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Carriers Look to OTT, Apps to Offset Losses

Gerri Kodres
12/2/2015
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At the end of last month, the European Parliament decided to abolish roaming fees in Europe starting from June 2017. According to a report in the UK national newspaper The Telegraph, the removal of roaming charges could wipe 2% off mobile operators' revenues. While a loss of this size may not be an existential issue for carriers, it does illustrate the general trend of mobile operators coming under increasing pressure. (See Eurobites: Dunroamin'.)

Video and music streaming, social network usage and IP-calling are growing. As a result, mobile data consumption is in exponential growth. This requires telecoms to increase investments into their network infrastructure. At the same time, the prevailing digital ecosystem model generates no profit to carriers. Services such as Skype Ltd. , WhatsApp and Facebook Messenger are eating into existing carrier services. As a result, the global telecom industry's ARPU declined by 4.5% last year with the trend expected to continue.

There are a few ways to bring back some of the lost revenues to carriers and avoid becoming a "dumb pipe." One option for carriers is to work together with the app stores and OTTs. This will bring value to everyone involved:

  • Carriers: additional revenue
  • App stores and OTT providers: reaching new customers who don't have credit cards
  • End users: getting access to the most convenient online payment method available

But during the last few years, the market has changed. Now major app stores have rolled out carrier billing. Google Play and Microsoft Corp. (Nasdaq: MSFT) now each support 35 countries. Apple Inc. (Nasdaq: AAPL) just deployed its first installation in Germany. Additionally, many top social, gaming and security segment brands have started to use carrier billing. But the opportunities do not stop there. Looking at the projects we have recently been working on, there is a long path of growth ahead in segments such as:

  • Topping up digital wallets
  • Enabling consumers access to top video and music streaming services
  • Charging up virtual credit cards
  • Physical services (ride-sharing, parking)
  • E-commerce

So far, few carriers have expanded into these areas. European telcos lead the way here, a good example being Swisscom AG (NYSE: SCM). We are also seeing carriers in Asia and the Middle East expand their presence in new segments. They are able to do so thanks to the availability of direct carrier billing and commercials that are suitable for new segments. If mobile operators can provide these, new industries open up for them.

Another important aspect to consider in providing payments is legislation. The new European Payment Services Directive supports mobile operators. Mobile operators do not need to apply for an e-money license or become a payment institution. Consumer spending with carrier billing in these new segments generally falls below 300€ per month, making it exempt from the PSD.

With telecommunications revenue declining in the traditional service segments, it makes sense for carriers to look at new growth opportunities. Payments are one such area where telcos have a head start and can take advantage of this position.

— Gerri Kodres, Chief Business Officer, Fortumo

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