Rcs flexibledeploymentoptionsdrivessuccess-openmindnetworksyankeegroupwhitepaper-130625091234-phpapp01

April 2013

Declan Lonergan, Vice President, [email protected]

Flexible Deployment Options Drive RCS Rollouts and Success

This custom publication has been sponsored by Openmind.

TAble of ConTenTs

Operators Face Major Challenges 1

How Should Operators Respond to the OTT Threat? 3

MNOs Understand the Threat 5

RCS Momentum Is Building Steadily 6

MNOs Must Get the RCS Proposition Right 6

Flexible Deployment Options Are Critical 7

Conclusions and Recommendations 9

operators face Major Challenges

Mobile network operators (MNOs) have experienced a period of dramatic growth during the past 10 to 15 years. The global mobile services market increased in value from U.S.$443 billion in 2003 to exceed U.S.$1 trillion in 2012. But the period of dramatic growth has come to an end in most regions, and today MNOs face difficult challenges on multiple fronts:

Competition• is intensifying in several markets, particularly at the low end where mobile virtual network operators (MVNOs) are increasingly active and are creating tougher price-based competition.

Regulatory measures• continue to erode MNOs’ top lines. This is most notably in the form of reduced mobile termination rates (MTRs) and tougher international roaming regulations. The combined effects of these different regulatory measures will continue to negatively affect operators’ revenues for the next few years.

Handset and OS vendors• including Apple, Google and Samsung have increasing influence within the mobile ecosystem. Though these companies have introduced much-needed product innovation, their dominance is leading to MNOs becoming a secondary consideration in some customers’ mobile purchase decisions. The end result is that operator brands struggle to compete with handset brands for customer loyalty.

IP-based communications• has emerged strongly during the past two to three years. This has created a new category of competitors for MNOs in the shape of so-called over-the-top (OTT) communications apps, and the list grows longer with each passing day. Examples include Skype, Facebook Messenger, WhatsApp and Viber.

One of the consequences of these trends is that mobile operators’ average revenue per user (ARPU) is under intense pressure. As shown in Exhibit 1 on the next page, mobile ARPU is now either declining or flat-lining in most regions, and Yankee Group is forecasting a relatively flat outlook through 2016.

Flexible Deployment Options Drive RCS Rollouts and Success April 2013

Page 2© Copyright 1997-2013, Yankee 451 Group, LLC. All rights reserved.

oTT Is the Greatest Threat

Of all the issues listed above, the growing popularity of OTT communications is the most significant and immediate challenge facing MNOs. Yankee Group’s recent consumer surveys reveal why MNOs have good reason to be concerned. Consumers are using OTT communications services in increasingly large numbers. As shown in Exhibit 2, almost half of European mobile phone owners and two-thirds of tablet owners are using an OTT messaging app, and these figures have inevitably increased further since the survey was conducted in the summer of 2012.

exhibit 1: Mobile ARPU Growth Proves elusiveSource: Yankee Group’s Global Mobile Forecast, December 2012

60

50

40

30

20

10

020132012201120102009 2014 2015 2016

USD

per

mon

th

North AmericaLatin AmericaEuropeMiddle East & AfricaAPAC

Mobile ARPU

exhibit 2: oTT Messaging Use Is Already Well-establishedSource: Yankee Group’s European Consumer Survey 2012

Have you used any of the following services to communicate on your mobile device or tablet in the last year? (Please select all that apply.)

