MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat
MENA Summit 2013:
Enabling innovation, driving profitability
6 November 2013
EVENT PARTNERS:
Operator strategies to address the
OTT threat
Stephen Sale
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat 2
Changing business models in communication services
Operator responses to the OTT threat
Outlook for the MENA region
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat
Players from across the mobile value chain are moving into communication services
3
Network
connectivity
Content and
applications
OS
Hardware
Reta
il/dis
trib
ution
Operator services as
defaults in the native
dialler
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat
Players from across the mobile value chain are moving into communication services
4
Network
connectivity
Content and
applications
OS
Hardware
Reta
il/dis
trib
ution
Operator services as
defaults in the native
dialler
A wide range of
downloadable
alternatives
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat
Players from across the mobile value chain are moving into communication services
5
Network
connectivity
Content and
applications
OS
Hardware
Reta
il/dis
trib
ution
Operator services as
defaults in the native
dialler
Handsets offer
alternative native
features…
A wide range of
downloadable
alternatives
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat
Players from across the mobile value chain are moving into communication services
6
Network
connectivity
Content and
applications
OS
Hardware
Reta
il/dis
trib
ution
Operator services as
defaults in the native
dialler
Handsets offer
alternative native
features…
A wide range of
downloadable
alternatives
…increasingly
presented as default
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat
Players from across the mobile value chain are moving into communication services
7
Network
connectivity
Content and
applications
OS
Hardware
Reta
il/dis
trib
ution
Operator services as
defaults in the native
dialler
Handsets offer
alternative native
features…
A wide range of
downloadable
alternatives
Tighter integration
forthcoming?
…increasingly
presented as default
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat
Case study: Facebook
8
Facebook Messenger and Home screenshots
• SMS handling in Android
• „Chat heads‟ avatars in other apps
• VoIP (in some countries)
Features
• 874 million mobile MAUs (no
Messenger figures available)
Installed base
• Standalone messaging app launched in 2011
• Improving access by dropping Facebook login
and partnering with operators
• Extending with Facebook Home
Overview
• Messenger: 4.5* (Android), 4* (iOS); Home:
2.5* (Android)
Rating
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat
Case study: Google
9
Google Hangouts and KitKat screenshots
• Group chat features; emoticons
• Location and picture sharing
• SMS and MMS integration with Hangouts
Features
• 540 million MAUs for Google+
(300 million „in-stream‟)
Installed base
• Google Hangouts now focus for
disparate comms initiatives, including
Google Voice; expanding numbering
• Integrated more closely with Android
4.4; Hangouts replaces „Messages‟ icon
Overview
• 3.5* (Android), 2* (iOS)
Rating
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat
Case study: Line
10
Line screenshots
• Group chat and calling; emoticons
• Location and media sharing
• New Timeline and Home page
Features
• 260 million registered users (Sep 2013)
Installed base
• Leading „social messaging‟ app
• Expanding aggressively from domestic base in
Japan
• Rival social gaming platform
• USD10 million revenue from stickers in Aug 2013
Overview
• 4* (Android), 3.5* (iOS)
Rating
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat
Case study: WhatsApp
11
WhatsApp Messenger screenshot
• Group chat features
• Media sharing
• Audio messaging
Features
• 350 million MAUs (Sep 13)
Installed base
• First cross-platform app to easily integrate
address book
• 27 billion messages per day
• No ads: first year free, then USD0.99
Overview
• 4.5* (Android), 4* (iOS)
Rating
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat 12
Player Core
business
Feature set Comms
business model Voice Messaging Video Location Social
Hardware Indirect
Advertising Indirect
Advertising Indirect
Software
licensing Moving to indirect
Communication
services Direct
Content
distribution Indirect
MNOs Communication
services Direct
Operator feature sets look increasingly weak against alternative services driven by new business models
Communication services business models
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat 13
Player Core
business
Feature set Comms
business model Voice Messaging Video Location Social
Hardware Indirect
Advertising Indirect
Advertising Indirect
Software
licensing Moving to indirect
Communication
services Direct
Content
distribution Indirect
MNOs Communication
services Direct
Operator feature sets look increasingly weak against alternative services driven by new business models
