Editor’s Note: Welcome to our weekly Reality Check column where C-level executives and advisory firms from across the mobile industry share unique insights and experiences.
Convergence in telecommunications is blurring the traditional lines between competitors and collaborators. Communications service providers today face not only traditional foes, but also new challengers including device manufacturers, retailers and more. All the various entrants have the same end goal – owning the customer experience.
CSPs generally continue to be engaged in virtually every customer-facing transaction from mobile payments to advertising. However, the new players are providing options even in areas once considered core businesses for CSPs, such as voice, messaging and data. A new market landscape necessitates a new navigational approach to that landscape. Today CSPs have two options – compete or cooperate. Each option has its merits and its challenges.
Core services under attack
Traditional revenue models for CSPs relied heavily on voice and text messaging as chief income streams from the average customer in developed nations. However, this revenue projection predates the entry of these new non-traditional players as market forces. Apple’s iMessage is carving into the SMS space, and the WhatsApp Messenger is reported to be the home of more than ten billion messages per day.
Any remaining adherents to the notion CSPs must hunker down and focus only on voice service to remain competitive should first consider that in June 2012 Skype announced passing 70 million downloads – just on Android devices alone. Microsoft recently shared that Skype users logged 115 billion minutes of calls in one quarter.
So, choosing not to change or to ignore the new competition is a flawed strategy. What’s a CSP to do?
Customize the change
Accepting that over-the-top services are here to stay, CSPs must develop the appropriate strategy to address this new reality. They should start with the end goal in mind; be it incremental revenue gains in specific customer segments or improving data-driven micro targeting of customers; and adopt the approach that will always be guided by the goal of achieving that objective.
They should also be mindful that what’s right for one market may not be the best approach in another. For example, a solution for a prepaid-dependent operator in a maturing market may not work for one with a global footprint. Also, each country has specific rules governing how companies can partner, pricing regulation, and even technology infrastructure differentials.
The answer will not be one-size-fits-all, and it will not be found on any shelf.
Consider competitive pricing models
In light of evolving consumer behavior, some CSPs are increasing allowances for voice and SMS and lowering data levels in their customer plans. Consider Verizon Wireless, which launched Share Everything postpaid plans with unlimited talk and text, that moves almost all monetization from traditional revenue points to data use.
The benefits of these pricing actions are at least twofold: besides adapting to the changing customer patterns, it also reduces the attractiveness of the offering of a new entrant providing voice or SMS service free or cheaply.
Coupled with quality of service issues, potentially lower security levels and other concerns, this shift may swing the pendulum back to the CSPs and marginalize the secondary service providers.
Compete with OTTs directly
Some CSPs have been innovative and created their own OTT applications. T-Mobile US, for example, has developed Bobsled, an Internet-based messaging and calling service app that runs on any carrier. It has already exceeded one million users in a little more than one year, and as such has achieved the critical phase of mass adoption in order to be useful.
CSPs can also consider acquiring an OTT player. This eliminates development cost and time, and in addition to the offering comes the purchase of expertise and capabilities. Forward-looking CSPs are always looking for ways to combine the product offerings of existing companies with their own to launch entirely new undertakings such as in-home video services, or even smart homes, remote security or remote health monitoring.
If you can’t beat’em, join’em
CSPs have developed a number of different models for partnering with the likes of Skype and WhatsApp. Sometimes several partners can be involved in one single undertaking. For example, in Hong Kong, services such as DiGi and 3 Hong Kong have partnered with WhatsApp locally to have a small fee structure attached for their users, generating revenue under a variety of different packages. In Japan, KDDI benefited from the partnership with Skype because it enabled the CSP to target younger tech-savvy customers. In Russia, Skype and Mach have entered into an agreement to share credit revenue, improving outreach to new customers in that growing market.
Choosing the best option
Generally speaking, collaboration may prove the most viable long-term solution because it can provide a wider range of services and attract customers.
In cases where head-to-head competition is considered, CSPs must factor in billing, payment, location services, research and development costs, marketing, and as mentioned local legislation into the campaign strategy. However, these can all, in the right circumstances, be favorable scenarios for CSPs to take to competition.
Regardless of the path CSPs choose, it’s clear that OTT services are here to stay. The inescapable reality of convergence provides challenges, but also opportunities. Growth, and ultimately survival, is only available to the companies that understand the landscape and map their path to the future accordingly.
Tom Loozen is managing director – Global Communications Industry and EALA Communications Industry lead, Accenture; Geoffroy Descamps is manager, Communications, Media and Technology strategy, Accenture