(n=722 for mobile device users and n=148 for tablet users)

Facebook Messenger

WhatsApp

Skype

Google Talk

Viber

BlackBerry Messenger

Apple iMessage

KakaoTalk

TU Me

None of these

27%45%

20%38%

16%19%

8%18%

7%15%

6%11%

6%9%

2%9%

2%8%

56%36%

Mobile Phone

Tablet



Core Voice and sMs Are on the Wane

This increased use of OTT services is certainly not all complementary to use of traditional mobile communications services. In our consumer research, we see a noticeable shift in SMS usage patterns. In our 2011 European Consumer Survey, 55 percent of respondents were using SMS on a daily basis. One year later, in our 2012 survey, this figure had declined to just 45 percent. We can also observe the effect OTT services are having on MNOs’ businesses by examining trends in their service revenues. As shown in Exhibit 3, on a global scale, traditional mobile voice and messaging revenues peaked in 2011 and have been declining ever since. We are forecasting continued erosion of this revenue base through 2016.

exhibit 3: Mnos’ Traditional Mobile service Revenues Are being erodedSource: Yankee Group’s Global Mobile Forecast, December 2012

How should operators Respond to the oTT Threat?

As they contemplate how to respond to the OTT challenge, MNOs essentially have four options. They can:

Bury their heads in the sand. • MNOs can try to ignore the OTT issue completely, but this approach will ensure they are relegated to the role of connectivity provider. They will play no meaningful role in delivering advanced communications services to their customers. As a result, they run the very real risk of being dragged into an all-out price war that is characteristic of most highly mature markets where differentiation and innovation are absent.

Develop their own OTT services.• Some operators have decided to launch their own IP-based communications services—for example, Telefónica’s TUMe and TUGo apps, which were introduced by the company’s Telefónica Digital unit, and Orange’s Libon app. This approach puts MNOs in direct competition with specialist OTT players, which means they are essentially competing on features and customer reach. But by launching their own apps, MNOs are at least ensuring they remain relevant in IP-based communications. They will also have opportunities in due course to integrate these OTT services with traditional communications services and with those based on the Rich Communications Service (RCS) standard.

800,000

600,000

400,000

200,000

0

Mill

ions

of U

SD

Traditional Mobile Service Revenues (Global)

20132012201120102009 2014 2015 2016

Messaging

Voice



Partner with OTT players.• It’s relatively early days for this category, but we do expect to see more experimentation and partnerships being developed. MNOs can bring value to OTT companies through initiatives such as zero-rating of access, provision of billing capabilities, and potentially also guaranteed quality of service (which will be subject to regulatory approval in local markets). Yankee Group does expect to see more MNO/OTT partnerships over the next two to three years, not least because the OTT players will themselves be obliged to seek differentiation from their peers in the crowded IP communications marketplace.

Commit to RCS.• The fourth option available to MNOs is to develop their own advanced communications services. RCS is the standard through which MNOs can deliver customer experiences beyond traditional voice and SMS. RCS supports a range of advanced features including instant messaging or chat as well as live video and file sharing. A key feature of RCS is that these services and features can be supported on any device or network and can be integrated with the enabled contacts in customers’ address books. By committing to deploying RCS, MNOs can ensure they play a central role in delivering advanced communications services to their customers, and therefore avoid the prospect of becoming nothing more than connectivity providers.

In reality, we expect most MNOs will pursue a multi-pronged approach to addressing the OTT threat, working on the second, third and fourth options outlined above. Whatever they choose to do, MNOs must ensure they remain relevant in the delivery of communications services. Yankee Group believes they can and should follow multiple paths to enriched communications, and RCS should form at least part of that strategy.

Understanding the Mno Viewpoint

To explore this issue further, and to better understand MNOs’ attitudes toward OTT and RCS, Yankee Group conducted a survey of nearly 30 operators. The following are some key features of the survey:

The research was completed in March 2013 using an online methodology.•

Respondents came from Europe, North America, Asia-Pacific and the Middle East.•

All respondents had influence over operators’ RCS decisions.•

Respondents’ job functions were mainly product management, strategic planning, • marketing and IT.

The key areas we wished to explore via the survey were MNOs’ attitudes toward the OTT threat, their status and plans for RCS, and their opinions on different deployment options. In this whitepaper we share the findings from the survey and discuss the implications.



