Can mobile operators take on 'over-the-top' service providers?

With Telefonica launching a rival to Skype, can mobile operators claw back revenues lost to internet start-ups?

Telefonica has dug deep and put a lot of its money into the research, development and now marketing of its latest launch.

Rather than a handset or a tariff, the Spanish operator – which owns O2 – has chosen to go down the app route. Named TU Me, the app is free to download and allows users to send texts, make calls or send pictures using their data allowance.

Services which offer similar functions, such as Skype, often need Wi-Fi to make it work and, while Wi-Fi is an option here, the 3G connection enables users to be a lot more mobile when communicating on the move.

With this launch, Telefonica has become the first operator to declare war on what are termed as the ‘over-the-top service providers’. These OTT companies are making their way onto handsets through mobile app stores and offering new communications services for users, often for free, which work without the need for operator’s networks.

Need to identify new revenues

This means takes revenues away from the mobile operators, as users contact each other for free through the likes of WhatsApp or Facebook chat over Wi-Fi, rather than sending texts, making calls or even checking e-mails, using the dedicated mobile and data networks provided by operators like Telefonica.

When meeting executives from various operators at this year’s Mobile World Congress in Barcelona, or listening to their head honchos deliver keynotes, it was clear the rival service providers had got them worried.

With the addition of extra regulations making their way through the European Parliament eating away further at revenues, operators need to be thinking about how to claw back some income.

Rob Bamforth, principal analyst at Quocirca, claimed the operators had even more issues when it came to making money, with the traditional functions of a mobile phone failing to rake in the cash.

“TU Me is a recognition that the writing is on the wall for pay by the time increment mobile calling, just as it has already been for pay by the individual text messaging,” he told Computer Weekly.

“While voice calling and text messaging are still growing, the revenues – and more importantly, the margins they bring – are in decline. 

"Nothing will stop this, so operators have to change their offer.”

The right market at the right time

So, there needs to be new ways of bringing in the revenue, but is it a good strategy for Telefonica to take on this market for communication?

Teresa Cottam, founder and chief analyst of Telesperience, told Computer Weekly there was a number of strands to the launch of TU Me which helped it stand out from OTT providers and that could make it a success for the firm.

“Firstly, the customer gains the convenience of having everything linked to what is essentially a persistent customer ID – the mobile phone number – which helps them avoid having to manage multiple numbers, IDs and channels, and multiple bills,” she said.

“There’s also a single ‘throat to choke’ so the customer knows that if there’s a problem, Telefonica will take responsibility. That’s important, because OTT providers are great when services work, but when things go wrong you only have to read the headlines to see how very wrong they can go.”

However, it was the third piece that could give Telefonica, or other operators emulating its move, the upper-hand over the OTT providers.

“The final piece of the puzzle is all to do with data,” added Cottam. “Like many mobile operators, Telefonica wants to maintain its knowledge of what the customer is doing to match products and offers to customer behaviour.”

“Maintaining the 360-degree view of the customer is highly strategic, and positions them for a new nascent business area enabled by subscriber data.”

So, not only is there benefits to the mobile operator’s business, but customers get the convenience factor too, if they are comfortable with their operator knowing so much about them.

Playing catch-up

But, Telefonica seems to be a little late to the game. There are so many OTT services that have become household names and gained the trust, and in some cases reliance, of mobile customers, so can operators make up the gap?

“People are already gravitating to other services like Skype and WhatsApp that they are accustomed to using on the web,” Paolo Pescatore, director of apps and media at CCS Insight, told Computer Weekly.

“It is applaudable that Telefonica is at least attempting to compete with these services. They need to put in some hard marketing dollars to get the message out there, but it boils down to why a user would shift from a service they are already using and familiar with?”

Although he said Telefonica was a making long term play with this app, Pescatore said the chances of success are small when it comes to catching up with the established players.

It is clear mobile operators need to raise their game as a mixture of regulations, falling call prices and competition from new OTT vendors take hold, and it is positive to see one of the leading forces make this effort to break into a new market.

But, as many analysts have said, it will only work if new apps like TU Me can win over the customers from the current market leaders.

“The questions users will be asking are, 'Is it free? Are my friends on it? And will it work for me?' This is Telefonica’s challenge,” concluded Pescatore.  

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