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Operators: Leverage Advantages Over OTTs

Kevin Hertz

Few board members of mobile network operators would disagree that the single biggest problem they face is how to avoid becoming just the "dumb pipe." A transformational shift in the consumers' use of telecom services has left operators facing a real challenge in terms of adding value to service delivery.

Only a few years ago, the consumer had no choice. If you wanted to place a phone call, you picked up your mobile phone, dialed a number and paid whatever the operator demanded. Today's landscape is very different. Consumers have a plethora of choices for how they communicate via text and voice, and most of these are completely free due to the proliferation of OTT (over the top) services. Applications such as Skype, Voxox, Viber, Line and KakaoTalk can be downloaded and used for free, anywhere in the world with a data connection.

Operators need to accept that some revenue is lost forever to OTTs, and focus on ways to replace the income. They might be able to hang on to a small amount of it for a short while longer, but that's a losing battle. The only way operators can compete in this market is to also offer those services for free, but to do so with an unfair advantage -- adding value in ways that only the operator can.

The operator controls the network. It has a direct communication channel and billing relationship with the consumer. No other company or organization has those capabilities, meaning the operator can offer unique and differentiated services. Benefits with huge value-adds, including a true one-number service, the ability to offer unparalleled quality of service across their data network and the only true carrier-grade calling solution. And the operator is already billing the user, so as long as they can come up with new services that the user is willing to pay for, a charging mechanism is already in place.

Operators need to innovate. They need to leverage consumers' love of content. The amount of money being spent today on virtual goods is astounding. Some examples:

  • The LINE app out of Japan provides free calls and messages, as well as the ability for users to create and sell virtual stickers. Since its June 2011 launch, LINE's Creators’ Market has earned $11.6 million, in part because of its sale of stickers.
  • Between March and June 2014, profits increased 50% for China's Tencent Holdings mainly because mobile game use skyrocketed.
  • Gaming drove nearly $450 million in additional annual revenue for the social networking and messaging app KakaoTalk.

The OTT phenomenon is playing out in the business world, too. Nearly every business telephony provider -- from LECs to CLECs -- now offers an OTT mobile solution. Typically these center around a mobile or web app that serves as a VoIP softphone using WiFi, 3G and 4G rather than circuit-switched cellular voice. That architecture enables those wired providers to capture a share of the mobile voice market without the cost of building a mobile network or sharing revenue with a mobile operator -- yet another example of why OTT keeps mobile operators and their investors up at night.

Just as important, these apps, such as Cloud Phone, Phone.com, Grasshopper and others, also extend formerly office-bound PBX services out to smartphones and tablets, such as extension dialing, voicemail transcription and call/bridge recording. For SMBs and large enterprises, these OTT solutions are attractive because they enable mobile employees to be more productive, such as by eliminating phone tag. In some cases, these solutions also eliminate the need for desk phone hardware and services, for an annual savings of hundreds of dollars per employee.

How can mobile operators avoid becoming marginalized by consumer and business OTT providers? One way is by leveraging the relationship that comes with providing the service that OTT services ride on. That relationship enables mobile operators to have deep, unique insights into customer behavior. Those insights in turn enable big data analytics to identify opportunities to upsell customers.

For example, analytics might show that some customers are heavy data users until about halfway through their monthly cycle, when they start cutting back because their bucket is running out. The operator could offer those customers a WiFi hotspot roaming add-on so they don't have to cut back usage. The operator benefits both from the additional revenue and from the use of WiFi, where its cost to deliver service is significantly lower than with cellular.

Spotify is an example of how mobile operators are increasingly finding ways to turn OTT from a problem into an opportunity. Vodafone Group plc (NYSE: VOD) is among more than 25 operators that offer Spotify to their customers, such as by bundling it into an add-on. The result is rather than pointlessly looking for technical and other ways to dissuade customers from using OTT services, savvy mobile operators are leveraging them to drive additional revenue.

For those operators and their investors, that means nightmares about becoming the "dumb pipe" won’t keep them up at night.

— Kevin Hertz, CTO and Co-Founder, Voxox

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