Mnos Understand the Threat

The first key conclusion we can draw from the research is that MNOs are certainly concerned about OTT. As shown in Exhibit 4, more than two-thirds of respondents in our survey believe OTT is already negatively affecting their business.

exhibit 4: Mnos Acknowledge oTT services Are negatively Affecting Their businessSource: Yankee Group’s Mobile Network Operator RCS Survey, March 2013

The first step toward finding a solution to the OTT challenge is to accept the scale and immediacy of that challenge. The rate at which OTT services are being adopted by end-users and the nature of the threat to MNOs’ traditional service revenue does vary by market. In countries including Spain, the Netherlands and Korea, to name just three, MNOs have already reported significant negative effects on their business. Based on the findings from our MNO survey, we believe it’s just a matter of time before similar effects are seen in almost all mobile markets. At least it’s encouraging to see that the operators that participated in our survey acknowledge the challenge they’re facing.

RCs Can Help but Time Is Running out

Next, we asked the survey participants to indicate the extent to which they believe RCS can form part of the solution to the OTT threat. As shown in Exhibit 5, almost 80 percent expressed support for RCS. Among the individuals we surveyed, there is a consistent and strong view that it can help them respond to the OTT threat. Because the survey participants are all involved in RCS decision-making, we did expect a relatively positive outcome on this question. Nonetheless, the scale of the support was impressive.

exhibit 5: operators believe RCs Can Help Them Address the oTT ThreatSource: Yankee Group’s Mobile Network Operator RCS Survey, March 2013

To what extent are OTT IP communications apps affecting your company’s traditional mobile voice and messaging revenues?

(Examples of these include WhatsApp, Skype, Viber, etc.)

Significant negative effect

Moderate negative effect

No effect

Moderate positive effect

Significant positive effect

10.3%

58.6%20.7%

10.3%

0.0%

Delays Cause frustration

Though the MNOs in our survey are clearly engaged with RCS, they were willing to vent some frustration with the technology. Specifically, when asked about their satisfaction with the rate of RCS deployments in general, the survey revealed considerable disappointment. As seen in Exhibit 6, less then 7 percent of respondents expressed satisfaction with the rate of RCS deployments. Our interpretation of this is that these individuals understand the importance of bringing advanced communications services to market quickly, and they also appreciate that with the rapid rise of OTT services, time is not on MNOs’ side.

To what extent do you agree/disagree with the following statement? “RCS can help my company address the

threat posed by OTT IP communications apps.”

Strongly agree

Somewhat agree

Neither agree nor disagree

Somewhat disagree

Strongly disagree

37.9%

41.4%

17.2%

3.4%

0.0%

exhibit 6: operators Are Dissatisfied With the Rate of RCs DeploymentsSource: Yankee Group’s Mobile Network Operator RCS Survey, March 2013

How satisfied are you with the speed with which RCS services are being introduced into the market

by mobile operators in general?

Very satisfied

Somewhat satisfied

Neither satisfied nor dissatisfied

Somewhat dissatisfied

Very dissatisfied

31.0%

37.9%

24.1%6.9%

0.0%



RCs Momentum Is building steadily

During the past six months we have seen increased activity in relation to commercial RCS deployments. The following are some examples of the momentum that has been evident:

U.S.:• At the beginning of November 2012, U.S. operator MetroPCS launched RCS over its LTE network.

Spain: • In the same month, three Spanish operators coordinated their RCS-e/joyn launches. Movistar and Vodafone had already offered the joyn app to Spanish customers since earlier in 2012, but they had not promoted it. In November, these two players along with Orange collectively launched joyn. Spain therefore became the first country in the world to offer fully interoperable RCS-e.

Germany:• Deutsche Telekom launched RCS-e in March 2013 following earlier delays. Vodafone Germany had already launched RCS-e ahead of rivals in August 2012 as a Beta version.

South Korea: • SK Telecom launched its RCS-e service joyn.T in December 2012 and achieved 1 million users within 50 days.

