Research Report OTT communication services worldwide: stakeholder strategies December 2013 Stephen Sale
2 Contents Slide no. 5. Executive summary 6. Executive summary [1] 7. Executive summary [2] 8. Executive summary [3] 9. Recommendations 10. Key recommendations [1] 11. Key recommendations [2] 12. Trends in OTT communication services 13. Players from across the mobile value chain are displacing operators as the sole providers of communication services 14. Communication services are increasingly supported by indirect business models 15. As communication service feature sets broaden, operators traditional portfolios look increasingly weak 16. Messaging services are already used by more than half of smartphone owners worldwide, and adoption is growing rapidly 17. Profiles of major OTT players 18. A number of fast-growing specialists are joining the Internet giants in targeting the communication services market 19. Google has revamped its offering with Hangouts and is integrating communications capabilities ever deeper with Android 20. Facebook is making aggressive moves in mobile communication services are a major focus Slide no. 21. Apple is integrating its own communication services with the iphone, thereby disintermediating the operator 22. WhatsApp is focused on providing a specialist messaging service to a large installed base 23. Skype retains its position as market leader in VoIP and closer integration with Nokia devices is likely 24. WeChat is driving international growth with high-profile advertising campaigns 25. Line is an example of the new generation of social messengers that are transforming messaging and social networking 26. KakaoTalk successfully monetises its communications with a wide range of complementary premium services 27. BlackBerry continues to be a significant force in some countries and hopes that opening BBM to other platforms will revive the service 28. Operator responses 29. Operators are responding with a variety of approaches 30. Blocking OTT services is largely counterproductive but many stakeholders persist with this approach nonetheless 31. Operators can use pricing levers to limit the appeal of alternatives, but the window of opportunity is closing 32. Partnership models are increasingly common, but the motivation is stronger among those operators with less to lose in legacy services
3 Contents Slide no. 33. The GSMA is promoting RCS as the industry s collective strategy to countering cannibalisation of messaging revenue 34. but serious questions remain about the ability of RCS to perform its designated role, and of operators to capitalise on it 35. VoLTE is probably RCS s best chance of making any meaningful impact 36. VoLTE deployments are being driven by cost efficiencies nextgeneration voice strategies are a secondary consideration 37. Many promising initiatives in next-generation communications have been proprietary telco OTT services 38. Telco OTT initiatives are refocusing on adding value to the operator s customer base 39. Market outlook 40. OTT messaging services are transforming the user experience and are expected to cement their dominance of the messaging market 41. OTT voice services are expected to gain more traction, but are unlikely to pose the same level of threat to operators as messaging apps 42. Operators must not be complacent in the voice market they need to address vulnerabilities and improve the user experience 43. The poor outlook for operators consumer messaging services suggests that they should focus on other opportunities 44. When preparing investment cases, operators need to properly assess the value of retaining relevance in communication services 45. The revenue outlook is uncertain, but the platform business model offers welcome wholesale opportunities for operators Slide no. 46. About the author and Analysys Mason 47. About the author 48. About Analysys Mason 49. Research from Analysys Mason 50. Consulting from Analysys Mason
4 List of figures Figure 1: Representation of the mobile value chain Figure 2: Examples of different business models in the OTT communication services market Figure 3: Comparison of communication services and supporting business models Figure 4: Smartphone penetration of OTT VoIP and IP messaging services, worldwide, 2010 2013 Figure 5: Major non-operator communication services players Figure 6: Google Hangouts and Nexus 5 screenshots Figure 7: Facebook Messenger and Facebook Home screenshots Figure 8: imessage and FaceTime audio screenshots Figure 9: WhatsApp Messenger screenshots Figure 10: Skype on Windows Phone screenshots Figure 11: WeChat screenshots Shake feature and Sticker Shop Figure 12: Line screenshots Figure 13: KakaoTalk screenshots Plus Friend and Gift Shop Figure 14: BBM for BlackBerry and iphone screenshots Figure 15: Operator responses to competition from OTT players in the communication services market Figure 16: Regulator approaches to OTT services in selected countries Figure 17: Penetration of unlimited SMS bundles and IP messaging apps on smartphones, and average SMS usage per active SIM, selected countries Figure 18: Examples of partnerships between operators and OTT service providers Figure 19: RCS deployments at November 2013 Figure 20: RCS specification roadmap at November 2013 Figure 21: Selected VoLTE announcements Figure 22: Major propositions addressed by telco OTT initiatives Figure 23: Screenshots from O2 UK s TU Go and Orange s Libon (Sosh implementation) Figure 24: Active users of OTT messaging services on smartphones, by region, 2010 2018 Figure 25: Messaging traffic originated on mobile handsets, by type, worldwide, 2010 2018 Figure 26: Active users of OTT VoIP applications on smartphones, by region, 2010 2018 Figure 27: Voice traffic originated on mobile handsets, by type, worldwide, 2010 2018 Figure 28: Operators position in key areas of the mobile value chain Figure 29: Distribution of apps by number of users and potential opportunities for API providers
