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Apps and Ops - Friends or Foes?

Exploring the opportunity presented by OTTs

OTTs may be the customers' friends but they're a burden to revenue-stricken telecom operators who have watched these small players evolve into a major threat to their existence.

The impact of OTT players is spreading throughout the telecom value chain, adversely impacting traditional operator revenues, particularly in certain markets and age groups. Free from the constraints of expansive overheads, they're adaptable and willing to experiment. This has often culminated in innovative services which are superior to what operators can offer. In the US and top 5 EU countries, IP messaging penetration of smartphones now averages 35% [1] and Strategy Analytics predicts that operators could lose over $3 billion in mobile messaging revenues alone in the next five years[2].

Let's just remind ourselves of what OTT stands for: Over The Top. These players are operating above the realms of traditional distribution, and the only benefit they give to operators is revenues from data usage. Whilst a percentage of operators are satisfied with this role, given they provide a reason for customers to buy bandwidth, for others, it's seen as far from a symbiotic relationship.

However, that does not mean operators can never generate considerable revenues from OTTs. Beyond being a very effective channel to the market, operators possess attributes OTTs need in order to make their market profitable: scale of subscriber base, established customer and billing relationships, comprehensive customer insight, access to network as well as advanced back-office systems in which most OTTs struggle to invest or lack the expertise to operate. At present, the OTT market is rich in innovation, but lacks a prevailing business model. Therefore, there lies an opportunity for operators to support this industry by providing marketing, billing and distribution.

In recent weeks we've seen the formation of several ‘app and op' partnerships: Deutsche Telekom and Twitter, Telecom Italia and Amazon, VimpelCom and WhatsApp. These partnerships share a similar foundation, being ‘strategic' deals designed to increase usage for both parties. For example, DT's deal will see its customers being able to access Twitter from their home-screen, whilst the benefit for DT is heightened data usage and preferred partner status. However, it seems the potential to develop (potentially) lucrative partnerships has not yet been fully tapped.

Why? Well, one factor is the complexities inherent, for both parties, in developing such partnerships. At present, there is a lack of an IT enabled collaboration platform which can get rid of several operational complexities involved in executing telco-OTT partnerships of various forms and sizes. Such a platform enables operators to open up their back-office OSS/BSS systems to OTT players. This would radically simplify the process of creating ‘mash-up' products (i.e combination of telecom and OTT products), and also enable scalability.

Operators need the revenue potential of the digital economy to maintain profitability. OTTs require a trusted relationship with customers and a channel to market that promises massive scale. Apps and ‘ops' (i.e Operators) may have sometimes been foes, but in order to fuel future growth they need to become friends. A platform which vastly simplifies the creation of such partnerships would cement this friendship and expand the benefits available to both parties.

  1. Analysys Mason, ‘Digital economy strategies: new revenue streams, new operations' webinar, November 2013
  2. Strategy Analytics ‘A Vertical View of Mobile Messaging Apps', October 2013.

More Stories By Claire McMahon

Claire McMahon is the International Telecom Analyst at AsiaInfo-Linkage, the supplier of the world's most advanced software solutions and IT services to the telecommunications industry.

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