 | Issue: | Latin America 2013 |
| Article no.: | 9 | |
| Topic: | Addressing the OTT threat | |
| Author: | Mark Sten | |
| Title: | EVP of strategy & business development | |
| Organisation: | Globys Inc. | |
| PDF size: | 266KB |
About author
Mark Sten is the Co-founder and Executive Vice President of Strategy & Business Development at Globys, responsible for developing a global partnerships and initiatives for the company. A long-time technology, communications and media executive, Mark brings more than 20 years of experience to the team. Previously, Mr Sten was a co-founder of Altus Alliance, President of Light Green Company, and a co-founder of The Hartman Group, which was acquired by the global advertising agency DDB. He successfully led teams that launched, initiated and managed products in the areas of high-tech software and media.
Mark Sten holds a BA in Economics from the Wharton School of Business at the University of Pennsylvania and a MA/ABD from the Annenberg School of Communications at the University of California.
Article abstract
Operators voice revenues are declining, and data revenues will soon begin to decline as well. OTT services and entertainment are using great amounts of bandwidth without generating additional operator revenues. As smartphone penetration grows, users are increasingly bypassing traditional operator local and international calling and messaging services with apps like Skype, WhatsApp, and Facebook. Through collaboration with direct-to-consumer brands, operators can offer a broader range of services to attract and retain customers without having to develop their own content and applications.
Full Article
In recent years the mobile landscape has undergone significant change. Operators face declining voice revenues, while at the same time realize that data revenues will follow a similar path in the future. Over The Top (OTT) players represent an additional threat and in some regions, where smartphone adoption has exceeded the 50 percent mark, mobile operators already feel the impact of these non-traditional competitors. Operators also know that they no longer dominate the mindshare of their consumers because they no longer control the customer experience. An iPhone user, for example, doesn’t have to use an operator’s SMS and voice service for communicating; they now turn to iMessage, WhatsApp, Facebook, and Skype, just to name a few.
While some operators view OTT providers and the services they offer as a threat to their long-term viability, others recognize that assuming the right strategic position can provide a path toward offsetting declining revenues and preserving long-term customer relationships.
The impact of smartphone adoption in Latin America
Smartphone penetration in Latin America is estimated to grow exponentially over the next three to four years. Devices are becoming more affordable – estimated to drop from US$175 in 2012 to US$123 in 2016 – and an emerging middle class with increasing purchasing power will continue to drive demand for smartphones which were previously coined as luxury items. Operators are eager to drive these trends as smartphone adoption will be a key element in driving data services uptake, which is crucial to future revenue growth. At the same time, they acknowledge that these growth opportunities also bring new challenges. Delighting the next generation of mobile users and maintaining market leadership as new players enter the field will require new strategies.
As the pace of market evolution accelerates in Latin America, regional operators are looking globally at how operators are choosing to compete – as an access provider, platform enabler, or diversified player. Although operators believe there is plenty of time to figure out their long-term strategy, those who don’t act quickly in determining their own fate will be forced into a position. Some will succeed, and some, even despite their size and current market position, will not sustain the new wave of competition.
Focusing on being the pipe
Some operators will embrace their role as an access provider. Rather than seeking opportunities to enhance their portfolio of products and services, they will focus on leveraging their core network and data transport capabilities to drive service quality. While their business will be that of a commodity, they will effectively compete by maximizing the efficiency of their network through economies of scale. Operational excellence will be the key to success for these operators – that is, maximizing cost efficiency – and not the ability to drive new revenue streams. In this scenario operators will be dis-intermediated from the customer and other ecosystem players will take on the end user relationship. Operators will rely on other players to meet the evolving needs and expectations of their customers.
Developing an ecosystem of partners
Other operators will take on the role of platform enabler. Their business will be about leveraging their scale to enable third-parties to engage directly with their customers. They will open up their APIs to third parties such as content and application providers who will then directly engage with their customers. The key to success for these operators will be partnership and the ability to manage involvement with multiple parties in ways that benefit everyone, most importantly their end users. Through collaboration with direct-to-consumer brands, these operators will enhance their own brand, and through a broader range of services more effectively attract and retain their customers – without having to invest in developing a competency around content and applications.
