Protecting telco revenues against the OTT threat

08 July 2014 | Alex Kinch

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Alex Kinch

Blog Author | Ziron; CEO


There have been a number of reports in recent months spelling doom for mobile operator profits, and the majority of these have cited the increasing popularity of OTT voice and messaging apps as the biggest threat.

There have been a number of reports in recent months spelling doom for mobile operator profits, and the majority of these have cited the increasing popularity of OTT voice and messaging apps as the biggest threat.

One such announcement that really should have been prefixed with “get a stiff drink ready” was the news from Ovum that telcos are losing an estimated $386 billion in revenue to OTT providers like Skype and WhatsApp.

Apple’s iMessage has already played a huge part in the reduction of SMS traffic and now with WhatsApp planning to launch voice services, expect to see that traffic continue to fall. However, we should not lament the march of progress. Telcos have had a long time to come to terms with these threats to their revenue – at the end of the day if a consumer can get something for free, then they will. It isn’t a surprise. The key issue here is how to respond to the change in the market and protect revenues.

Let’s start with SMS. Person-to-Person (P2P) SMS may be falling, but Application-to-Person (A2P) is on the rise and is a huge revenue generation opportunity for operators. In years gone by, A2P SMS was strongly associated with marketing spam and (quite understandably) actively discouraged by the mobile networks. Now there is a huge amount of good, transactional A2P SMS traffic that consumers want – like one-time passwords, banking and financial alerts, and appointment reminders.

A2P SMS is growing at a phenomenal rate; Juniper predicts A2P messaging would be worth nearly $60 billion by 2018. As operator ARPU is being squeezed, the growing revenue stream around A2P SMS could really help the operators’ bottom line. The key is to act fast, encouraging and monetising this increase in valuable A2P SMS traffic.

Now to the thorny topic of OTT VoIP apps, or mVoIP, depending on which acronym you prefer. The fact is that telecoms has evolved. This doesn’t mean traditional telcos should write off their legacy voice networks and plough millions into building an mVoIP copy; after all, by the time it’s ready, there will be another “big thing” and there will be an even bigger black hole in the accounts.

Instead, operators must embrace this evolution and play their part by bridging the world of the PSTN with OTT voice services. There are already great examples where traditional players are actively partnering with app makers – such as the relatively recent partnership between Telefónica Group’s German mobile operator E-Plus and WhatsApp. There are also trials underway involving OTT app providers and major wholesale voice players, whereby calls from the PSTN made to the user's regular mobile number can be intercepted and delivered to the app via WiFi, 3G or LTE data, instead of via the traditional voice channel. Revenue is shared and everyone wins, including the customer.

In the grand scheme of things, these OTT services are still in their infancy, which means there is a huge opportunity for operators to help define the trajectory and the potential partnership parameters. But actively ignoring, or trying to beat these innovative companies at their own game, will result in even more revenue loss. It’s time to evolve with the industry and think differently about tomorrow’s profit opportunities.