"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.
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