whitepaper: over-the-top (ott) services: how operators can overcome the fragmentation of...

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Over-The-Top (OTT) Services: How Operators can overcome the Fragmentation of Communication

A report by Sponsored by

August 2012

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Table of contents

Information 3

Introduction 4

Executive summary 6 - 8

OTT evolution & fragmentation 9 - 12

Forecasts 13 - 18

The operator view 19 - 20

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The impact for operators: traffic & revenues 21 - 25

The operator response 26 - 29

Can operators make money from OTT? 30 - 31

Opportunities for operators 32 - 34

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Information

SourcesMobile operators included in the OTT research are:AT&T, EverythingEverywhere, T-Mobile Czech Rep., Orange LA, Telefonica Spain, Telenor, TeliaSonea, Sprint, T-Mobile International, 3UK, Tigo, T-Mobile UK, Bouygues Telecom, MTS, Vodafone Italy, Turkcell, H3G Italy, Orange France, Zain, O2 UK, Telekom, BanglalinkGSM, CYTA, Starhub, Maxis, Telecable, Vodafone UK, Orange UK, T-Mobile Ger-many, Vodafone Germany, Orange Poland

Nb: Not all operators wanted to be listed.

The 68 countries researched are:China, India, us, Brazil, Indonesia, Russia, Japan, Pakistan, Germany, Nigeria, Mexico, Italy, Bangla-desh, Philippines, UK, Vietnam, Egypt, Thailand, Iran, Turkey, France, South Africa, Ukraine, South Korea, Spain, Argentina, Poland, Colombia, Saudi Arabia, Algeria, Taiwan, Romania, Malayia, Venezuela, Peru, Morocco, Canada, Netherlands, Australia, Chile, Guatemala, Portugal, Sri Lanka, Ecuador, Greece, Czech Rep., Nepal, Sweden, Hong Kong, Austria, Belgium, Hungary, UAE, Bulgaria, Israel, Finland, Singapore, Denmark, Azerbaijan, Slovakia, Norway, Jordan, Ireland, Lithuania, New Zealand, Lebanon, Estonia, Montenegro.

MethodologyResearch was conducted by mobileSQUARED during May and June 2012. The first wave of operator research was conducted in 3Q2011. mobileSQUARED forecasts are based on subscriptions, and not subscribers, and factors in consumers owning more than one smartphone device.

The forecasts are based on smartphone users identified in the leading 68 mobile markets globally (see above). Total mobile users and smartphone fore-casts are from mobileSQUARED’s ongoing research into the leading 20 mobile markets. The remaining 48 markets were researched as part of process for this project.

Total OTT subscribers and OTT subscriber growth is based on the average subscriber penetration as identified by mobile operators during the research process, and applied to the smartphone population in each market. Both Skype and Whatsapp were identified during the research process as the leading OTT voice and messaging service provider, and therefore provided the most visible use cases for the forecasting.

Voice traffic (frequency) is based on Skype’s off-net usage (including Skype’s projected growth), and mes-saging traffic is based on Whatsapp (including growth during the forecast period).Termination costs used in the forecast process are based on a variable rate for off-net-to-fixed calls, ranging from $0.015, $0.025, $0.035, and a universalrate of $0.06 for off-net-to-mobile calls, and a flat-rate of $0.01 for SMS.

INFORMATION

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The inevitability of the mobile sector is that voice revenues are declining, and messaging revenues will tread a similar path in the next year or two. Over The Top (OTT) services are already having a major impact on the mobile space, and this will only be exacerbated in the future. OTT service providers are shaking up the communications space and causing considerable consternation along the corridors of mobile operators around the world.

The debate of whether OTT services should be considered a threat or opportunity is old hat. Mobile operators will view OTT as an opportunity to generate incremental revenues, the only question is when. Operators openly facilitating an OTT strategy will be able to explore the opportunities and enjoy the OTT revenue pie considerably sooner than an operator viewing OTT as an insurgent service.

This White Paper explores the ‘Fragmentation of Communication’ and focuses on how mobile operators can capitalise on the OTT opportunity. It is based on research conducted by mobileSQUARED between May and June 2012 and incorporates mobileSQUARED’s original OTT research from Q2 2011.

Introduction

INTRODUCTION

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The rapid adoption of smartphones has provided consumers with access to a wide variety of communication services which go beyond the traditional services of voice and messaging provided by mobile operators. Yet the majority of these proprietary OTT (Over-The-Top) communication service providers do not permit cross-platform functionality and therefore limit the capability of their services. Consequently, the rise of these OTT services has created an era of fragmented communications in which consumers cannot easily communicate outside the ‘walled gardens’ of their respective service/app. This weakness presents mobile operators with an ideal opportunity to adopt a key role in enabling OTT services and associated revenues, as they seek new business models to offset the decline in voice and messaging revenues.

The rapid adoption of smartphones has created an era of fragmented

communications whereby proprietary OTT service providers do

not permit cross-platform functionality and therefore limit the

capability of the service.

Skype is leading the OTT charge with over 900 million users spending over 1 billion minutes a day making peer-to-peer Skype-to-Skype calls (free) and with its number of daily off-Skype minutes (charged to mobile or fixed-line) approaching 40 million minutes per day. Skype has now become to OTT what Facebook is to social media.

Similarly, Skype is to voice what WhatsApp is becoming to messaging. Based on existing app download data, mobileSQUARED estimates there are 75 million WhatsApp users globally, and this is projected to increase to 250 million by 2016. Presently, WhatsApp users are sending 2 billion messages a day, which equates to 27 messages per user per day. By 2016, mobileSQUARED forecasts the 250 million users to be sending 11 billion messages per day (or 4 trillion per year), with an average user sending 44 messages per day.

There are now multiple communication channels open to users – in particular smartphone users. By 2016, global smartphone penetration will stand at 39%, meaning over one third of population of mobile users will be able to access OTT services via their smartphone. An iPhone user, for instance, can send a message via SMS, iMessage, Facebook, WhatsApp, Viber and Skype to name but a few. As OTT services proliferate further, more companies and developers will look to get in on the act, and flood the market with OTT services. This period can be described as the ‘Fragmentation of Communication’, and the mobile operators that best understand how to capitalise on this opportunity will be the ones that are best able to offset the inevitable voice and messaging decline with OTT.

Mobile operators are concerned. Research by mobileSQUARED reveals that:

• 79% of operators believe that OTT clients on smartphones are a threat to traditional SMS- and voice-based services.

• 73.7% of operators identified messaging as the service most challenged by OTT.

Executive summary

EXECUTIVE SUMMARY

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73.7% of operators identified messaging as the service most

challenged by OTT.

• 57% of operators expect 11-40% of their customer base to be using OTT services by the end of 2012.

• 42% of operators expect over 40% of their customer base will be using OTT, while 50% expect 21-40% of their users on OTT services.

• 100% of operators now believe voice and SMS traffic over the mobile network will decline over the next 5-10 years.

• 37% of operators believe the decline in voice and messaging revenues will be 1-20%, and 53% expect 21% and over – almost double the number of operators compared to the previous year.

