In the summer of 2012, the carrier community was adjusting to a world where the likes of Skype had successfully taken a major bite out of their traditional revenue streams. The industry was still raw and Capacity ran a cover story with the strapline: Can OTT providers and carriers ever get along?
Three years on there has been a marked shift in attitudes from carriers and their willingness to pursue more open partnerships and customer models with OTTs.
Maybe time has proven to be a healer. A world where carriers’ revenues were comfortably propped by their voice and SMS business is gone. Telecoms is far from being the only industry vertical to be turned on its head by the OTT model: look at what Uber has done to the transport sector or Airbnb to hospitality.
Or maybe telecoms has more to offer OTTs than in the past. Network performance and security is becoming critical to more and more businesses, particularly those whose main service offering is online. Big data and analytics also holds vast potential for more carrier and OTT engagement.
Andrew Kwok, president of international and carrier business at Hutchison Global Communications (HGC) believes we are witnessing the third evolution of relations between carriers and OTTs.
At the beginning, he says, there was an initial standoff as OTTs continued to take business away from carriers. Three years ago, relations softened as carriers realised the need to cooperate more with OTTs and the huge growth of their traffic on networks.
Now, he says, both carriers and OTTs are becoming more selective in who they partner with and how. “The main difference is there is monetary benefit for both,” he says. “In this new era, we are asking ‘where is the real money?’”
Carriers, he says, are looking to OTTs for customer retention and acquisition as well as growing new revenue streams. OTTs, on the other hand, are looking to carriers for network development and performance. “They [OTTs] have to choose a network that best fits their model. The requirements for streaming content or e-commerce are very different,” adds Kwok.
A fine example of this is the latest incarnation of HGC’s partnership with WhatsApp. Customers of its mobile arm 3 Hong Kong are now being an offered a roaming package which enables exclusive unlimited use of WhatsApp for its customers abroad. This includes both WhatsApp messaging and calls.
HGC’s strength in mobile makes it a logical partner for WhatsApp, but in the past carriers have shied away from exploring such new revenue streams as they were viewed as potentially cannibalising voice and SMS.
This change in attitude has been a long time coming. “It is in their DNA. It has been very hard for telcos to get rid of the mind set that voice and SMS are their core revenues as they have been trained like that for 20 years,” says Thorsten Trapp, CTO at mobile messaging operator and cloud communications provider Tyntec. “They spent so long trying to ignore the issue until someone wiped away their balance sheet.”
Taking the OTTs on at their own game and failing has been a difficult but necessary part of the carrier learning curve.
Major investments were made by larger telecoms organisations into finding a direct foothold in the OTT space, with the likes of Telefonica and Deutsche Telekom launching startup incubators that have since either been abandoned or yet to deliver compelling results. Likewise, industry initiatives such as joyn – which was set up a group of leading industry players in 2007 to focus on rich communication services – have failed to make an impact.
OTTs are proven innovators, carriers it seems are not.
Deutsche Telekom is one carrier that is refreshingly accepting of that fact: “One of the key findings of our corporate strategy is that anything carriers have done to enter the OTT space so far has failed,” says Marc Sommer, SVP of group business development at Deutsche Telekom.
“They haven’t delivered the next Facebook or Dropbox.”
Sommer says that OTT innovation can differentiate the operator’s core proposition. “It is really about associating ourselves with an OTT service which appeals to the customers,” he adds.
It was the music streaming service Spotify that first alerted Deutsche Telekom to the real potential of OTT collaboration. The two entered into an exclusive partnership in Germany in 2012, with Deutsche Telekom becoming the first telecoms operator to bundle a Spotify Premium subscription with its tariffs and as an add-on option.
“From that point onwards we made it part of our strategy. From cloud, security, music, TV, gaming, transport through to e-commerce, we tried to find the most attractive partners that our customers might want to use with our network,” says Sommer.
The power of partnership
Identifying the right partner is not straightforward for either carrier or OTT.
This is particularly the case in Europe. OTTs often come at the market from a regional or global perspective, and need help with understanding the region’s idiosyncrasies. “To Silicon Valley, Europe is a hot pot of little nations,” says Sommer. “There are small fragmented markets and we are extremely hard working in simplifying access to them.”
There are legal hurdles to navigate. The evolving data privacy landscape, for instance, has had ramifications for partnerships between European operators and US OTTs. Deutsche Telekom experienced this when it teamed up with Dropbox in 2014, preloading the service on to Android devices in select Central and Eastern European countries – excluding Germany. “The reason why the partnership hasn’t been bigger is that they are using a US cloud provider, and in some of our core markets this would violate some of our data privacy rules,” Sommer says.
