Digital Transformation & Maturity

Is the tide starting to turn for operators against the threat from OTT players?

It is a well know story which has been written and analyzed about for years – the threat that operators face from over-the-top players (OTTs). Indeed this report from Juniper Research stated that “customer migration from operator voice and text services to OTT messaging services and social media will cost network operators nearly $104 billion this year – equivalent to 12% of their service revenues”.

Service providers are, however, not taking the threat lightly and that’s due to successful digital transformation strategies starting to bear fruit. Operators are beginning to fight back and not only creating their own OTT apps and services, but also platform businesses that analysts have for so long been talking about.

Three very different operators on the third day of Mobile World Congress (MWC) described what they were doing to fight back against the OTTs. What was most interesting was they all had three very different approaches.

Monetize not moan

The first operator to take to the stage, Kaan Terzioglu, CEO, Turkcell, discussed how taking digital transformation very seriously and enabled Turkcell to create its own platform allowing it to compete directly with OTTs. In Terzioglu’s view, service providers can compete with OTTs directly by providing a better quality of service as well as differentiating on security and ease of payment.

The most striking part of Terzioglu’s speech was his overwhelming optimism regarding the future of the telecom business, and even I have to admit, I was swept away by it! To be fair, he did also make a very logical and compelling point – what other industry do you know that complains that people are using more of their services? In this case, he was referring to the use of data.

Rather than complaining about the increase in data usage, service providers should be looking at every opportunity to monetize the services that create the demand for data to rise.

Turkcell has done this by launching digital messaging, music, tv, content and cloud services, putting them head-to-head with established OTT players. No wonder the CEO is being so optimistic and bullish about the future of the industry – Turkcell is seeing some very impressive results from its digital transformation and the offering of new digital services. It has seen 86 million core app downloads, making them the second largest app player in the Turkish market. It has seen 40% bi-annual growth in group revenues, 23.4% revenue growth in FY2017, 51% FY2017 growth in data and digital services revenues, added an additional 1.5 million new customers in Turkcell Turkey and has seen the lowest mobile churn rate of the past decade.

Turkcell has only been able to achieve this success due to its digital transformation programme that focused on three dimensions: digital company (internal transformation, people, processes and systems), launching digital services and connecting the digital ecosystem.

Break traditions

The second speaker to take to the stage was Christopher Schlaeffer, Chief Commercial and Digital Officer, Veon.  Veon’s approach to digital services and competing with OTTs is in direct contrast with Turkcell. Whereas Turkcell has created its own digital services to rival OTTs, Veon is creating a digital platform which aggregates services and brings the digital ecosystem together through its Veon App.

What is very interesting about Veon’s approach is that it turns its traditional business model on its head.

Veon has very much followed in the Chinese Wechat’s footsteps and created a single app that not only acts as a digital messaging app (such as WhatsApp), but it also serves as a digital marketplace, offering access to third-party services such as taxi hailing, music, content, media, shopping etc.

Veon doesn’t allow exclusivity so the USP is that it brings choice to customers. Several competing businesses can join Veon’s platform and it is up to the customer which one they chose. The service provider can also make recommendations using AI and customer preferences. Just like Wechat, not only is the app free, but chat and voice calling through the app is free even when the subscriber is out of credit. The customer also isn’t charged data for using the service.

Veon has therefore created a digital platform, which is free to use, personalized and offers a secure digital identity with trusted payment and privacy protection. It has launched the app in five of its markets to date, with Pakistan being the latest launch in October 2017. While it might be too early to look at the financial impact the digital platform is having on its revenues, the early indicators are good. Veon has signed up over 200 partnerships, and its subscribers can access everything the internet has to offer in one place – and its customers seem to like it!

Since its launch in Pakistan on 11 October 2017, it has now become the number one top free app on Google’s Play Store. A feat it achieved in eleven days since launch, overtaking Facebook. By 13 November it had 1.5 million downloads.

The stats are impressive, but with any new service and transformation, success will be measured in terms of revenue and its contribution to the bottom line. By creating a digital platform that is open, free to use and sees the service provider playing a different role from a traditional telco – especially in the way it is revenue is generated (based on revenue share agreements with partners), it is fair to say Veon has been successful in reimaging itself in the digital world.

Positive partnerships

The third and final speaker was Jan Trionow, CEO of Hutchison Drei Austria. Trionow’s presentation followed a much more traditional approach which has often been favored by service providers. Drei is focused on partnerships as well as launching a few of its own services such as TV and cloud.

Trionow stated that partnerships have a lot of value for telcos, such as churn reduction and subscriber acquisition as well as improving brand positioning.

There is, of course, the all-important revenue sharing agreements. Trionow was also quick to highlight the benefits that service providers can give to OTT, especially new ones such as zero-rating, marketing and sales as well as billing. Billing really is a quick win-win service, where operators can quickly deploy and deliver secure, accurate billing to third parties as well as authentication and identity.

Trionow also brought up some of the blockers service providers place when competing with OTTs such as a lack of a fair level playing field noting EECC, ePrivacy and net neutrality.

Finding your own way

This session at Mobile World Congress highlighted the fact that service providers’ approach to digitization and the role that they will play in the digital ecosystem will vary from company to company and from geography to geography.

Some operators will take OTTs head on such as Turkcell whereas others will take a more cautious approach and use partnering and launching some low-risk OTT services such as TV which we saw with Drei Austria’s approach. Veon demonstrated a third middle way: creating a digital platform, whereby they will act as a service aggregator; bringing the digital ecosystem together; making money through revenue share; and selling services to third parties that telcos are already very good at doing which will require little reconfiguration and effort. These services are particularly centered around billing, revenue assurance, digital identity and security.

Not all operators will be bullish enough or will be able to compete head-on with OTTs such as Turkcell, but all operators can position themselves as a platform player and service aggregator. While all three approaches may prove successful for the individual operators, I think Veon’s approach will have the most success overall in terms of widespread adoption. Telcos acting as a platform will be the most commonly adopted and successful model.


    About The Author

    Vice President, Content, Research and Media - TM Forum

    Aaron Boasman-Patel is responsible for content across TM Forum’s research portfolio, the digital content platform, Inform, as well as leading content and research across the events and Digital Leadership Summits portfolio, including TM Forum Live! This is fed back to the Collaboration team to help drive the Forum’s strategic direction and collaborative program. He has chaired many international conferences and delivered presentations on smart cities, customer centricity, Internet of Everything, industry developments, market trends and strategy. Aaron has worked in the telecoms and associated industries for over ten years. He graduated with an M.A. (Oxon) from the University of Oxford. Aaron specializes in digital transformation, customer centricity, analytics and AI, and digital platforms and ecosystems.

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