Over the past couple of years, we have seen rapid growth in the mobile app market. The reason for that can be found in consumer demand for high speed mobile internet and the increasing penetration of affordable smartphone devices. Telecoms were in an unfavorable position, endangered by fast paced and lean “virtual” competition. Competition which was not bound by regulation, country borders or coverage, and telecoms needed to react fast. Since 2008 when Apple introduced the App Store, telecom operators have tried a number of approaches in how to deal with the threats from OTTs and how to compete with them. Now, after 5 years it has been seen that proprietary new OTT service development was just too slow. After many futile attempts to squeeze OTTs out, telecoms are coming to the conclusion that this is not a zero sum game, and instead of mutually competing, both should focus on their own strengths and find a way to coexist.
Discovering new revenue streams from the adjacent markets by leveraging existing assets
Faced with declining ARPU and revenue (voice and messaging revenue is estimated to drop 20% - 28% due to OTTs by 2018), operators realized that focusing only on the current portfolio would not save the margin; which they were used to. The need to look beyond existing products and services emerged, and finding new revenue streams became one of the top priorities for many CEOs.
The main assets that telecoms could use in the battle with OTTs are their existing assets. Telecoms have a broad customer base as well as a deep knowledge and understanding of their customers. Telecoms have an in depth knowledge of their customer’s lives, archetypes and how they interact with one another. Using these assets in combination with powerful CRMs, new business opportunities can be scaled up and telecoms can, in fact, extend the life cycle of those assets. If successful,, they would highly increase their ROI.
The natural position for telco operators is to not be outside of the customer’s home as retailers or banks are. Telecoms are in the customer’s house via services such as fixed line, broadband or IPTV. Telecoms are actively participating in their customer’s lives. Being in the position of “owning the home” allows them to claim ownership of the other in-home services and look for new business opportunities in adjacent business areas.
Expanding the horizon for new business will indubitably help to preserve service which are currently declining. By locking customers within the same ecosystem, the customer is less likely to turn to other telecommunication operators.
Reclaiming the position of technological leaders and internalizing entrepreneurship
Threats posed by OTTs have caused telecoms to go back to their roots and to become technological leaders, as they once were.
To be able to stand toe-to-toe with technologically advanced OTT’s, telecoms needed to become faster than they were used to being. Development and the deployment of new services needed to become a recurring activity, instead of a one time occurrence. Telecoms usually need more than 12 months to bring a new product or service to market. Partnering with leading development agencies and outsourcing the process of closing the “build-measure-learn” loop is a good short term strategy;this can bring a new product to market within 3 months.
For operators which are thinking long term, it is important to ensure that the organization is able to take on and support such fast paced teams in house. Participation in various startup conferences and competitions should not only serve the purpose of brand building; these events attract the best and brightest in the industry and telecoms should find a way to bring them in house. The acquisition of successful developers fosters entrepreneurship and has already produced great results for leading companies.
What most successful telco operators are learning is that by competing with OTTs, no one wins; instead, successful companies have developed a model in which both parties benefit from the current situation and together offer the best service for customers.
Great customer experience as a main differentiation
Compared to OTTs telecoms have realized that they are in a position where they know their customers extremely well and that this is where their main strength lies. Superb customer service and experience is what they bring to the table.
Initiatives such as creating proprietary pre-installed app stores have not proven as successful as telecoms had first predicted. Customers are overwhelmed by millions of apps, and their problem is not the inability of these apps to solve their problems, rather quite the opposite; customers want someone to curate the assortment of apps and suggest the best opportunities for them. In this case, the quantity of apps provided takes a backseat to both the quality of the apps suggested and a well rounded experience.
The seamlessness of the experience across the various screens and platforms is more important than ever. Various apps, web sites and other services are charging for premium content. The process of paying with credit card is not user friendly when using mobile phones, and therefore prevents customers from shopping on their mobile phones. Telecoms can position themselves in the spotlight of this ecosystem by becoming the provider and facilitator of micro payment solutions. Combining direct carrier billing with pay-as-you-go on telco invoices , or bundling this service with existing telco services is just the tip of the iceberg. These changes would more than fill the gap that the 28% of declining revenues will create. Such integration would create an environment where telecoms and OTTs cooperate and, consequently, increase customer satisfaction through providing a solution enabling the painless purchase of goods and services.
One of the main areas where telecoms are outperforming OTTs is in customer support. Customers are used to speaking with the telco’s call center agent regarding any question or difficulty they may have. In the case of OTTs and their apps, customers are left to search for a solution to their problems on various forums and FAQs. This problem is even larger for business customers whose time is wasted searching for solutions; this lost time is lost money. Those customers are searching for a partner who can provide them SLA for OTT services and ensure that their business will not suffer.
After wandering initially, successful telecoms are converging on the right path
Telecoms are experimenting with various business models in the hope that they will find the perfect fit for their specific case. Only a select few posses a deep understanding of where their strengths lie are are able to grasp the needs of the market.
The recent example of Telefonica investing $25m in everything.me proves a great example of a telco understanding that the in the pursuit for growth, there is a need to search beyond the existing portfolio. Everything.me positions itself directly in the crossroads between apps, HTML4 and cloud computing. That position has been recognized by Telefonica and if successful, everything.me will have a great service to offer customers.More importantly, Telefonica will own a powerful technology which could be licensed to OS and OEM vendors.
Since the 1980’s Orange has started several startup innovation initiatives in the struggle against becoming obsolete in the fast changing digital environment which they are part of. Through the years, Orange and most of the other telecoms have been searching for the next big thing, but the pursuit of the next Facebook or Google has proven futile. That’s why Orange has made a step which leverages the advantages of VC funding. Orange’s €300m VC fund invests in the most promising startups on the market, and in return, Orange has the possibility to assimilate the startups for use in their products as they see fit. Most importantly, such a fund gives Orange opportunity to be in the driver’s seat of technological development making them more able to adapt to the ever changing market.
Cooperation between the music streaming service Deezer and Deutsche Telekom has proven itself extremely lucrative as it has allowed DT to position itself as a operator which is aligned with market trends. DT recognized the potential of the Deezer platform and instead of building its own platform and competing with Deezer, they decided to partner with them. Having a deep understanding of where their strengths lie, DT now offers a music streaming service to their existing customers as a part of their subscription, or as a VAS, depending on customer type. Customers are now this enjoying premium service for fraction of cost while enjoying the perks of DT customer care and the ease of having this service billed to their normal telco invoice. The monetary and non monetary return, for the both DT and Deezer, has proven to be very high.
Start at the customers and then reach out to the ecosystem
Most successful telecoms now are coming to understand the complexity of the mobile app ecosystem. After initial resistance, they are observing that the market is not a zero sum game and that there is high potential in partnering with OTTs. Each and every telco operator starts from a different position and has different strategic goals. Finding new revenue streams, leading the market in technological development, or providing the best customer care to their customers can all be achieved if situation is approached correctly. Trying to copy the successes of other telecoms is not the smartest path to take. This path could lead to a gradual displacement and loss of much more than simply the predicted 28% of voice & messaging revenues by 2018. . Instead , telecoms need to understand their customer’s needs , where their strengths lie and how to leverage the opportunities available in the ecosystem.
 Report: The Future Value of Voice and Messaging, Telco 2.0