October 10, 2012
The Rich Communication Suite-enhanced (RCSe) is set to become, under the commercial brand Joyn, the ultimate operator answer to the threat to operators posed by over-the-top (OTT) communication applications such as WhatsApp and Apple’s iMessage. These OTT services, which are provided over the Internet, bypass the operator’s billing and service delivery infrastructure, threatening the growth of operators’ core voice and messaging revenue.
Initiated by the so-called Big Five European operators (Deutsche Telekom, Orange, Telecom Italia, Telefonica and Vodafone), RCSe is a remarkable industry-wide effort. It extends the communication options in a mobile network beyond voice services and SMS/MMS messaging by providing a framework for IP mobile communication. But all industry-wide initiatives need time and agility —and RCSe has a short supply of both.
RCSe has needed and still needs time to develop. From the initial announcement of the Rich Communication Suite (RCS) back in 2008, it has taken four years to get to RCSe/Joyn. In the meantime, the universe of third-party OTT communication services has grown considerably, and the challenge to operators has become more pressing. Furthermore, now that RCSe/Joyn is tangible and we have early adopters such as Vodafone in Germany, it could still take two to three years before RCSe/Joyn-capable handsets are widely available, despite the fact that most OEMs have officially committed to the initiative.
RCSe/Joyn has needed time to evolve and will need time to gain full support from operators, OEMs and network vendors before it can become the global standard for enhanced communication. While supporting RCSe, operators need alternative short- and medium-term OTT communication strategies to neutralize OTTs. We have recently analyzed various strategic options that operators have at their disposal when it comes to OTT communication. A few of these options include:
- Blocking third-party apps and services: Blocking OTT communication can cause a backlash from customers, which will put operators under competitive threats when other players choose not to block. It can also cause clashes with regulators when it comes to net neutrality.
- Neutralizing the effects of OTT communication through pricing: One way to achieve this is by offering integrated plans combining all three core services (voice, SMS and data) in one single bundled price. Another way is by increasing SMS bundles and decreasing data caps to encourage SMS usage over popular OTT services. Alternatively, operators can offer app-centric data plans, giving their customers access to clusters of selected OTT applications, under a strategy that offsets SMS cannibalization caused by third-party OTTs by boosting data usage. In the long term, neither approach is likely to protect operators from price pressures. In the case of integrated plans, as OTTs become more attractive and widespread, customers will eventually reduce the usage of inclusive SMSs and will start demanding to pay less. In the case of app-based plans, they will become increasingly less profitable as the growth of data-hungry applications will reduce the price-per-MB ratio.
- Operators launching their own proprietary OTT services: Quick time-to-market is the key benefit of this strategy, as demonstrated by Telefonica, which developed and launched its OTT service Tu Me in under 100 days. Operators also have the opportunity to gain experience in Internet services and business models, such as ad-based and freemium models, and embrace what Pyramid Research calls the trial-and-error startup mentality. These proprietary OTT services will face tough competition from established OTT players, and many of them will result in failure. However, this new approach and mentality can only benefit operators, enabling them to introduce new services more rapidly and to be more responsive to consumer demand.
If operators do not want to be sidelined, they will eventually need to be able to offer the same rich experience that Internet services provide, by either launching their own services or by partnering with OTTs. Read more of our recommendations in our new Insider, “OTT IP Messaging: Operator Strategies for Over-the-Top Communication.”
Exhibit: Operator’s OTT communication strategies: Time-to-execute, long-term sustainability and consumer friendliness
Source: Pyramid Research
— Daniele Tricarico, Analyst
OTT IP Messaging: Operator Strategies for Over-the-Top Communication
Telecom Insider published October 2012
The main focus of this report is on mobile IP messaging. We examine the significance of OTT communication (voice and messaging), and more specifically the impact of OTT messaging, and take a closer look at six different strategies that operators are currently using to respond to the threat posed by OTT. The report presents case studies from SingTel, Claro, Orange, Telefonica, T-Mobile, Vodafone and Three and examines how these different operators are approaching OTT communication. We conclude with some recommendations for operators as they rethink and refine their strategies.
Pyramid Research Mobile Data Forecast
Forecast published quarterly
A premium version of the Mobile Demand Forecast, it tracks current and future demand for mobile data services, within the context of overall mobile demand. This forecast includes all the same tracking as the standard Mobile Demand Forecast but breaks down mobile data ARPS, revenues and subscriptions at the service level.