14 Communication services are increasingly supported by indirect business models Technological enablers and widespread adoption of mobile Internet access have lowered the barriers to entry in communication services markets. Major Internet players have identified opportunities for market disruption and have entered adjacent markets, including communication services. These services are expected to complement the core business rather than to be major drivers of revenue growth. Specialist start-ups have driven innovation in feature sets and supporting business models. The ongoing viability of many of these business models has been a significant source of speculation, but several players have emerged with sizeable user bases and/or profitable businesses. The effects have been particularly pronounced in the messaging market where the cost base required to provide a service has been dramatically lowered. A service such as WhatsApp Messenger can run on operating costs in the tens of cents per subscriber per year. A viable business is therefore possible on annual ARPU of less than a dollar. Many of the services available do charge directly for communication features, but the trend has been towards indirect business models that monetise the context for communication rather than the discrete communication itself. Figure 2: Examples of different business models in the OTT communication services market [Source: Analysys Mason, 2013] Business model Advertising Hardware In-app purchases/ content Software licensing Subscription Unit pricing Description Services funded by viewing advertisements or the collection of data to sell to advertisers Services add value to the device and promote market presence within a segment defined by device ownership Users can purchase extra features such as stickers or download content such as games Services can be bundled with hardware or offered on a whitelabel basis Recurring charge either for basic service or additional features Revenue derived from off-net calls and messages or terminating incoming calls Examples Facebook, Google, Kakao, Line, Pinger, Yuilop Apple, BlackBerry, Nokia, Samsung Kakao, Kik, Line, Tango, Tencent (WeChat) Genband Ireland (fring), Microsoft/ Skype, Vopium Microsoft/Skype, Viber, WhatsApp Microsoft/Skype, Viber
32 Partnership models are increasingly common, but the motivation is stronger among those operators with less to lose in legacy services Many operators have partnered with social networking providers such as Facebook to promote the adoption of mobile Internet services. Facebook has long emphasised the messaging capabilities of its mobile service and, as the popularity of communications apps has risen, the partnership model has been extended to include these services. WhatsApp has proactively established relationships with MNOs such as 3 (various countries), DiGi, Nawras, Mobily and SingTel. Other messaging providers have similar deals in place. The partnerships are normally at marketing level only with the MNO trying to appeal to particular market segments, typically by zero-rating usage of the app(s). VoIP providers are also working with operators. Skype had what amounted to an on-net calling promotion with Hutchison 3G UK (Three) as early as 2009. It has also had relationships with Qtel (now Ooredoo), Telkomsel and Verizon Wireless. Viber is also very active in partnering with operators. Many of the operators that have embraced the partnership model are smaller players, aiming to gain market share by targeting younger data-centric users, and with less of a legacy position in voice and messaging. A move towards a partnership model also supports efforts to move to a heavily bundling-focused strategy (which will evolve into a data pipe with usage caps). Figure 18: Examples of partnerships between operators and OTT service providers [Source: Analysys Mason, 2013] Operator Partner Details 3 (Hong Kong) WhatsApp Roaming package includes unlimited usage DiGi Telecommunications (Malaysia) Skype plus others Unlimited Skype calling plus 100 SkypeOut minutes Etisalat (Egypt) Facebook Free or discounted access to Facebook Messenger Globe Telecom (Philippines) Viber plus others GoUnli prepaid tariffs include unlimited usage Mobily (Saudi Arabia) WhatsApp Exclusivity, zero-tariff usage in some bundles Verizon Wireless (USA) Skype Pre-installed on some devices, international calls via Skype
46 Executive summary Recommendations Trends in OTT communication services Profiles of major OTT players Operator responses Market outlook About the author and Analysys Mason
47 About the author Stephen Sale (Principal Analyst) is the lead analyst for Analysys Mason s Voice and Messaging research programme. His primary areas of specialisation include consumer VoIP, OTT player strategies, fixed mobile substitution and pricing strategies. Before joining Analysys Mason in 2004, Stephen worked in a number of research and marketing roles within the telecoms industry and has several years' experience in VoIP and broadband access. He has a degree in economics and an interdisciplinary MRes from the University of London.
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