However, despite the various concerns, most of operators believe that it is possible to make money out of OTT:

• 63% of operators believe they will make money from OTT services, but only at the expense of voice and SMS revenues. 16% of operators believe they will generate incremental revenue from OTT services.

• Only 21% of operators either believe operators cannot make money from OTT services or remain undecided.

From a total global mobile subscription base of over 7 billion, mobileSQUARED forecasts that the total number of OTT users on smartphones will rise from 276.8 million in 2012 to 1.32 billion in 2016. As of 2012, 20% of global smartphone users are actively using OTT services, and this will reach 45% by 2016. Perhaps most notably for mobile operators, is that OTT users in 2012 will only account for 2% of the total global mobile subscription base, and 18% in 2016.

OTT users in 2012 will account for only 2% of the global mobile

subscription base, and 18% in 2016.

Messaging represents the largest off-net operator revenue generating community, with 118.9 million users already sending paid-for messages this year, jumping to 534.9 million users in 2016, according to mobileSQUARED forecasts. This is followed by OTT-to-mobile voice users: 68.6 million users in 2012 rising to 434.7 million in 2016. And then OTT-to-fixed voice users: 49.8 million rising 132 million in 2016. Off-net-to-video users are expected to grow from 2.96 million in 2012 to 215.7 million in 2016 as the video communications bug sweeps the globe. mobileSQUARED forecasts the OTT market to be worth US$166.5 billion in 2016, but its impact is already being felt by mobile operators today. The forecasts include OTT messaging services costing mobile operators US$4.2 billion in 2012, rising to US$12.5 billion by 2016. The impact of OTT on voice is even more transparent, with total mobile voice revenues forecast to fall from US$714 billion to US$573.51 billion over the 2012 to 2016 forecast

Executive summary

EXECUTIVE SUMMARY

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period through a combination of OTT and competitive

price erosion.

Embracing OTT should not be viewed by the mobile operator community as a way of substituting the decline in voice and messaging revenues, but as a means of delivering a new incremental revenue stream that will experience exponential growth in the long term. After all, consumers are embracing OTT services in their hundreds of millions – leaping to billions within a few years. It is consumers opting for multiple communication alternatives that have created this Fragmentation of Communication. It is this factor that will ultimately open the door of opportunity for mobile operators.

Embracing OTT should be viewed by mobile operators as a way of delivering a new incremental

revenue stream that will experience exponential growth in the long term.

Operators should focus on a multiple OTT strategy founded on developing a long-term relationship with the customer. Operators have a wide range of options to tackle the OTT opportunity:

• Blocking OTT: short-term strategy that will ultimately limit the revenue-generation possibilities for the operator.

• Retaining billing relationship/data charges: mobile operators can monetise the access to OTT services via data charges bundled within the monthly package.

• Telco app: while this strategy might limit the

Executive summary

amount of users that would use a rival OTT service, it fails to present a compelling OTT off-net based revenue-generating model.

• Partnering directly with OTT players: operators can partner directly with the likes of Skype, Google, etc., and benefit from their traffic. However, this will probably benefit the larger operators.

• RCS-e/Joyn: the GSMA-led initiative is very long term and whilst operators prepare to deploy RCS-e, operators can adopt other initiatives in parallel.

• Third party access to OTT via mobile phone numbers: mobile operators can position themselves as the bridge between OTT off-net traffic and the mobile customer and remove all walled gardens by using the mobile number. This enables the operator to keep the traffic and gain a share of the revenues.

mobileSQUARED forecasts that OTT commun-ications will generate termination and interconnect fee-based revenues for mobile operators of US$3.7 billion in 2012 rising to US$8.4 billion in 2016. Messaging will dominate the revenue landscape over the forecast period, followed by off-net calls to mobile, while the contribution made to off-net fixed line calls is negligible. Therefore, the incremental revenues generated from OTT interconnectivity will reduce the annualised decline in voice and messaging revenues (US$30 billion) by over 25%.

EXECUTIVE SUMMARY

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OTT evolution & fragmentation

OTT waves of activityThe OTT communications story has been well documented in recent years, but in order to grasp how it will continue to redefine the industry, it is necessary to understand its progress to date.

OTT has developed in two waves: Firstly, it was fixed voice services, and especially international calling, that provided the route to market for OTT service providers like Skype and Vonage, using IP-based voice services to massively undercut the existing operator rates. The second wave of OTT growth was borne out of the rise of smartphones and the ability to package OTT services as apps that could be installed as a client on the device. This latest wave not only supplemented existing fixed-line activity, but has targeted mobile voice, messaging, and most recently video.

OTT has developed in two waves: fixed voice services, especially international

calling, and OTT packaged in a smartphone app targeting mobile

voice, messaging and video.

Leading the OTT charge is Skype. MobileSQUARED research reveals that the Microsoft-owned company now has over 900 million users – and towers over alternative telecoms service providers such as Vonage at around 3 million users. To put this into perspective, Skype has a similar user base to Facebook. Skype then, is a behemoth in the OTT space.

Interestingly, Skype claims that it has up to 65 million users logged on and using the service simultaneously at any given time during the day – though online Skype aficionados Skype Numerology claims this number has only recently peaked at 42 million. Regardless, even with the latter figure it represents an active online community similar to the size of Spain, one that is large enough to have a significant impact on the communications industry.

Skype has disclosed that its users spend over 1 billion minutes a day making peer-to-peer Skype-to-Skype calls (free), and the number of daily off-Skype minutes (charged to mobile or fixed-line) is 30 million – as of September 2011, though mobileSQUARED estimates this figure to now be 35-37 million minutes per day. While the latter is generating revenue for the telco industry by way of interconnection (or termination) fees, the former is clearly subverting revenues from telcos. On the back of Skype’s success, a number of rival service providers have emerged, most notably Google Voice, though minimal information has been released since 2009 about the service. mobileSQUARED conservatively estimates the service to have amassed around 9.5 million users globally, primarily because Skype has now become to OTT what Facebook is to social media, and has become the dominant force in the OTT fixed-line space.

The perceived threat of OTT services by mobile operators is undoubtedly real, and now being confounded by this next wave of smartphone-based OTT apps. One of the original OTT services

OTT EVOLUTION & FRAGMENTATION

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on mobile was RIM’s BlackBerry Messenger. Until recently BlackBerry had 75 million users worldwide, but it is now haemorrhaging users at an alarming rate as its users “hot leg it” over to Android or iOS. Apple has recently confirmed that it is now approaching 350 million iOS devices globally, with iPads accounting for 60 million devices. That means a potential (and growing) user base of 350 million for iMessage.

Amid growing speculation, RIM is believed to be considering splitting off its messaging and email platform from its hardware division. If that development happens, it could stand to gain lots of adopters in corporate circles to run its services as apps on other smartphone platforms.

The OTT walled gardensThe lack of cross-platform connectivity between BBM and both iMessage and Facetime on iOS, for example, are synonymous with the fragmentation associated with the mobile industry, and stifles the impact OTT could have on mobile traffic and revenues. As yet, a proprietary messaging-based service has not been developed exclusively for Android users, which means the 300 million Android devices globally (around 13 million Android tablet users), and the 850,000 users being added every day

– according to Google recently – can download any of the OTT services available.

