It is forecast season again and it is looking gloomy for communications in Europe. Ovum predicts that telecoms companies will lose $23 billion that they would otherwise taken in SMS revenue to Over The Top (OTT) messaging apps this year. They see this drain rising to $54 billion by 2016. Combine this with the prediction from STL Partners, hosts of the Telco 2.0 initiative, that the ‘Big Five’ European Telco countries will lose an average of four percent a year in revenues. This equates to a loss of revenue across Europe of around 50 billion euros by 2020. Spain and Italy are predicted to take the biggest hit, with losses of 61 percent and 47 percent respectively.
As if to add insult to operator injury, new research in the UK reveals that the app market in the UK alone will reach 556 million euros by the first quarter of 2013.
There are, however, glimpses of brightness, even though this may simply herald more heavy weather ahead. Juniper believes that roaming will help save the day, increasing revenues from their current mark of $46 billion to more than $80 billion by 2017. This, says Juniper, will be driven by data roaming, and outweigh the price cuts and regulation that is forcing the price of roaming downwards. The company believes that revenue will increase at around 21 percent on a compound annual interest basis.
Whether the roaming news is a false dawn, it is a distraction and there is now an urgent and fundamental question for operators. How do they combat this drastic reduction in core revenues?
The answer lies in the app. Operators must find ways of catching this tiger by its tail and provide something that is useful for the app makers and the customers. And that is billing and everything that goes with it.
Oddly – at least to some – operators do not necessarily look at OTT players as ‘the enemy’ and there are plenty of examples of OTT players looking to telecoms operators to help them solve a variety of problems – mainly billing ones. Indeed, 42 percent of operators in a recent survey conducted by Amdocs believed that they could offer the same services as OTT players, but better – and 34 percent of respondents looked at OTT players and partnerships as a way of fostering innovation.
From an OTT point of view the network is already a key component of their offerings. Quality and therefore quality of experience for their customers is vital. There are already the first signs of successful partnerships emerging that support this. As Allot’s Mobile Trends Report reveals, 26 percent of operators already have revenue sharing models in place.
This is encouraging, but the partnerships have the potential to go much further and deeper. With Direct Operator (in-app) Billing now widely viewed as the most intuitive and therefore customer friendly way to bill, the forecast is suddenly much brighter. As if to prove the point, O2 have now announced that they are increasing their pay out rates to merchants. Their partner Bango believes that this will not only increase the sign on rates from merchants, until now not that attracted by high commission rates being charged by operators, but believe that such a move will boost the whole market – as if our app-driven world needs a boost. What is encouraging is that operators have a serious opportunity to take advantage and if they do it sensibly we might well see the rise of ‘non-core’ service revenues far outstrip the declines.