SAP Mobile Services: OTT threat top strategies to fight smart

SAP Mobile Services, Operator Guide 2013 Pamela Clark-Dickson, Senior Analyst, Informa Telecoms & Media.

OTT Threat: Top Strategies To Fight Smart

The rise of Over-the-Top providers (OTTs) of mobile VoIP (mVoIP) and IP-based messaging is significantly altering the dynamics of the mobile services market.


The growing penetration of smartphones and mobile broadband, combined with the availability of open application programming interfaces (APIs) for handsets, has created an environment where third-party application and service providers can more easily develop and distribute mobile applications, including mobile voice-over-IP (mVoIP) and IP-based messaging applications.


The KPN effect – declining SMS traffic and revenues


In May 2011 KPN became the first mobile operator to report that subscriber use of OTT voice and messaging applications – in particular, WhatsApp – had caused a decline in voice and messaging traffic and revenues. The operator found that 85 percent of its Hi subscribers were using WhatsApp, usage that resulted in a year-on-year decline of 24 percent in outgoing SMS traffic by Q3 2011. Despite KPN’s attempts to stem its declining SMS traffic and revenues through the introduction of integrated tariffs - which included a mixture of voice minutes, SMS and mobile data - the year-on-year decline in SMS traffic among KPN’s overall consumer mobile customer base accelerated from 19.6 percent in Q3 2011 to 32.7 percent by Q2 2012.


Vodafone and China Mobile - The impact of OTT spreads Vodafone Group has also experienced a decline in its SMS traffic and revenues, partly because its subscribers preferred to use OTT alternatives. The operator’s 1Q 2013 financial results paint a fairly grim picture, showing a decline in messaging revenues across most of its operating divisions.




Outside Europe, China Mobile stated in its H1 2012 financial report that traditional revenues were under pressure from mobile operator rivals and new technologies that are replacing traditional communications services. As a result of this competition, China Mobile’s SMS and MMS revenues declined 2.6 percent year-on-year.



What does the competition look like? Key OTT providers range from nimble newcomers to established handset manufacturers. Their ranks include: start-up companies such as WhatsApp, KakaoTalk, Viber Media and Line; handset vendors such as RIM (BlackBerry Messenger) and Apple (iMessage); and South Africa’s MXit, a combination mobile instant messenger and social network.


In August 2012, WhatsApp announced that its daily traffic hit a record 10 billion messages. This represents a five-fold increase in the six months since March 2012, when WhatsApp’s average daily traffic was 2 billion messages. Apple announced in June 2012 that users of iMessage had sent 150 billion messages since the service’s launch in October 2011. Meanwhile, South Korea’s KakaoTalk managed to significantly reduce SK Telecom’s SMS traffic.


How can mobile operators turn the tide and compete with OTT providers on their turf? Informa has identified five strategies for mobile operators to pursue:   Emulation.   Partnership.   Block access.   Restructure prices.   Do nothing.


All of these strategies build on the competitive capabilities and assets that give operators the edge over OTT players. Put simply, the operators alone own and control their existing network assets. Operators also own and control their subscriber base because of the long- standing billing relationship they have with their customers. This position of strength allows them to pursue two distinct courses of action.


Developing new ecosystems Operators can play a central role enabling new ecosystems and innovation. This is possible because network infrastructure vendors are exposing application programming interfaces (APIs) associated with their equipment. The result is new and innovative services that could conceivably connect into multiple network assets, including voice, voice-mail and messaging infrastructure. This would also position mobile operators to provide a network or application-based converged communications service, as well as a range of value-added services around communications.


Ensuring service reliability and quality Because the mobile operator owns and controls the network, it alone can ensure service reliability and quality for subscribers. OTTs, on the other hand, can exercise relatively little control over reliability and quality of service. What’s more, mobile operators own and control the billing relationship, assets that position it to charge subscribers for the use of OTT-like services, either through a monthly subscription or on a per-event basis. Alternatively, the operator could include free access to these OTT-like services as part of an existing, or new price plan, that may also include voice minutes, SMS and/or data.


Subscribers’ use of OTT services has proven to have a negative impact on the traffic and revenues many mobile operators generate from their traditional communications services. However, it is possible that OTTs could act as a catalyst for operators to compete by creating far richer OTT-like services that bind subscribers to their networks. As always, execution will be key.


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SAP Mobile Services: OTT threat top strategies to fight smart