The lack of inter-device and platform interoperability was explicitly highlighted in 2011 when RIM’s BBM network dropped for a number of days, preventing its users from connecting – though basic voice and SMS services were unaffected. Intriguingly, BBM originally set a messaging OTT precedent for its alternative proprietary SMS solution, but because the service is inextricably linked to the Blackberry devices

– which are experiencing an alarming decline in sales and suffering from the greater appeal of Apple and Android devices – BBM looks to fall victim of its self-imposed walled garden. A similar outcome could one day befall Apple and iMessage. While this appears unlikely right now, the same could be said of RIM several years ago, and clearly demonstrates the compelling need to provide cross-platform interoperability.

In fact, the same can be said of Skype, but to date its fixed-line dominance is yet to translate in the mobile arena. All the while, new talent is emerging and developing incredibly strong and loyal followers, such as WhatsApp and Viber. And that’s before the likes of Facebook and its Messenger service gets a mention.

As is customary with proprietary OTT services, interoperability can be considered their shortcoming. Indeed, we have identified three main areas of

interoperability:


The lack of cross-platform connectivity between BBM and both

iMessage and Facetime on iOS are synonymous with the fragmentation associated with the mobile industry,

and stifles the impact OTT could have on mobile traffic and revenues.

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1. The lack of device/OS interoperability (BBM, iMessage)

2. The lack of app interoperability (WhatsApp, Viber)3. The lack of interoperability with featurephones

and non-IP-based devices.

A lack of interoperability is a key shortcoming in OTT services, creating

self-imposed walled gardens, which limit their reach.

Anyone with a smartphone can download WhatsApp, and therefore overcome the cross-platform limitations offered by BBM and iOS. However, the vertical limitations of one model are only rotated 90 degrees to the horizontal model of WhatsApp, whose users can only connect and send free messages to fellow WhatsApp users. To date, there is no option to go off-net, or in this case, “Off-What”. Whether looking at OTT from a vertical or horizontal perspective, each service has constructed what is more commonly referred to as a walled garden.

Based on existing app download data, mobileSQUARED estimates there are 75 million WhatsApp users globally, and this is projected to increase to 250 million by 2016. Presently, WhatsApp users are sending 2 billion messages a day, which equates to 27 messages per user per day. By 2016, mobileSQUARED forecasts the 250 million users to be sending 11 billion messages per day (or 4 trillion per year), with an average user sending 44 messages per day.

Though coming from a smaller footing, Viber too is on the march. Between February and May 2012, the company leapt from 50 million users to 70 million, generating over 1 billion minutes and sending over 1 billion texts per month.

In South Korea, OTT messenger app KakaoTalk has been downloaded by almost every smartphone user – there will be 42 million by the end of 2012, and already they are sending 1.3 billion messages daily.

By the end of 2012, there will be a cumulative total of almost 190 million people using WhatsApp, Viber and KakaoTalk – though there will be user crossover between the services. And this does not even account for Facebook, which has around 500 million mobile users globally. However, while in all probability the majority of WhatsApp and Viber users are highly likely to be on Facebook also, the penetration of Facebook Messenger among its mobile users is believed to be low.

The Fragmentation of CommunicationThere are now multiple communication channels open to people – in particular smartphone users. An iPhone user, for instance, can send a message via SMS, iMessage, Facebook, WhatsApp, Viber and Skype to name but a few. As OTT services proliferate further, more companies and developers will look to get in on the act, and flood the market with OTT services.



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As OTT services proliferate further, more companies and developers will flood the market with OTT services,

further fragmenting communications.

If we regard the development of social networking as an indication for the development of the OTT market, it is worth remembering that there was a seemingly endless flow of sites emerging until Facebook shone through and established itself as the principal social network. Presently, niche social networking sites are cropping up and targeting smaller, less-catered for audiences. A similar pattern is likely to happen in the OTT space. Whether Skype and WhatsApp end up as the eventual market leaders remains to be seen, but it seems likely at this point.

Nevertheless, this period can be described as the ‘Fragmentation of Communication’, and the mobile operators that best understand how to capitalise on this opportunity will be the ones that are best able to offset the inevitable voice and messaging decline with OTT.

For instance, the majority of these services do not provide cross-OTT platform functionality, and therefore operate within the confines of a walled garden. While operators can use the lack of interoperability across disparate OTT services to potentially provide a strategic advantage, they too have their limitations brought about by the need to interconnect with other operators. This too could be costly to operators.

The rise of Skype has confirmed the globalisation of communications: international calls are no longer the communications playground of blue-chip companies. Services like Skype, and its subsequent impact on operator international call charges, has made the service affordable, if not free.

To meet the demands of global communications, operators must also ensure their global footprint is as far-reaching as possible. With over 850 mobile operators globally, that represents a lot of roaming agreements: the average operator has between 150 and 400 roaming agreements. If operators are to use global reach to their strategic advantage to address the mounting threat from OTT services, then they too must limit any walled gardens within their direct community and ensure their international footprint for the delivery of both voice and SMS is as extensive as possible.

Operators must limit any walled gardens within their direct community

and ensure their international footprint for the delivery of both voice

and SMS is as extensive as possible.

The globalisation of affordable (and free) communications by the OTT players provides the operators with a limited window of opportunity. And this is only going to be squeezed as the OTT threat is exacerbated with the continued adoption of smartphones.



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Forecasts

Smartphone forecastsTo consolidate this point, across the 68 smartphone markets covered in this White Paper, there will be 1.12 billion smartphone users by the end of 2012, rising to 2.9 billion in 2016, by which point global smartphone penetration will be at least 39% of total mobile users. There is a strong correlation between smartphone users and OTT services, confirming that consumers are finding a free or cheaper communication alternative very appealing.

There will be 1.12 billion smartphone users by the end of 2012, rising to 2.9 billion in 2016, achieving a penetration of approximately 39% of

total mobile users globally.

A survey exploring OTT adoption rates among US smartphone users by Acision reveals that Facebook is used by 37% of users, followed by Skype (17%), Twitter (17%), iMessage (11%), BBM (10%) and WhatsApp (5%). Consequently, OTT-based messaging services are being used in conjunction

with SMS across the US, where SMS is bundled with data packages.

OTT-based messaging services are being used in conjunction with

SMS across the US.

This essentially makes SMS a sunk cost to subscribers, so users do not need to stop using them for sending messages nationally.

A survey of UK smartphone users by MyVoucherCodes revealed that 81% have downloaded at least one OTT service app. Of those, 50% use iMessage, followed by BlackBerry Messenger (BBM) on 40%, WhatsApp on 37% and Skype on 33%. What’s more, the survey claims that 40% of smartphone-based OTT service users have shifted their messaging traffic partially or completely away from SMS.