Communication services business models
Value of communication services increasingly co-opted
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat 14
Player Core
business
Feature set Comms
business model Voice Messaging Video Location Social
Hardware Indirect
Advertising Indirect
Advertising Indirect
Software
licensing Moving to indirect
Communication
services Direct
Content
distribution Indirect
MNOs Communication
services Direct
Operator feature sets look increasingly weak against alternative services driven by new business models
Communication services business models
Increasing overlap between communication services and social networking
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat 15
Player Core
business
Feature set Comms
business model Voice Messaging Video Location Social
Hardware Indirect
Advertising Indirect
Advertising Indirect
Software
licensing Moving to indirect
Communication
services Direct
Content
distribution Indirect
MNOs Communication
services? Direct
Operator feature sets look increasingly weak against alternative services driven by new business models
Communication services business models
Operators‟ standalone value proposition looks weak
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat 16
Changing business models in communication services
Operator responses to the OTT threat
Outlook for the MENA region
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat
Operator responses
17
Block OTT services
Stimulate usage
Partner with OTT
Offer RCS
Offer ‘telco OTT’
Strategy Objective Examples
• Prevent OTT becoming mainstream
• Gain value from high-end bundles
• Defend legacy communication
services
• Buy time
• Attract young smartphone users
• Support core data business with
move to bundles
• Improve operator messaging
• „Retain relevance‟ as a
communications provider
• Differentiate own services
• „Retain relevance‟ as a
communications provider
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat
0%
10%
20%
30%
40%
50%
60%
70%
80%
Avera
ge
Fra
nce
Ge
rma
ny
Pola
nd
Sp
ain
UK
US
A
Pe
netr
ation
Voice Messaging
Tariff rebalancing can serve to stimulate usage of legacy services
18
Tariff rebalancing is already underway
Voice and messaging are becoming
cheaper
Many markets are moving towards
unlimited plans
Examples:
SingTel migrated customers from
unlimited data plans (with small
voice and messaging allowances) to
a tiered portfolio (with large
allowances).
In France: “everyone has SMS
unlimited for free … We don‟t see a
big strength of WhatsApp…”
Figure: Penetration of unlimited bundles in
selected countries
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat
Globe Telecom is pursuing an aggressive partnership strategy
19
Many operators already have productive
partnerships with OTT players –
Facebook, for example.
In the Philippines, Globe Telecom
launched a partnership with Viber in July
2013 to prepaid customers (98% of base).
GoUnli25 includes free Viber usage.
Viber10 (for USD0.23) and Viber20
plans for unlimited messaging and HD
voice.
Extended to Facebook Messenger,
KakaoTalk, Line, WeChat and WhatsApp
in August (GoUnli30).
Other examples include Airtel, 3 and
Reliance.
Promotional image for Globe‟s GoUnli30 service
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat
RCS is the collective industry response
20
RCS services have now been launched by
17 operators in 11 countries:
Notably France, Germany, South Korea,
Spain and USA (boosted by América
Móvil).
Available as a downloadable app and
native on 23 ranged devices.
The main features are:
IM and group chat (with SMS integration)
file-sharing/video-streaming.
Data usage is typically zero-rated on
specific tariff plans.
Service has yet to be marketed strongly,
even in early launch markets.
Rhetoric shifting towards hybrid clients, and
RCS as an enabler.
Screenshot of joyn
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat
Telefónica is offering a telco OTT toolset to its opcos
21
TU Go is a communications app from
Telefónica Digital that:
focuses on voice over Wi-Fi,
adding network selection and
virtualisation of service across
devices.
The first launch was with Telefónica
UK (O2) in March 2013. Initially it is
only available to contract customers;
prepaid to follow.
Usage of TU Go services is drawn
down from customers‟ bundles of
minutes and messages.
Screenshot of O2 UK‟s TU Go service
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat
Orange is integrating Libon with its product portfolio on a country-by-country basis
22
The app allows users to manage their
communications in a single interface,
which includes:
on-net calling and messaging
low-cost off-net calls
a single timeline and cloud storage
customisable visual voicemail.
Orange is marketing the service to
customers of its Sosh sub-brand. It
reports clear benefits in terms of reduced
churn, improved margins and reduced
usage of alternatives.
Integration with RCS is planned at the
client level.
Orange is also white-labelling the service.