Playing direct to consumer
Lastly, some operators will seek to be diversified players with the goal of generating a wide array of new revenue streams and maintaining relationships with both consumers and enterprises as a top-of-mind brand. These operators will seek to compete against the OTT players for the mindshare and wallet of their customers. They will move into new spaces and offer vertical-specific applications, for example, either on their own or through joint ventures. They will look to innovate in order to develop and bring to market products and services that they can effectively up-sell and cross-sell to their customers and that help them differentiate against their peers. They will focus on executing a new strategy that rests on repositioning themselves amidst a landscape of non-traditional players and strengthening their brand to gain the mindshare of consumers.
Choosing the optimal strategy
So where will most operators land and what will the CSP landscape look like moving forward?
According to the leading analyst firm Gartner, very few communications service providers will pursue the path of access provider. This is due to the scale and cost advantage required which limits this option to only one or two operators in a given market. As such, Gartner predicts that by 2015, at least 80% percent of communications service providers will opt to become platform enablers or diversified players.
Operators are already rethinking their long-term strategic plan given the increasingly complex and challenging environment in which they find themselves. In more mature markets for example, operators face significant voice and messaging revenue losses. They face the erosion of their data revenues in the future. They have significant strain on their networks driven by the explosive growth in video and multimedia applications. And at the same time they must compete with a new breed of competitors, including start-ups as well as more established players that are all vying to own the consumer.
In response operators are choosing to compete against the OTT providers, partner with them, or both in order to delight their customers. To compete, some operators are taking action such as blocking OTT players from accessing their network or implementing aggressive pricing actions to protect their core service revenues. There are some that are partnering with OTT providers while others are choosing to compete directly with the OTT players by creating their own applications. Some operators are doing all of the above.
Looking ahead operators need optimal strategies for competing against the OTT players in the marketplace. And this has everyone asking: what advantages do the operators have to position themselves to win?
The CSP advantage: deep customer insight
The reality is that mobile operators are well-positioned to compete – provided that they are smart. A major success factor in competing against the OTT players is the CSP’s ability to leverage sophisticated customer analytics and real-time decisioning to deliver experiences that will delight mobile consumers and power innovators in the mobile ecosystem. The successful diversified CSP will enable a wide range of experiences, from tipping a teenager onto a new song or YouTube video before her friends discover it to alerting a traveller to a great restaurant around the corner to increasing a retailer’s wallet share via a can’t-live-without mobile app. To do this, the successful diversified CSP will compete with Google and Facebook as it relates to deep knowledge of individual consumers and their behaviours, interests, preferences, and social networks. They will leverage and enable a wide range of means to act upon this knowledge. This deep and actionable understanding of their customers must be part of their core competency, whether they build it or buy it.
Investing in customer analytics
While continuing to innovate, operators must become smarter at monetizing their most important asset – their deep customer insight. Achieving a single view of each individual customer that spans over time across all of their devices, plans, applications, and services is critical. This means that nearly every operator requires a customer analytics platform. We are seeing CSPs make investments now in how to better understand customer behaviours and preferences related to devices, content, marketing channels, payment methods, and online consumption behaviour. They seek to leverage these insights, together with contextual information, to develop more attractive portfolios of digital services and content and enhance the overall customer experience. Ultimately, their goal is to drive new revenue streams and capture the mindshare of their customers.
Realizing the opportunity
Two things are certain. OTT players are not going away and OTT services are not going to become less popular. Analysts predict that very few communications service providers will become diversified players – only the largest, most dominant operators that have extensive scale and reach across markets or even regions. That doesn’t mean, however, that the majority of operators must miss out on the tremendous growth opportunity that exists. It just means that today’s operators must get smarter about understanding what their customers want in order to rapidly identify new opportunities for strategic product and service innovation. They must have the capabilities to unlock the value of their data and leverage the insights for both themselves and their partners. Finally, with customer preferences and personalization in mind, they must optimize their ability to execute.