While on first inspection this figure should send shivers down every mobile operator’s spine, an overlooked eventuality is that consumers have already paid for messaging (and voice) services as part of their monthly bundled package – of which the majority of smartphone users are on in most of the developed mobile markets. For example, in 2011 KPN revised its prepaid tariffs by reducing the number of included monthly minutes and increasing the available data in order to meet the changing demands of consumers.

FORECASTS

SOURCE: OPERATOR RESEARCH BY MOBILESQUARED , 2012

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OTT market forecastsFrom a total global mobile subscription base of over 7 billion, mobileSQUARED forecasts that the total number of OTT users on smartphones will rise from

276.8 million in 2012 to 1.32 billion in 2016 (FIG 2).

The total number of OTT users on smartphones will rise from 276.8

million in 2012 to 1.32 billion in 2016.

FIG 2 – TOTAL MOBILE UNIVERSE

SOURCE: MOBILESQUARED, 2012

As of 2012, 20% of global smartphone users are actively using OTT services, and this will reach 45% by 2016, though this could be considered a conservative estimate, as the impact of the network effect could likely accelerate this number. Perhaps most notably for mobile operators, is that OTT users in 2012 will only account for 2% of the total global mobile subscription base, and 18% in 2016.

As of 2012, 20% of global smartphone users are actively using OTT services,

and this will reach 45% by 2016.

FIG 3 – PERCENTAGE OF OTT USERS IN 2012 AND 2016


OTT users in 2012 will only account for 2% of the total global mobile

subscription base, and 18% in 2016.

According to the mobileSQUARED research, in general operators expect (FIG 3):

In 2012:

• Almost one-third of operators expect 1-10% of their customer base to be using OTT services by the end of 2012.

• 57% of operators believe 11-40% of their

Forecasts

FORECASTS

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While the mobileSQUARED OTT research reveals that virtually every OTT smartphone user will use the available messaging and voice services, mobileSQUARED has broken down those forecasts to reveal the extent of those users that will send off-net communications – and will ultimately generate revenues for operators.

FIG 4 – OTT SMARTPHONE USERS BREAKDOWN BY SERVICE


This means (see FIG 4):

• Messaging represents the largest off-net operator revenue generating community, with 118.9 million users already sending paid-for messages in 2012, jumping to 534.9 million users in 2016.

• This is followed by OTT-to-mobile voice users: 68.6 million users in 2012 rising to 434.7 million in 2016.

• OTT-to-fixedvoice users will grow from 49.8 million to 132 million in 2016.

Forecasts

customer base will be using OTT services, leaving 10.5% of operators anticipating more than 40% of the user base on OTT services in 2012.

In 2016:

• Every operator expects over 11% of their customer base to be using OTT services. In fact, 42% of operators believe over 40% of their customer base will be using OTT services.

• More than 47% of operators expect 21-40% of their users on OTT services, leaving 21% expecting 11-30% of users.

In regards to regions, 95% of European operators expect more than 20% of their subscriber base to be using OTT services within three years. In fact, almost 50% of European operators expect over 40% of their subscriber base to be using OTT by 2016. In North America, the expectations are lower, with operators split between 11-20% and 31-40%. In both Asia and Latin America, operators expect more than 40% of users on OTT services in 2016.

42% of operators believe over 40% of their customer base will be

using OTT services in 2016.

This data highlights the ease by which OTT players will be able to access mobile operator customers, and shows their concern around the perceived threat of alternative services.

FORECASTS

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Forecasts

• Off-net-to-video users are expected to grow from 2.96 million in 2012 to 215.7 million in 2016 as the video communications bug sweeps the globe.

Messaging represents the largest off-net operator revenue generating

community, with 118.9 million users already sending paid-for messages in 2012, jumping to 534.9 million users in 2016.

Research for this White Paper has revealed that calls to mobile phones now dominate total voice traffic across the developed world, and this has therefore been reflected in the larger number of OTT-to-mobile users compared to OTT-to-fixed users.

It is also worth noting, that as more smartphone users download OTT service apps, the potential off-net community diminishes, and explains why OTT user growth is significantly higher than OTT to off-net activity growth.

Outlook for selected marketsUnited States

• The number of smartphones in the US will grow by 110 million over the 2012 to 2016 forecast period, with 155.6 million smartphones in 2012 rising to 265.8 million in 2016.

• Total OTT users are projected by mobileSQUARED to total 47.5 million and grow to

139.5 million by 2016.

• The number of OTT users sending off-net messages will increase from 26.1 million to 63 million over the forecast period. While the number of users making off-net mobile and fixed line calls will rise from 13.3 million and 8.5 million respectively, to 55.6 million and 14 million.

FIG 5 – OTT REVENUES IN THE UNITED STATES

SOURCE: MOBILESQUARED , 2012

Total OTT users in the US are projected to total 47.5 million in 2012

and grow to 139.5 million by 2016.

In addition:

• Off-nettrafficwillgeneraterevenues in the US of US$795.9 million in 2012 rising to a fraction over US$1 billion in 2016.

• While OTT-to-fixedcallrevenues will be negligible over the forecast period, off-net messaging will generate US$643.1 million and US$756 million in 2016.

FORECASTS

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Forecasts

• Revenues generated from OTT off-net calls to mobile will treble from US$71.1 million to US$245.6 million.

Germany

• Despite a slow start in smartphone adoption, Germany is more than making up for it, with the number of smartphones almost doubling from 49 million in 2012 to 97.3 million in 2016.

• The total number of OTT users is expected to leap from 14.9 million to 51.1 million over the forecast period.

• OTT users sending revenue generating off-net messages will grow from 8.2 million in 2012 to 20.4 million in 2016.

• The number of OTT users making off-netfixedcalls will rise from 2.7 million in 2012 and 5.1 million in 2016, while those users making off-net mobile calls will leap from 4.2 million to 20.4 million.

FIG 6 – OTT REVENUES IN GERMANY


Total number of OTT users in Germany is expected to leap

from 14.9 million in 2012 to 51.1 million in 2012.

In addition:

• The total OTT off-net opportunity in Germany will be worth US$250.5 million in 2012 and US$366.7 million in 2016.

• Revenues from off-net messaging will dominate, generating US$202.4 million in 2012 rising to US$276.8 million in 2016.

• Combinedfixedandmobileoff-netcallswillgenerate total revenues of US$48.1 million in 2012 and US$89.9 million in 2016.

UK

• The OTT projections are based on strong smartphone growth, with mobileSQUARED projecting the number of users with smartphones from 43.1 million in 2012 and increasing to 70.3 million in 2016.

• OTT penetration will almost treble during the forecast period, from 13.2 million to 36.9 million.

• A breakdown of the total OTT users reveals that the number sending off-net messaging will be 7.2 million in 2012 and 16.6 million in 2016.

• There will be significant growth of the number of OTT users making off-net calls, from 3.7 million in 2012 and 14.8 million in 2016.

• A number that is considerably higher than those users making off-netcallstofixedline: 2.4 million rising to 3.7 million in 2016.

FORECASTS

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Forecasts

OTT penetration in the UK will almost treble during the forecast period, from

13.2 million to 36.9 million.