Libon screenshots
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat
Remember that comms services should not be viewed in isolation; operators have indirect business models, too
23
Network
connectivity
Communication
services Retail/distribution
Weakened service
portfolio
Focus on
monetisation of data
Weakened role
here, too
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat
Remember that comms services should not be viewed in isolation; operators have indirect business models, too
24
Improved service
portfolio
Network
connectivity
Communication
services Retail/distribution
Weakened service
portfolio
Focus on
monetisation of data
Weakened role
here, too
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat
Remember that comms services should not be viewed in isolation; operators have indirect business models, too
25
Improved service
portfolio
Helps slow
commoditisation
and maintain ARPU
Network
connectivity
Communication
services Retail/distribution
Weakened service
portfolio
Focus on
monetisation of data
Weakened role
here, too
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat
Remember that comms services should not be viewed in isolation; operators have indirect business models, too
26
Improved service
portfolio
Helps slow
commoditisation
and maintain ARPU
And supports
initiatives here
Network
connectivity
Communication
services Retail/distribution
Weakened service
portfolio
Focus on
monetisation of data
Weakened role
here, too
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat 27
Changing business models in communication services
Operator responses to the OTT threat
Outlook for the MENA region
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat
We forecast users/traffic/revenue (where appropriate) for operator and non-operator communication services
28
CS voice CS voice SMS/MMS
Traditional
operator
services
VoBB VoIP/VoLTE IP messaging
Next-generation
operator
services
OTT VoIP OTT VoIP OTT IP
messaging
Non-operator
provided
services
Fixed voice Mobile voice Messaging
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat
VoIP services will continue their growth across devices
29
By 2018, nearly 40% of MENA
smartphone owners will be active (if
occasional) users of mobile VoIP
applications.
We expect nearly 70% penetration in
advanced markets such as UAE.
Usage of VoIP services will spread
across devices.
VoIP usage is increasing on tablets.
Migration from the desktop PC to
the more portable laptop.
Operators should consider
developing services that address the
trend towards multi-modal usage.
Usage of OTT VoIP applications by device in
MENA region, 2009–2018
0
10
20
30
40
50
60
70
80
90
2009
2010
20
11
20
12
2013
2014
2015
2016
20
17
20
18
Users
(m
illio
n)
Smartphones Tablets
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat
Operators will remain the dominant force in mobile voice but will be significantly weakened
A growing proportion of smartphone
owners will use VoIP as their primary
voice service. However, full service
substitution will be very limited.
By 2018, we forecast that non-
operator-provided VoIP services will
generate 21% of smartphone users‟
voice traffic.
In the UAE we expect this figure to
be much higher: 33%
Exposure of international call
volumes
Higher smartphone penetration
fuels network effect
Availability of Wi-Fi.
30
Voice traffic originated from smartphones in
MENA region, 2009–2018
0
50
100
150
200
250
300
350
400
20
09
20
10
20
11
201
2
20
13
20
14
20
15
20
16
201
7
20
18
Min
ute
s (
bill
ion
)
OTT IP voice
Operator IP voice
Circuit-switched voice
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat
Operators are much more vulnerable in messaging
31
OTT messaging services will
continue to grow strongly. We expect
service penetration of smartphones
to increase to over 60% by 2018.
Full service substitution is much
more viable in messaging; SMS is
not a universal service and usage is
strongly clustered.
Partnerships look likely dominate in
many markets and appetite for
operators to compete head-on for the
mass-market limited.
Messaging volumes on smartphones in MENA
region by type of service, 2009–2018
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Messages (
trill
ion)
SMS/MMS Operator IP
Non-operator IP
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat
The revenue outlook is providing a challenge for standard investment models
32
Investment decisions typically based
on NPV/DCF assume revenue
growth.
The value of the communication
services business is currently
unknown.
But some of its value is in supporting
other parts of the business:
Chiefly connectivity
But also distribution, identity
management, authentication,
billing, location, etc.
Some opportunities for incremental
revenue but, importantly, also
defence of key links in value chain.
Handset ARPU in MENA region, 2012–2018
0
5
10
15
20
12
20
13
20
14
20
15
20
16
20
17
20
18
US
D p
er
month
Voice Messaging Data
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat
Summary
33
The value of communication services is increasingly „indirect‟
• Dominant Internet players each have their own business model
• Smaller start-ups also developing new models
Operators are experimenting with a range of approaches
• „Free‟ voice and messaging are increasingly the default
• Voice over Wi-Fi the clearest service enhancement
Continued uncertainty about long-term role of communication services
• Difficulty of investment case in context of long-term revenue decline
• Clearer argument for supporting voice services
• No „one size fits all‟ solution; different solutions for different segments?
MENA Summit 2013: Enabling innovation, driving profitability © Analysys Mason Limited 2013
Operator strategies to counter the OTT threat
Thank you for your attention.
Any questions?
34
Stephen Sale
Principal Analyst
