, perhaps even to non-mobile subscribers in addition to existing customers as and when necessary. 8

9 The shift to new communications services is inevitable, the OTT threat is real and yet the opportunity for mobile operators remains substantial. A strong Telco-OTT vision all the way from the user-facing application to the RCS core network and beyond will enable mobile operators to remain relevant as trusted providers of communications services long into the future. Kineto Wireless and Telco-OTT Kineto has a long and successful history in developing the fore-runners of today s Telco-OTT applications and services for mobile platforms. For example, the company provides mobile access to core telephony and SMS/MMS services over broadband Wi-Fi/IP networks for millions of users, beginning even before the rise of the smartphone phenomenon. A proven track record of working closely and directly with the majority of the major device manufacturers sets the company aside from other run-of-the-mill application developers. Kineto understands the mindset of the manufacturer, the OS provider and of the mobile operator and knows what it takes to design, develop and test applications that meet the quality, performance and usability demanded by the telecoms market. Joyn is a certified trademark of the GSMA. 9