FIG 6 – OTT REVENUES IN THE UK


In addition:

• The UK’s OTT off-net market will be worth US$264.9 million in 2016, up from US$220.6 million in 2012.

• Off-nettraffictofixed-lines will be non-existent, leaving off-net calls to mobile and off-net messages to attribute the bulk of revenues, with US$42.3 million and US$178.2 million, respectively, in 2012, increasing to US$64.9 million and US$200 million in 2016.

FORECASTS

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The operator view

The mobile operators are right to be concerned about OTT services. Research by mobileSQUARED in May and June 2012 reveals that 79% of operators believe that OTT clients on smartphones are a threat to traditional SMS- and voice-based services.

79% of operators in 2012 believe that OTT clients on smartphones are a

threat to traditional SMS- and voice-based services.

That is a lot of operators, but is actually down from 83.8% compared to a similar study conducted by mobileSQUARED last year (see FIG 8).

FIG 8 – ARE OTT CLIENTS A THREAT TO TRADITIONAL OPERATOR SERVICES?

In 2012, a regional breakdown highlights that 100% of mobile operators in North America, Latin America and Asia agree or strongly agree with the threat posed by OTT. Similarly, the number of operators that are either unsure or disagree with the threat


to traditional SMS- and voice-based services, has increased from 16.2% in 2011 to 19.1% in 2012. This perhaps highlights that a small percentage of operators are now approaching OTT with a certain level of pragmatism, and starting to understand the opportunities posed by OTT, rather than just perceiving it as a threat.

FIG 9 – WHICH ELEMENTS OF OPERATOR SERVICE TRAFFIC WILL BE MOST THREATENED BY OTT CLIENTS?

However, within the 79% of operators that continue to identify the threat posed by OTT services, there is a growing number that is increasingly concerned with developments (see FIG 9). In 2011, 13.5% of operators strongly agreed with the statement that OTT clients on smartphones posed a significant threat to their voice and SMS traffic and revenues. That figure has leapt to almost 32% in 2012, a year-on-year increase of 134%.

The research maintains that SMS continues to be the standout concern for operators. In 2011, 67.6% of operators identified messaging as the most challenged service by OTT, but that figure has increased to 73.7% in 2012.


THE OPERATOR VIEW

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With voice commoditisation now widely regarded as a given across the telco industry – with or without OTT services – the challenge of OTT to voice services appears to be waning according to the operators, with 18.9% of operators believing voice was the most threatened in 2011 falling to 10.5% just 12 months on.

In 2011, 67.6% of operators identified messaging as the

service most challenged by OTT, but that figure has increased

to 73.7% in 2012.

When it comes to video calling as a direct service, such as Tango, Skype and Facetime, operators do not expect OTT to have any impact, though “Other” as a service category representing all operator service traffic of voice, video and SMS, increased between 2011 and 2012 from 5.4% to 15.8%.

The operator view

THE OPERATOR VIEW

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The impact for operators: traffic & revenues

The operator survey by mobileSQUARED collected information on what the impact that operators have already seen in traffic and revenues, as well as the future impact (5-10 years).

TrafficIt is inevitable, with so many OTT users, that this will impact on operators’ traffic, and subsequently, revenues, but the extent of how much remains to be seen. Regardless of the bearer, which could be IP, packet switched or circuit switched, the traffic will still require transporting, which means that it will actually be the revenue associated with carrying the traffic that will be impacted.

FIG 10 – HAS TRAFFIC DECLINED IN THE LAST 12 MONTHS AS A RESULT OF OTT?

The impact OTT services are having on operator traffic is clearly expanding (see FIG 10):

• In 2011, 37.8% of operators had not seen operator traffic declining, but that number has since fallen to 26.3% of operators in 2012. That


means OTT is now affecting traffic for almost

three-quarters of operators.

• The research also shows that 42.1% of operators had an impact coming from OTT of 1-10% of traffic in 2012, up from 29.7% in 2011. Just over 10% of operators state that OTT has impacted on 11-20% of their traffic in 2012, compared to no operators in 2011.

OTT is now affecting traffic for almost three-quarters of operators: 26.3% of operators have seen traffic

declining in 2012.

In 2011, 2.7% of operators said that OTT was affec-ting 21-30% of their traffic, yet in 2012 not one opera-tor said over 21% of their traffic was affected by OTT. Interestingly, 29.7% of operators were not aware of the impact OTT was having on their traffic in 2011, but 12 months on, that number had fallen to 21.1%. Clearly, the challenge posed by OTT to operators is a real one, and more operators are monitoring the situation more closely.

When breaking down the operator research by regi-on, the North American and Asian operators, as well as 15% of European operators, were yet to determi-ne whether OTT had had an impact on their traffic. Around 25% of European operators said OTT had not affected traffic, while 45% said between 1% and 10% of traffic had been lost. Just under 10% of European operators said between 11% and 20% of their traffic had been lost to OTT.

THE IMPACT FOR OPERATORS: TRAFFIC & REVENUES

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The operator research reveals that 100% of opera-tors now believe voice and SMS traffic will decline over the next 5-10 years, compared to 90% of ope-rators in 2011 (see FIG 11). Most intriguingly is that more operators now expect OTT to have a greater impact on traffic in the future, than they did in 2011:

• Around 46% of operators in 2011 believed traffic levels would drop by 1-20% in 5-10 years‘ time, and 27% anticipated a traffic decline of 21% and over.

• But in 2012, 37% of operators believe the decline will be 1-20%, and 53% expecting 21% and over – almost double the number of operators compared to the previous year.

100% of operators now believe voice and SMS traffic will decline over the next 5-10 years, compared to 90%

of operators in 2011.

FIG 11 – WILL TRAFFIC DECLINE IN THE NEXT 5-10 YEARS DUE TO OTT?


In 2012, 31.6% of operators claim OTT is yet to impact on

traditional revenues.

Taking operators out of their comfort zone and asking them to predict the impact of OTT over the next 5-10 years provides a great variety of responses. For instance in North America operators are bracing themselves for a traffic loss of up to 30%, as are around 10% of operators in Europe. A little over 20% of European operators expect more than 41% of their traffic to migrate on to OTT. Similarly, 20% of Euro-pean operators expect a traffic shift of up to 20% on to OTT, as do the majority of operators in Asia.

RevenuesIn 2011 only one-third of operators had experienced a decline in revenues as a direct result of OTT, but in 2012 that had doubled, leaving just 31.6% of ope-rators claiming OTT was yet to impact on traditional

revenues (see FIG 12).

FIG 12 - HAVE REVENUES DECLINED IN THE LAST 12 MONTHS AS A RESULT OF OTT?




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FIG 13 - WILL REVENUES DECLINE IN THE NEXT 5-10 YEARS DUE TO OTT?

About 18% of European operators are expected to put up a stoic fight against OTT services, by claiming the next-generation services will not impact on current operator revenue levels. This is in stark contrast to almost 75% of European operators that do anticipate an impact revenues; 10% are bracing themselves for more than 21% of revenues lost to OTT, with the majority anticipating between 11-15% lost.