These examples illustrate the solid support and growing momentum around RCS. In addition to these encouraging initiatives by the operator community, there has also been solid backing for RCS from some of the world’s leading handset OEMs. Several companies are expected to introduce native support for RCS into some of their devices during 2013. This list includes Samsung, Nokia, Motorola Mobility, HTC, Huawei, LG Electronics, BlackBerry, Sony Mobile Communications and ZTE.

expect More RCs launches This Year

But what about MNOs that have yet to launch RCS? In our survey we asked about the status of RCS among respondents whose companies have not yet launched. The findings show significant variations in the status and plans for RCS. As shown in Exhibit 7, MNOs are working to different launch plans, but we are encouraged that over 30 percent expect their companies to introduce commercial services in 2013. About one quarter are watching closely and claim they will base their launch decisions on the commercial activities of their main competitors. But overall, based on these findings, we can expect several more live RCS services over the next one to two years.

To further illustrate the backing for RCS, our survey also revealed that among MNOs that have yet to launch RCS, 40 percent have already cleared the business case, and an additional 45 percent are currently engaged in internal discussions on this issue (see Exhibit 8). Again, we can interpret this as clear momentum building behind RCS within the MNO community.

exhibit 7: operators Are Working to a Variety of RCs launch schedulesSource: Yankee Group’s Mobile Network Operator RCS Survey, March 2013

What is the status of RCS services in your network?

Already launched

Launching in 2013

Launching in 2014

Launching in 2015 or later

No current plans to launch

Launch date will depend on competitors’ RCS initiatives

Don’t know3.4%

6.9%

31.0%

20.7%24.1%

3.4%

10.3%

exhibit 8: Momentum Is building behind RCsSource: Yankee Group’s Mobile Network Operator RCS Survey, March 2013

Have you cleared the business case for RCS with your executive team?

Yes

No

Currently in discussions

45.0%40.0%

15.0%

Mnos Must Get the RCs Proposition Right

Yankee Group believes that for RCS to succeed MNOs must introduce services with appropriate pricing, as well as ensure a satisfying overall user experience. Though we didn’t ask our survey respondents to speculate too much about details of their RCS propositions, we did explore the issue of pricing. With early RCS launches we have seen a variety of pricing approaches, but in general MNOs have been pragmatic and have attempted to deliver intuitive pricing or even offer free use of RCS services—as was the case, for example, with Deutsche Telekom and SK Telecom. In most cases customers can use their monthly data or messaging allowance for RCS services, and in some cases the use of RCS does not even count against their data allowance.



Our survey findings reinforced the point about diverse pricing strategies. As shown in Exhibit 9, respondents expect their companies to adopt a variety of approaches to pricing for RCS services, ranging from free to charging a specific amount to charges that vary by service.

of the technology has required MNOs to have their own IMS network. For large players such as Telefónica and Deutsche Telekom, which are already deploying their own IMS networks in several markets, this is not a major stumbling block. Though these players have experienced some implementation challenges relating to integration of RCS with their networks as well as challenges with handset OS fragmentation, at least they have an IMS network upon which to launch RCS. For other players, the absence of IMS has posed a fundamental challenge and led to delays.

Time To Consider Pre-IMs options

The increased availability of RCS solutions that are based on so-called IMS-lite implementations, or else fully hosted RCS, are enabling much-needed deployment flexibility for MNOs. For operators that want to introduce RCS services without waiting to deploy an IMS core network, the option of working with vendors that can deliver pre-IMS RCS or a hosted RCS solution should be attractive. The most important advantage of adopting one of these approaches should be the time-to-market advantage it can deliver. Another key benefit for MNOs is the elimination—or at least postponement—of the costs associated with installing their own IMS network. At a time when more and more MNOs are facing challenging financial circumstances and restrictions in their network capex budgets, any solution that allows them to deliver advanced services at minimal upfront costs should be considered seriously.

In our MNO survey we explored this issue and focused specifically on their interest in hosted RCS solutions. Based on our findings, as shown in Exhibit 10, there is significant interest among operators in hosted RCS. Sixty-five percent of respondents expressed an interest in this type of solution.

How will you charge for RCS services?

