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MTS Opts for OTT Over ObsolescenceMTS Opts for OTT Over Obsolescence

Russia's biggest telco is touting the attractions of its just-launched OTT service over those of its web rivals.

Iain Morris

December 23, 2015

5 Min Read
MTS Opts for OTT Over Obsolescence

"I am not afraid of cannibalization. But I am terrified by obsolescence," says Dario Betti, the director of product development and services for MTS.

Russia's biggest operator, and one of the main players in eastern Europe and Central Asia, Mobile TeleSystems OJSC (MTS) (NYSE: MBT) recently launched its own over-the-top (OTT) service in a riposte to web players like WhatsApp and Viber, whose popularity has been widely blamed for the erosion of traditional telco revenues. Embracing the OTT phenomenon entails risk for any operator. But as Betti makes clear -- in a refreshingly candid take on the motives behind the MTS move -- resisting it was simply not an option.

"People have dramatically changed the way they communicate with each other," he says. "We need to understand these changes and adapt to the new needs of our clients." (See Eurobites: Orange in M&A Talks With Bouygues – Report.)

Based on the Rich Communications Services (RCS) platform that has been heavily sponsored by the GSM Association (GSMA) , a lobby group for the telecom industry, the MTS Connect service -- as it is branded -- is intended to let customers make calls, send messages and share files much as they would in a traditional OTT environment. The service became available on Android and iOS handsets to customers in Moscow earlier this month, and MTS plans to introduce it to other parts of Russia and Central Asia next year. So far, it has spent about 100 million Russian rubles (US$1.4 million) on servers and network upgrades for MTS Connect, and on developing the app itself.

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MTS naturally has high hopes for its latest offering, and yet RCS technology has taken plenty of flak over the last few years. In a blog published in May, Dean Bubley, the founder of market research firm Disruptive Wireless, reckoned the service probably had fewer than 20 million customers globally at that time, even though it has been launched by a substantial number of operators, including giants such as Spain's Telefónica . Lambasting RCS for its complexity and a range of other perceived shortcomings, Bubley -- who has covered this topic in greater depth than most other analysts -- said there was no clear reason why a customer would switch from a service like WhatsApp to an operator's RCS offering.

MTS, however, thinks customer frustration with web services is growing, presenting a big opportunity to MTS Connect. "Customers enjoy the convenience that these services have brought, but they are starting to get frustrated because of the fragmentation of their conversations," says Betti. "You need to have multiple apps to speak with all your contacts [and] then you might even forget where your conversation is."

Next page: Overcoming frustration

Overcoming frustration
The operator's RCS offering is supposed to address those frustrations by integrating the OTT features with traditional calling and text-messaging services. Instead of navigating through a particular app, a customer should be able to access chat, file-sharing and other functionalities by using what Betti calls the "standard green button" on a device. The pre-installation of MTS Connect on some handsets could also help to reduce hassle for subscribers.

MTS also claims to be responding to customer demand for better indoor coverage with the RCS product. "With MTS Connect you can send and receive calls and messages on WiFi even without 2G, 3G or 4G network coverage, so our customers can get crystal clear reception in every corner of the building," says Betti.

Few if any of these selling points seems likely to win over Bubley of Disruptive Wireless, however. "Users like fragmented communications experiences for many reasons -- we see people happy with five, ten or more 'messaging' or social apps," he wrote in his May blog. Bubley also sees no obvious "business model" for RCS.

Indeed, because MTS Connect will be available through the Russian operator's integrated voice and data tariffs, there does not appear to be any revenue upside to the service. Even if it does lure customers from WhatsApp, Viber and other Internet telephony and messaging services, MTS has already been able to limit the cannibalization of voice and text-messaging revenues by overhauling its pricing plans. "Our traditional telephony tariffs already include a very strong free on-net element, so you could say that we have already moved to an OTT-like model, even in non-IP communication," says Betti.

Nevertheless, whether or not RCS technology is the answer, operators do risk becoming obsolete -- or, at least, increasingly irrelevant from a services perspective -- if they do not adapt their offerings to the new Internet reality. And there are some encouraging signs for RCS supporters. "We are working with leading devices vendors and chipset makers and are happy to see Google's support for RCS after its latest acquisition of Jibe Mobile," says Betti. (See Google Acquires Jibe to Bring RCS to Android and Dutch Telcos Take Lead on OTT Transformation.)

A Silicon Valley-based startup, Jibe Mobile aims to assist operators integrating RCS into their services. Its takeover by Google (Nasdaq: GOOG) in September could potentially address one of Bubley's May concerns that RCS was then "only half-heartedly" supported by the search-engine king. A broader device ecosystem for RCS could also spur adoption.

Ultimately, the prospects for RCS and, more specifically, MTS Connect could hinge on their future adaptation and ability to fuel interest in other telco-generated products. "We intend to make RCS a platform to discover more services from MTS and our partners directly in their conversations," says Betti. "Voice and texting are strong tools for customers to take control of their smartphones, but not much has been done with them yet."

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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