Expect more OTT partnerships

Bonnie Tubbs
By Bonnie Tubbs, ITWeb telecoms editor.
Johannesburg, 25 Jun 2015
Transformation is the only way for operators to stay relevant as OTT services, particularly VOIP, grow with velocity.
Transformation is the only way for operators to stay relevant as OTT services, particularly VOIP, grow with velocity.

Partnerships between SA's mobile operators and over-the-top (OTT) players will become more common going forward, as the OTT threat continues to grow exponentially as services improve.

This is according to analysts, in response to Cell C's latest - and second - OTT partnership, this time with Internet giant Facebook. The operator took the first step towards embracing OTT players in October last year, when it introduced zero-rated WhatsApp messaging for its customers, initially on a promotional basis.

The latest move, says Cell C, forms part of the company's ongoing OTT strategy, which involves embracing and partnering with the players it once felt threatened its function and revenue.

The strategy is still on the cautious side, however, as Cell C is offering customers free WhatsApp and Facebook access, minus voice over IP (VOIP) services via these platforms.

Analysts say, nevertheless, it is likely other operators will follow suit - largely because they have no alternative.

Crying foul

SA's operators voiced their concerns over OTT players at competition hearings hosted by the Independent Communications Authority of SA (ICASA) last October, with some calling for regulatory intervention.

Vodacom felt OTT providers posed a very real threat to the competitive mobile landscape, as they were becoming increasingly data-hungry and the networks were having to pick up the costs associated with improving data networks.

Richard Majoor, Telkom's head of regulatory affairs and public policy, said at the hearings that OTT was stealing voice revenue. He wanted ICASA to regulate OTTs so they contribute to the development of SA's telecoms market.

Now, eight months down the line, the threat is bigger and although operators have not let go of concerns over the justness of OTT players' "invasion", they are exploring different avenues.

Without sharing specifics, Vodacom says it is looking to work with OTT players in a manner that benefits both parties and will not be to the long-term detriment of customers.

In 2013, Analysys Mason said:

* Operators would remain the dominant force in mobile voice, but would be significantly weakened.
* Operators were tweaking the voice feature set, but most viewed any major transformations with voice over long-term evolution as a long-term plan.
* By 2017, non-operator-provided VOIP services would generate 14% of smartphone users' voice traffic.
* It was the end of an era for SMS, as IP-based messaging goes from strength to strength.
* SMS retail revenue peaked in 2011 and would fall rapidly in most countries thereafter.
* Traffic substitution would be faster than revenue substitution.
* Overall, Analysys Mason expected messaging revenue to decline by 39% between 2011 and 2017.

Spokesperson Richard Boorman says it is a difficult balancing act. "One can offer free services and in doing this try to attract new customers. The downside is that you're incurring costs and increasing network traffic without generating revenue. In the long-term that means less money to invest in the network, which ultimately means poor network performance and irritated customers."

Telkom Internet has offered zero-rated access to certain social media and educational sites since last September. Going forward, says Telkom communications head Jacqui O'Sullivan, OTT services are critical as a complementary revenue opportunity for the company.

"OTT does impact on fixed and mobile voice revenues and SA is reaching mobile saturation. It's therefore incumbent on operators, including Telkom, to look to data services for growth."

MTN chief marketing officer Larry Annetts says the operator believes operators and OTT players can co-exist for the benefit of consumers. He says, however, rules of engagement have to be defined to ensure "a win-win ecosystem" is developed and agreed upon. "MTN believes mobile network operators and OTTs need to work in partnership to define access and structure."

Major threat

IDC telecoms analyst George Kalebaila says the approach Cell C has taken is the right one, although it is telling that the operator has not zero-rated VOIP services, the greatest threat to operators still enjoying decent voice revenues.

"Sooner, rather than later, the other operators will follow suit as they have no alternative. It has been shown, even in developed countries, that operators cannot match the pace of innovation and agility of OTTs to effectively compete against them. Therefore, partnerships like these will become common. Operators who choose to fight, unfortunately, will just be delaying the inevitable."

Kalebaila points out the key threat of OTTs like WhatsApp and Facebook Messenger is their VOIP offering, because this eats directly into telcos' cash cow - voice.

"Although [voice] is already in decline, it remains a significant contributor to telco revenue. Even if telcos benefit from the data used during the VOIP call, this will not offset the revenue loss if this threat is realised."

BMI-TechKnowledge director Brian Neilson says the OTT threat grows in direct proportion to the volume of consumption of mobile data, which is exponential. He agrees communication using data, rather than traditional voice services, is the biggest threat.

Ovum analyst Richard Hurst says the ability to cut communication costs has been the biggest driving force behind OTT service uptake.

And the threat is only going to grow. Kalebaila says, although the quality of OTT VOIP at the moment is not great, it will improve. He uses Skype as a case in point. "That's why partnerships like Cell C's are necessary because then telcos can leverage these to still remain relevant in the digital value chain."