Deutsche Telekom also had to adapt its partnership with Uber after a German Court banned the world’s most valuable ventured-back startup from running services using unlicensed cab drivers in the country.
Increased dialogue with the OTT community has been key to Deutsche Telekom’s strategy, with the company even launching an ‘Easy-to-Partner’ initiative. “We have simplified contracts that a midsized startup can understand. We provide the go-to-market and feedback. We tell them if, for example, it is not working in Romania,” Sommer says.
Standing out from the crowd
As well as regional expertise, carriers are searching for a service differentiator to attract OTTs: “We are very strong in security,” claims Sommer. “We are a trust brand and associate ourselves very closely with the best security partners.”
In the case of Level 3 Communications, its longstanding capabilities in video delivery has proven to be a real asset in attracting OTT customers.
The company’s CDN network, which it acquired from Savvis in 2006, is used by such big names as Netflix and Apple. The customer relationships that the operator originally built with these organisations – it has worked, for example, with Netflix for over six years – has evolved over time, says Jon Alexander, senior director of product management at Level 3 Communications.
“The needs of our content customers have changed and the way they have decided to approach the delivery of their content has changed,” he says.
In the past, content providers were interested mainly in CDN services - the last layer of Level 3’s service portfolio. “Now we are selling them products all the way across transport, IP and colocation so that they can build more of their own infrastructure and manage more of that last mile access,” he says. “They have taken much more control of the delivery.”
Alexander believes the core expertise that Level 3 has developed in video delivery has proven attractive to content customers. “We have huge expertise on the broadcast side, which we then translated over to OTT video delivery. There is a real core understanding of end-to-end video delivery in our organisation that strongly positions us to support the growth of OTT video,” he says.
Service delivery and management are the key attributes that OTTs look for in their network suppliers. In particular being able to respond to the phenomenal growth of video traffic.
Helping with this is the migration to software-defined networking (SDN) and network function virtualisation (NFV). Level 3 is the in the early stages of deploying these technologies but claims the early use cases it is seeing are positive: “We are looking at how to really accelerate the rollout of those services in the next 24 months. The marketplace needs to be ready to consume services on a demand type model,” he says.
Tapping into big data
Big data and analytics is another area which may help carriers expand business opportunities with OTTs. “There is a lot of data coming into our platform – captured either by the service or the network – and we also get a lot of data fed back from devices. We can use this,” says Alexander.
Big data could help bring new revenue streams for telcos in areas such as digital advertising. Operators have accumulated vast data on end users, which in combination with the enormous data sets that OTT also have on end users, could be extremely valuable to advertisers.
“This has massive potential to be used by the right ad platform to monetise data about consumers for brands,” says Rebecca Muir, head of research and analysis at ExchangeWire Research. “Telcos could play a big role in brand targeting. The potential is there.”
ExchangeWire focusses on marketing technology, advertising technology and programmatic advertising, and Muir says there has been a heightened interest from telcos in its research. “They are starting to realise that there is a way to move into the digital marketing space, and leverage the data they are sat on,” she says.
The question remains how. Muir believes operators could have a head start on other industry verticals in the digital marketing space, as they have in fact been practising techniques such as sequential personalised messaging for years. “Something as simple as sending customers a greeting message when they are roaming abroad or updating them on their data plan – that’s sequential personalised messaging which is becoming very popular in digital marketing,” says Muir.
Being able to access data on end users across both their mobile and desktop device is particularly valuable to brands, which is why partnerships between carriers and web browsers could hold so much potential. “Ad targeting would be more relevant and therefore you can charge more,” says Muir.
Likewise, there is potential for carriers to further monetise their identification services and geolocation technologies. Although unable to disclose names, Tyntec’s Thorsten confirmed that the mobile messaging operator had been approached for the first time by companies selling anonymised movement profiles of their subscribers. “We’ve been offered this data from carriers very officially. They have it and want to monetise it. That was unheard of four years ago,” he says.
Such pursuit of new revenue streams demonstrates a growing confidence from carriers in how they interact with OTTs. It also proves how valuable networks are becoming to the OTT ecosystem.
“I think there has been a clear recognition that the network is critical to supporting the OTT business. If the network doesn’t perform or have the scale, it impacts their business,” says Level 3’s Alexander. “It is a viewed as a strategic relationship that they have to manage carefully.”
