Could mobile operators become the prime real estate landlords for the digital economy?

Finally it is here: The mobile data equivalent of toll-free numbers. Last week AT&T unveiled a “Sponsored Data service”, meaning that their customers are able to use participating services without eating in to their data allowance. AT&T will treat Sponsored Data traffic no differently to regular data traffic, thus providing digital retailers and OTT service providers with an efficient way to communicate and trade with their customers.

Coleago has long argued that with the growth in the digital economy, sellers of physical and digital goods and services are looking for the mobile data equivalent of a toll-free number. In the past many businesses encouraged consumers to trade with them over the phone by publishing toll-free numbers. The growth of online shopping with mobile devices provides impetus for extending the concept to mobile data. The message from retailers to consumers is “it does not cost you anything to visit our digital store”.

The good news for mobile operators is that this provides an additional revenue stream. But the concept could be taken further. In Europe, North America and other markets where most people purchase their smartphone from mobile operators, these operators can control what consumers see on the screen of their new smartphone when they take it out of the box and switch it on. A smartphone screen provides the digital real estate for sponsored apps.  Apps placed on the home screen would be the most valuable, and the giants of ecommerce such as Amazon may have the scale to pay to have their app on the home screen. EBay, travel and financial sites and many other e-tailers may also be interested in sponsoring apps placed on subsequent screens.

Of course users can delete and move smartphone apps. However, judging by how many people do not bother or do not understand how to change their browser home page, it is likely that many of the preloaded apps will stay where they were first placed. This effectively means that mobile operators become landlords in the digital economy.

Written by Stefan Zehle, CEO, Coleago Consulting

The end of geography and roaming in telecoms

Today most people are familiar with services such as Skype. Effectively a location independent mobile service, with Skype it does not matter where people call from nor does it matter where the called party is located. Geography has become irrelevant. By the end of Q4 2012, it was anticipated that roughly 50 per cent of international call traffic is likely to have taken place via Skype and similar services rather than traditional carrier traffic.

More and more people are installing Skype on their handsets or using Facetime on their iPhone, and they are getting used to the fact that calling from their mobile phones doesn’t necessarily have to involve the mobile operator. What’s more they also get video telephony. Increasingly people use WiFi on their smartphones, both at home, at work and in public places. The introduction of WPA2 as well as SIM based authentication which allows automatic connection to a WiFi network without signing in makes it easy for users to route their traffic via WiFi and opt out of traditional telephony.  Operators such as Rebtel in Sweden and Republic Wireless in the USA focus on this opportunity – these mobile operators that use WiFi offload “push” their customers to make calls using Skype like services.

The trend away from making standard mobile voice calls is accelerating with the adoption of LTE. For example, in contrast to older versions of the iPhone, the new iPhone with Apple’s iOS 6 upgraded FaceTime from a WiFi only feature to a cellular feature. AT&T Wireless was the first to allow customers to use FaceTime over LTE if they signed up to their new shared data tariff plan.

During 2013 we will see the start of a fundamental reshaping of mobile telecoms service offerings driven by new services based on the IP Multimedia Subsystem (IMS), the evolution of mobile wholesale as well as regulatory trends. Some operators may go all the way and break the link between the mobile telephone numbers and geography. After all it seems somewhat archaic that in a world where distance does not matter, mobile operator tariffs are still based on location and distance. Location is not an issue with Skype or FaceTime and this is one of the reasons for the success of these OTT operators.

Some operators have already introduced services based on IMS, for example in Canada the Rogers One Number service allows the seamless switching between a smartphone and computer. It allows mobile operators to leverage the proliferation of free WiFi connectivity to in effect extend their network coverage world-wide.  This allows mobile operators to fight back against OTT services such as Skype, WhatsApp and FaceTime by in effect becoming themselves an “OTT over WiFi” player.

There are also traditional mobile services that allow users to avoid roaming charges and thus take at least one aspect of geography out of equation that already exists for voice (Truphone, WoldSIM and other) and data (roamline.com, in collaboration with KPN). The business model is built on exploiting the difference between lower wholesale prices paid by MVNOs versus high inter-operator roaming tariffs by offering customer SIMs with multiple numbers in different countries.

The opportunity to take geography out of mobile pricing is not limited to roaming. For example, Turk Telecom launched a service in Germany and Belgium aimed at the Turkish ethnic segment in these countries. Customers are charged exactly the same amount to call numbers in Belgium or Turkey. Turkcell could add the ability to recharge linked accounts (a Turkish person working in Belgium can recharge the prepaid SIM of relatives in Turkey) and make small mobile payments across borders. Smart, of the Philippines is already going down this route, targeting the Filipino diaspora segment around the world.

As a result of these trends in international call pricing as well as roaming, Geography may soon become irrelevant.

Written by Stefan Zehle, CEO, Coleago Consulting

What is wrong with being a bit pipe?

As the telecom world (both fixed and mobile) moves increasingly towards data there has been a lot of debate about whether it is a good or bad thing that infrastructure based telecom operators are becoming bit pipes.  The conventional view in the industry is that becoming a bit pipe is a bad thing and that telecoms companies will miss out on being able to provide lucrative new services to customers due to the emergence of OTT services which run over their bit pipes and are not controlled by the telco.  We would argue that this viewpoint, although understandable, is flawed and operators need to focus on the positive side of their situation by aiming, for example, to become the most profitable branded bit pipe provider in their market rather than expending scarce resources on trying to create new revenue streams that in all likelihood will not materialise.

The telco view of OTT is not entirely logical: If the definition of an OTT service is one that is delivered directly from the provider to the end customer using an open internet/broadband connection i.e. independently of the telco, then OTT services would logically cover all goods or services provided online. So not only would Skype and App stores be OTT services, but so would e-commerce sites such as Amazon or e-Bay as well as search services such as Google not to mention social networking sites like Facebook or Twitter. The whole point of the Internet is that it is open and this encourages innovation, which militates against the notion of any form of central control.

Telcos may not have the skills to launch many OTT services: In many instances telecom operators have no real competence in running OTT services as is evidenced by the fact that with very few exceptions they have failed to launch many successful OTT services. We struggled to think of many telcos that have been successful in this field.  One of the few examples we could think of was Safaricom in Kenya, which pioneered (a GSM based) mobile payment (banking) service called M-PESA. NTT DoCoMo’s i-mode service in Japan has been cited in the past but even it is an open platform and third party OTT service providers can have direct relationships with end customers.

Having a billing relationship with a customer is less of an advantage now: In the past a telco’s billing relationships with its customers was seen as a source of advantage but given the growth of online commerce many organisations (look at Paypal or Amazon or Skype) now have direct billing relationships with customers and this advantage has clearly been blunted.

OTT services increase demand for bit pipes: OTT services provided by third parties drive demand for more and better broadband connections i.e. the fundamental services provided by telcos. So the good news is that demand for telecom operator services is set to grow even if in the near term there are pressures as traditional voice and SMS revenues are in decline. Telecom operators in aggregate enjoy higher returns on capital than many other types of businesses and this combined with the utility nature of the business ought to make being a successful branded bit pipe provider an attractive business proposition. Telcos that can successfully develop and market the right mix of tailored bit pipes with the right cost structure ought to have bright future.

Written by Scott McKenzie, Director, Coleago Consulting