Charge a specific amount for RCS services

No additional charge for RCS services

It will vary by service (some will be charged, some will be free)

Don’t know

30.0%

15.0%

50.0%

5.0%

exhibit 9: There Will be Different Approaches to Pricing RCs servicesSource: Yankee Group’s Mobile Network Operator RCS Survey, March 2013

Interoperability Is essential

On the specific issue of service interoperability, we also explored MNOs’ willingness to work with competitors in their local markets to ensure a satisfying user experience. Yankee Group believes it’s critical that MNOs deliver full service interoperability to ensure RCS is differentiated from equivalent OTT services. Based on the survey, we’re encouraged to see that 85 percent of respondents expressed interest in working with competitors to ensure service interoperability via a centrally hosted solution. This cooperative approach to ensuring interoperable services—combined with a commitment to introducing intuitive pricing or no additional charges at all—will help MNOs launch RCS services that deliver unique value to end-users.

flexible Deployment options Are Critical

As discussed earlier, our survey reveals considerable MNO interest in deploying RCS, but it also highlights frustration with the delays that have been a feature of this technology during the past few years. Operators understand that they can’t afford to wait much longer to deliver advanced communications features because customers will increasingly look to OTT services to fulfill their needs in this area. One of the delaying factors with RCS is the fact that deployment

exhibit 10: Mnos Are Interested in Hosted RCs solutionsSource: Yankee Group’s Mobile Network Operator RCS Survey, March 2013

Please rate your interest in a hosted, cloud-based solution that would enable you to launch RCS

services prior to the deployment of an IMS core

Very interested

Somewhat interested

Neither interested nor disinterested

Somewhat disinterested

Very disinterested

20.0%

45.0%

20.0%15.0%

0.0%



Mnos look To Partner With RCs specialists

When deploying RCS, MNOs can choose to work with IMS vendors or with specialist messaging/RCS companies that provide end-to-end solutions in partnership with leading IMS and RCS client providers. When asked to rate their interest in working with this type of specialist vendor, the MNOs in our survey were generally quite willing to look beyond their IMS core network vendor. In total, 85 percent of respondents expressed some interest in working with a specialist provider for RCS.

Related to this point, we also explored the factors that have most influence over MNOs’ choice of RCS vendor. There are always several factors that influence MNOs’ choice of technology provider, and RCS is no exception. As shown in Exhibit 11, our survey revealed strong emphasis on the handset client. This was the No. 1 vendor-selection criterion for 35 percent of respondents. This result emphasizes the importance of vendors ensuring they can support all leading RCS handset clients and/or the ability to partner with specialist companies to offer best-in-class clients.

exhibit 11: Handset Client Is a Key factor in Mnos’ Choice of RCs VendorSource: Yankee Group’s Mobile Network Operator RCS Survey, March 2013

1 2 3

What are the most important criteria your company will consider when selecting an RCS solution and provider?

(Select up to 3 answers according to priority - 1 being most important and 3 being least important)

RCS client

attractiv

enessPric

e

Ease of pro

duct inte

gratio

n

with existin

g infra

structu

re

Existing re

lationship

with th

e vendor

Communications-specifi

c

industry

experience

Proven tr

ack record

of

delivery

with

other o

perato

rs

Strong glo

bal pre

sence

Strong lo

cal pre

sence



Conclusions and Recommendations

RCS enables MNOs to deliver ubiquitous access to advanced communications services. When thinking about RCS, and in particular the business case for deploying the technology, MNOs should look beyond direct ARPU-uplift potential. They should focus instead on the potential for RCS to enable MNOs to deliver enriched communications features, and therefore allow MNOs to remain relevant in the fast-changing communications marketplace. The findings from our operator survey demonstrate that these companies do understand the threat posed by OTT services, but they are also confident that RCS can help them address this challenge.

RCS is also more than a new suite of services. It’s a platform for future communications in an IP world—and MNOs must play a central role in delivering these services. RCS gives MNOs the opportunity to leverage key assets and capabilities to deliver high-quality and innovative communications services. This will allow MNOs to strengthen relationships with their existing customers and drive improved customer retention rates. RCS is also a platform that can enable third parties to engage with customers, e.g., customer relationship management (CRM), banking and advertising. When planning their RCS investments, it’s important that MNOs look beyond the immediate impact relating to person-to-person (P2P) communications. They should also consider the longer-term benefits of enabling new types of customer engagement through this platform-based approach to RCS.