North American operators are split between uncertainty and more than 21%, while Asian operators are sitting in the middle expecting a revenue decline of 11-20%.

Over 45% of European operators are yet to see a decline in revenues as a result of OTT, as are the majority of operators in North America and Latin America. Around 25% of operators in Europe have seen revenues decline by up to 5%. Just over 10% of operators claim more than 6% of their revenues have been lost to OTT.

43% of operators expect 11% and over of revenues to

be hit due to OTT.

Given that operators believe the impact of OTT on traffic has increased from 2011 to 2012, it is not surprising that operators now believe OTT will have a greater impact on their traditional revenues (see FIG 13):

• In 2011, 54% of operators believed OTT would impact 1-10% of operator revenues in the next 5-10 years, with an additional 16% believing that the impact would be 11% and above.

• Jump forward 12 months, and the landscape has changed considerably. Almost 32% of operators expect 1-10% of revenues to be impacted by OTT services, with 43% expecting 11% and over of revenues to be hit – up by a staggering 169%.




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Forecasts on the financial impact of OTT for operatorsThe ultimate question remains: what is the financial impact of OTT on the communications industry? To analyse this, we needed to look at the total mobile market:

• In 2012, the mobile industry (made up of voice, messaging, VAS & access, devices, infrastructure and OTT) will be worth US$1.5 trillion, up from US$1.4 trillion in 2011, according to mobile

analyst Chetan Sharma.

• By using these market numbers as a platform to apply uniform total mobile market growth, mobileSQUARED projects the mobile market will be worth US$1.97 trillion in 2016.

In 2012, the mobile industry (made up of voice, messaging, VAS & access, devices, infrastructure and OTT) will

be worth US$1.5 trillion.

During this period (see FIG 14):

• Voice revenues will drop from US$714 billion to US$573 billion.

• Messaging revenues, which are expected to peak in 2012 at US$196.8 billion, will then fall to US$166.5 billion over the same period.

• At the same time, data (and access) revenues are projected to almost double: US$222 billion to US$407 billion.

• In total, the mobile operators’ core services will generate revenues of US$1.114 trillion in 2012, and US$1.15 trillion in 2016.

FIG 14 – MOBILE MARKET FORECASTS

Over the 2012-2016 forecast period, data revenues will offset the decline in voice and messaging revenues, which will be attributed to OTT directly and indirectly (see FIG 15). Chetan Sharma says the total OTT market will be worth US$59.8 billion in 2012. Again, by using these numbers as a platform upon which to apply market growth, mobileSQUARED believes the OTT market will be worth US$166.5 billion in 2016. But how much of this growth can account for the decline in mobile operator revenues?

The total OTT market will be worth US$59.8 billion in 2012.



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economics and technological advancements, in disintermediating some US$182 billion, equating to an annualized revenue hit of over US$30 billion over the same period.

FIG 16 – IMPACT OF OTT ON MESSAGING REVENUES

For example, total global messaging ARPU will be worth $35.2 per annum in 2012 and $23.35 in

2016, based on Sharma and mobileSQUARED data (see FIG 16). If we then apply this figure to the number of OTT messaging users projected by mobileSQUARED, it shows that OTT messaging services will cost mobile operators US$4.2 billion in 2012, rising to US$12.5 billion by 2016. Cumulatively over this period, OTT messaging will potentially cost mobile operators US$41.9 billion in lost SMS revenues.

OTT has been a driving force, along with competition economics and technological advancements, in disintermediating some US$182 billion in the operator market.

FIG 15 – TRADITIONAL MOBILE REVENUE GENERATION FORECASTS

As already identified earlier in this White Paper, services such as Skype are shifting billions of dollars of voice traffic away from the mobile operators each year. Can the same logic be applied to messaging? mobileSQUARED in fact believes that the impact of OTT messaging services on messaging revenues is significantly less than previously thought.

Total global messaging ARPU will be worth $35.2 per annum in 2012 and

$23.35 in 2016.

The impact of OTT on voice is very transparent (see FIG 15). Over the 2012 to 2016 forecast period, total mobile voice revenues will fall from US$714 billion to US$573.51 billion. The cumulative loss over that period to the mobile industry is US$140.5 billion.

When combined with the loss of messaging over the aforementioned forecast period (see FIG 16), OTT has been a driving force, along with competition





│ PAGE 26

The operator response

At Mobile World Congress 2012, the chairman of the GSMA and CEO of Telecom Italia, Franco Bernabe, told delegates that OTT players “hinder competition by relying on non-standardized technologies”, placing a “significant burden” on mobile operators. He also claimed that the fall in ARPU across Europe from €26 in 2006 to €20 in 2011 was increasing the pressure on operators looking to invest sizeable sums in next-generation networks, to largely cater for OTT-generated traffic. US operator AT&T used the mobile showcase event to disclose that it is looking at ways of ensuring app developers pay for the traffic their apps generate. OTT is extremely high on operators’ agendas.

The majority of operators have long -since responded to the threat

of OTT to their voice traffic by introducing low-cost VoIP-based

national and international call services, requiring consumers

to dial a prefix to activate the service on the operator’s network.

Because of the emergence of data heavy sites such as Youtube, and video-on-demand catch-up services like the BBC iPlayer, these are generating massive amounts of traffic, yet operators see none of the revenues but face the burden of building infrastructure to support this.

Yet responding to the challenge of OTT is not a recent phenomenon. The majority of operators have

long-since responded to the threat of OTT to their voice traffic by introducing low-cost VoIP-based national and international call services, requiring consumers to dial a prefix to activate the service on the operator’s network.

Yet it is the impact OTT is having on messaging that is most alarming. Netherlands incumbent KPN announced earlier this year that it will lay-off 5,000 employees as an austerity measure attributed to the growth of OTT messaging apps which continue to reduce SMS traffic 15% year-on-year. While WhatsApp – which is particularly prevalent in the Netherlands – cannot be picked out as the sole contributory factor to this decline, it is undoubtedly one of the key reasons. The strategy of thwarting this impact on revenues is entirely understandable, prompting some operators, such as TeliaSonera in Sweden, to block OTT services or to place a premium on their customers using the service.

If you can’t beat ‘em, join ‘emBut if you can’t beat them, join them. In some cases operators are directly partnering with OTT players: operators such as 3 UK and Verizon have partnered with OTT players, such as Skype.

Operators are responding to OTT in various ways, mostly by direct partnerships with OTT players,

creating their own telco app and investing in Joyn/RCS-e.

THE OPERATOR RESPONSE

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Other operators are challenging the likes of WhatsApp by launching their own take on the service: T-Mobile USA has launched Bobsled, and Telefonica has introduced Tu Me, both of which offer free voice and texts. Bobsled has attracted over 1 million users globally, with 95% of these users not T-Mobile subscribers, whilst Telefonica is striving for a similar impact. Telefonica Digital’s Tu Me app uses a customer’s data plan and allows not only O2 customers, but any smartphone user, to make calls, send voice messages, instant messages, photos and location from one control within one screen. What’s more, it lets users make free calls internationally if they use wifi, and will automatically search existing contacts for other Tu Me users. Telefónica Digital claims “Tu Me puts all your communications needs into one place, for free, and is a great way for people to stay in touch with those close to them.”