One of the most important considerations for MNOs is time to market. The clock is ticking, and with each passing day competing OTT players are extending their customer reach and feature sets. MNOs must act decisively to introduce RCS services, and for this reason they should consider deployment options that allow them to bring services to market quickly. For those that do not have an IMS network deployed today, a pre-IMS or hosted RCS solution could make a lot of sense.

Recommendations for Mnos

In a world that is increasingly crowded with OTT communications apps, it’s critical that MNOs clearly communicate the benefits of RCS to their customers. We suggest they focus on four key attributes that differentiate RCS services from OTT apps. These are reach, simplicity, functionality and security:

Reach:• MNOs should stress the interoperability advantages of RCS. Building on the universal success of SMS, MNOs should explain that when using RCS there is no need for end-users to consider which of their contacts are on which network or OS.

Simplicity:• RCS services do not require registration or a subscription, and they can also be integrated with the user’s phone address book. Ease of discovery and usability will improve significantly when RCS is native on a wide range of mobile devices. MNOs should stress these points in their RCS marketing.

Functionality: • Though it’s likely that OTT players will always offer a wider range of advanced features than MNOs can achieve, RCS-e does support a good set of messaging/video-sharing features. This will improve further with RCS5, which means MNOs will no longer be the poor cousins of IP communications.

Security:• This is potentially very relevant for some user groups, such as enterprises. RCS-related data should be stored securely on MNOs’ networks in their home country. MNOs should also ensure they do not make customers’ personal messaging data available to third parties to facilitate targeted advertising. This can potentially allow differentiation against some OTT service providers for which advertising is the most likely monetization strategy, and where some user data therefore needs to be shared with third parties.

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© Copyright 2013. Yankee 451 Group, LLC. Yankee Group published this content for the sole use of Yankee Group subscribers. It may not be duplicated, reproduced or retransmitted in whole or in part without the express permission of Yankee Group, One Liberty Square, 6th Floor, Boston, MA 02109. All rights reserved. All opinions and estimates herein constitute our judgment as of this date and are subject to change without notice.

About the Author

Based in Dublin, Declan Lonergan is a vice president of Yankee Group’s Consumer Research group. Lonergan produces and manages research that improves service providers’ and technology vendors’ business results. He helps clients make critical decisions regarding the deployment and marketing of innovative consumer services.

Declan lonergan Vice President

Turning to the issue of when and how MNOs should introduce RCS, we offer the following recommendations:

If you have IMS, use it.• Decisions regarding how and when to deploy RCS are of course specific to local markets and individual MNOs. Where MNOs have deployed their own IMS infrastructure, they should leverage it to launch RCS.

But you don’t have to wait for IMS.• For some MNOs that don’t have their own IMS network, a pre-IMS implementation of RCS may be more appropriate. This can be achieved by partnering with specialist messaging or RCS vendors that can incorporate simplified IMS components as part of their solution.

Consider a hosted solution.• For the lowest upfront costs and fastest time to market, MNOs should consider a hosted RCS solution with the option to migrate to the operator’s own IMS network in the longer term. The time-to-market advantages of hosted RCS are quite compelling. Considering the rate at which OTT apps are being introduced and adopted by end-users, it’s certainly in MNOs’ best interests to bring to market more sophisticated RCS-based services as quickly as possible. If they fail to do this, MNOs run the risk of being excluded completely from the huge advances taking place in personal communications.

Work with vendors that offer flexible deployment options.• As outlined above, different MNOs will make different RCS deployment choices. Whatever the particular circumstances and preferences of each MNO, it’s important that it partner with vendors that can offer the best RCS solution to meet its needs. In this regard, the flexible deployment alternatives offered by companies such as Openmind Networks should be considered.

Technology

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