To counter the dominance of KakaoTalk in South Korea, mobile operators SK Telecom, KT Corp and LG Uplus have joined the GSMA’s Joyn initiative and will deploy Rich Communication Services-enhanced (RCS-e) during the second half of 2012, joining the likes of Orange, Vodafone, Telefonica, Telenor and T-Mobile.

Hindering a consumer’s access to OTT services, either through a paywall or

blocking, will ultimately prove deconstructive and drive churn.

Clearly a number of operators are exploring OTT options, while others are moving in the opposite direction and confronting the issue. mobileSQUARED believes hindering a consumer’s access to OTT services, either through a paywall or blocking, will ultimately prove deconstructive and drive churn.While there is no evidence to support this assumption, experience from the mobile industry suggests that consumers will leave existing operators for something they cannot have. And that is precisely why AT&T and O2 paid a premium to secure exclusive deals with Apple for the early days of the iPhone’s release in order to attract customers from rival mobile operators who had their eyes set on owning an iPhone.

The iPhone had mass consumer appeal. And from a service standpoint, so does OTT. The problem between the two is that the benefit to the bottom line is transparent with the iPhone, whereas this is not the case with OTT services. This is certainly reflected in our operator research, which reflects their disparate response to OTT.

In 2011, the traditional (or standard) operator response to combat OTT clients was to say they were generating revenues from data. Last year, almost 50% of operators believed this to be true, but in 2012, that number had almost halved to 26.3%. Operators, it appears, are starting to respond to OTT service providers in a number of ways. The number of operators blocking OTT services has almost doubled from 5.4% in 2011 to 10.5% in 2012,and the number of operators imposing surcharges has trebled from 5% to 15.8%. These are certainly not customer-friendly reactions to OTT,


│ PAGE 28

In fact, 25% of operators had a very similar dual OTT strategy: This was to roll out IMS/LTE to offer RCS/

RCS-e while also partnering with OTT providers.

While none of the operators divulged additional information during the research process, they clearly see customer value in not delaying access to OTT services, and most likely, would pursue a strategy of migrating the customer onto their own RCS/RCS-e service once IMS/LTE has been deployed. This could, however, prove a risky strategy given that OTT service providers are developing a tried and trusted user community. An operator trying to migrate established Skype users onto its in-house OTT service would be the equivalent of an operator developing its own social network and targeting Facebook users, such as Tuenti in Spain or Vodafone 360.

47% of operators are rolling out IMS/LTE and will be able to offer unified communications by way

of RCS and RCS-e.

While every European country will see LTE rollouts, with some smaller operators opting to not deploy the network, the vast majority are already trialing LTE (see FIG 17):

• Our operator research reveals that presently almost 45% of European operators are rolling out IMS/LTE, compared to 100% in North America.

• Similarly, 100% of North American operators are partnering with OTT service providers, compared


and could unquestionably result in churn as users seek alternative operators that are responding to OTT in a more constructive manner.

The number of operators blocking OTT services has almost doubled from

5.4% in 2011 to 10.5% in 2012.

For example, the mobile operator research highlights that a little over 47% of operators are rolling out IMS/LTE and will be able to offer unified communications by way of RCS and RCS-e.

In Europe, Telefonica, Vodafone and Orange have all made commitments to RCS-e. Over one third of operators have launched their own OTT-based clients, and almost one-third of operators have partnered with OTT providers.

FIG 17 – WHAT ARE OPERATORS DOING TO COMBAT OTT CLIENTS?



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to around 18% of European operators. And the same number of European operators is looking to block or impose charges to OTT services.

25% of operators had a very similar dual OTT strategy: This was to rollout IMS/LTE to offer RCS/RCSe while also

partnering with OTT providers.

This perhaps most saliently highlights the power-shift occurring in the operator space. Operators are in a Catch 22 scenario; they are not in a position to prevent customer usage of third-party services where they do not participate in the revenue flow, as this would leads to a mass exodus of customers, leaving them with little option other than to provide access to these services.


│ PAGE 30

operators expecting revenues at the expense of voice and messaging.

mobileSQUARED forecasts that (see FIG 19):

• Off-net OTT communications will generate mobile termination and interconnect fee-based revenues for mobile operators of US$3.7 billion in

2012 rising to US$8.4 billion in 2016

• Messaging will dominate the revenue landscape over the forecast period, followed by off-net calls to mobile, while the contribution made to off-net fixed line calls is negligible.

• The cumulative total revenues from off-net OTT communications between 2012 and 2016 will be US$29.43 billion.

Off-net OTT communications will generate mobile termination

and interconnect fee-based revenues for mobile operators of

US$3.7 billion in 2012 rising to US$8.4 billion in 2016.

With off-net messaging traffic forecast to be worth US$2.93 billion in 2012, and US$6.4 billion in 2016, and OTT-offnet voice revenue worth US$805.5 million in 2012 and increasing to US$1.92 billion in 2016, only the most dynamic and far-reaching operators will be best-placed to capitalise on this opportunity.

Operators with the broadest reach in terms of roaming agreements will be well-placed to potentially

Can operators make money from OTT?

Almost 16% of operators believe they will generate incremental revenue from OTT services. However, two-thirds of operators believe they will make money from OTT services, but only at the expense of voice and SMS revenues. The remaining 21% of operators either believe operators cannot make money from OTT services or remain undecided (see FIG 18).

48% of operators believe it’s possible to generate revenue from

OTT services.

FIG 18 – CAN OPERATORS MAKE MONEY FROM OTT?

Less than 12% of European operators believe OTT services will generate incremental revenues, with almost 75% expecting revenues at the expense of voice and messaging. The remaining 13% of European operators do not anticipate OTT will generate revenues. It was a similar split across Asia, North America and Latin America, with the majority of


CAN OPERATORS MAKE MONEY FROM OTT?

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Can operators make money from OTT?

terminate the OTT off-net traffic, provided of course that they can accommodate the OTT-generated traffic.

FIG 19 – WHAT ARE THE OTT SERVICES THAT WILL GENERATE REVENUES FOR OPERATORS?

Operators with the broadest reach in terms of roaming agreements will be well-placed to potentially terminate the OTT off-net traffic, provided of

course that they can accommodate the OTT-generated traffic.

One solution to provide interoperability is to deploy RCS/RCS-e, which the majority of operators in the research confirmed they were doing. But this is a timely and expensive exercise, and in part explains why a large percentage of operators are exploring multiple OTT strategies.

One alternative option is to partner with a third-party

provider to mediate next-generation OTT originated traffic (messaging, voice and video) with mobile operators by converting it onto the SS7 network.

In this instance, OTT users are each issued with a mobile number to ensure two-way communication between their OTT provider and mobile operators. Such a solution overcomes the walled gardens that have been erected by the OTT providers and can be applied to any operator anywhere in the world.

One alternative option is to partner with a third-party provider to mediate

next-generation OTT originated traffic (messaging, voice and video)

with mobile operators by converting it onto the SS7 network.

Mobile numbers provide mobile operators with a compelling future-proof solution because they ensure interoperability with the inevitable emergence of new and even more innovative OTT service providers, therefore maximizing mobile operators’ revenue-generating potential from OTT off-net traffic.

CAN OPERATORS MAKE MONEY FROM OTT?

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Opportunities for operators

OTT services can only thrive in the mobile ecosystem by way of mobile operators offering affordable data packages to ensure an open internet experience for their customers. This threat is being compounded by the fact that in smartphones, the mobile industry has finally found a form factor and user interface that is not only compelling and intuitive, but has transformed the relationship between the phone and user. Consequently, in this ‘Fragmentation of Communication’ period, third-party providers are delivering services directly to consumers that are challenging the mobile operator hegemony.

Operators looking to rebuff this challenge by attempting to block OTT services to protect revenues, has to be perceived as a short-term strategy that will ultimately limit the revenue-generation possibilities for the operator.

Voice revenues have peaked and are now on a downward spiral initiated by commoditisation and more recently compounded by OTT services. Equally, messaging revenues have long been projected to decline by the analyst community, and have for the time being at least, resisted all downward overtures to date. But mobileSQUARED expects OTT messaging apps to finally stifle messaging revenue’s growth from 2013.

That means operator cash cows of voice and messaging are on the wane and every operator should be looking for new revenue generators. And falling within that category is OTT.

Mobile operators should view embracing OTT as a way of delivering a new incremental revenue stream

that will partially substitute the decline in voice and messaging revenues and will experience exponential growth in the long term. After all, consumers are embracing OTT services in their hundreds of millions – leaping to billions within a few years. It is consumers opting for multiple communication alternatives that have created this Fragmentation of Communication. This could open the door of opportunity for mobile operators who have the ability to bridge the OTT and mobile network divide through the provision of mobile numbers to each OTT user.

Embracing OTT should be viewed by mobile operators as a way

of delivering a new incremental revenue stream that will experience exponential growth in the long term.

TABLE 1 - OPPORTUNITIES FOR MOBILE OPERATORS

Options Short term

Future proof

Blocking OTT x

Retaining billing relationship/data charges

Create an app Partnering directly with OTT players

RCS-e/Joyn x 3rd party access to OTT via mobile phone numbers / share of revenues

OPPORTUNITIES FOR OPERATORS

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As Skype and WhatsApp have highlighted, users are attracted to free services. Skype’s business model has developed using the attraction of free on-net calls to then upsell users of cheaper off-net national and international calls – at present the conversion is around 10% of the total Skype user base. Most recently, the Microsoft-owned company has revealed that advertising will be introduced to on-net calls. How its users react to the news remains to be seen. While it monetises its on-net traffic, it could also be used as a tactic to drive on-net users into becoming premium paid-for customers. Clearly, a similar advertising-based strategy might be deployed on WhatsApp at some juncture in the future.

OTT services generally generate user traction by delivering a free service. But these will eventually require monetising, which means their model will adapt, and potentially undermine the user’s original perception of the service. Mobile operators can use this to their advantage.

In the short- to medium-term mobile operators should be looking to

provide customers with access to third-party OTT services.

Although mobile operators are in a reactionary mode to the challenge posed by OTT providers, they are well-placed to do so provided they are smart. For instance, they must first ensure that they retain the central billing relationship with the customer. Secondly, their global network must connect with as many fellow operators as possible. And lastly, mobile

operators must adopt a multiple OTT strategy to cover all bases.

By retaining the billing relationship, mobile operators will monetise the access to OTT services via data charges bundled within the monthly package.

By retaining the billing relationship, mobile operators will

monetise the access to OTT servicesvia data charges bundled within

the monthly package.

But this can be expanded by adopting a multiple OTT strategy founded on developing a long-term relationship with the customer.

In the short- to medium-term mobile operators should be looking to provide customers with access to third-party OTT services.

This can be achieved by launching their own version of an OTT service, such as Telefonica’s Tu Me app. While this strategy might limit the amount of users Telefonica could lose to a rival OTT service, it fails to present a compelling OTT off-net based revenue-generating model. Telefonica, as well as all operators interested in capitalising on OTT, should have complete interoperability secured with OTT service providers.


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Any such short- to medium-term strategy will provide sufficient time for mobile operators to deploy RCS/RCS-e, and then develop their long-term strategy to compete directly with OTT. In doing so, mobile operators can offer a long term proposition that provides the user with stability to a model they signed up for.

Regardless, whether short-term or long-term, mobile operators can only capitalise on the OTT opportunity by positioning themselves as the bridge between OTT off-net traffic and the mobile customer and by removing all walled gardens.

The use of mobile numbers enable operators to capitalise on the OTT

opportunity by tearing down the OTT walled gardens and providing

interoperability in the short term.

There are a number of routes available to mobile operators to achieve this goal and ultimately monetise OTT. RCS/RCS-e presents one option to address the required levels of interoperability, while another, which could be construed as both competitive and complementary, is the use of the mobile number. The advantage with the latter is that interoperability can be achieved almost immediately allowing the mobile operator to capitalise on the OTT opportunity and limit the damage of the inevitable decline in voice and messaging revenues almost overnight.



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ABOUT MOBILESQUARED

mobileSQUARED provides specialist research which enables brands, agencies and the mobile industry to increase engagement with the mobile consumer. We conduct primary research on the mobile industry and mobile consumers, with a focus on delivering exclusive forward-looking data on mobile device usage, mobile web, app and commerce trends and usage, and mobile advertising responsiveness to help clients identify and respond to fast-changing mobile trends. And for a wider view of the industry, we provide detailed mobile industry user and revenue forecasts. Our clients look to mobileSQUARED’s expertise to provide candid insight into the mobile market. We do this using our extensive global network of senior contacts to research, collect and collate the latest data, developments, trends and insight on an ongoing basis.

For more information: www.mobilesquared.co.uk

ABOUT TYNTEC

tyntec (www.tyntec.com) is a mobile interaction specialist, enabling businesses to integrate mobile telecom services for a wide range of uses – from enterprise mission-critical applications to internet services. The company reduces the complexity involved in accessing the closed and complex telecoms world by providing a high quality, easy-to-integrate and global offering using universal services such as SMS, voice and numbers.

tyntec enables mobile operators with the capability to quickly and easily offer telephony in the cloud for OTT services. Mobile operators can tap into OTT revenues by providing mobile numbers, traditional voice and SMS into OTT services. In this way, operators can access revenue share and termination fees from ‘off net’ calling, helping them to replace revenues lost to the growth of OTT.

Founded in 2002, and with more than 150 staff in five offices around the globe, tyntec works with 500+ businesses including mobile service providers, enterprises, mobile operators and internet companies.

For more information: www.tyntec.com

whitepaper: over-the-top (ott) services: how operators can overcome the fragmentation of...

Technology

ott research

orange uk

ott voice

ott services

vodafone uk

total ott subscribers

mobile calls

research process