Why Operators Need to Embrace Their ARPU Eaters
It’s been widely acknowledged that the Holy Grail for operators has been voice, representative of approximately 70 percent of a $1 trillion market. We will now, however, see a steady decline as consumers increasingly transition to IP-based forms of communication.
This leaves providers of traditional fixed and mobile telecommunication services left to face a myriad of challenges, not the least of which is how to respond to disruptive technologies like OTT (Over-The-Top) services such as Skype, Twitter, Facebook, Google, WhatsApp and Rebtel, which are gaining millions of new users every month.
As the market transitions from hardware-centric to software-centric, the true opportunities for differentiation lie in how, and when, telecom incumbents decide to establish relationships with OTTs.
If You Can’t Beat ’em, Join ’em
Right now, 90 percent of all smartphone users rely on mobile apps for communication, and around 100 million people are actively using these applications for free calls or messaging. And while the total number of VoIP users is predicted to escalate to more than 400 million by 2015, it’s expected that there will be a simultaneous 16 percent decline in global mobile voice revenue.
Ovum also recently estimated that operators lost $13.9 billion in SMS revenue in 2011, as customers increased their dependence on Twitter and Facebook to message each other, often bypassing carrier services altogether.
Some believe services such as Skype could even supersede traditional operators. But this surely won’t be the case within a foreseeable future, as we’re nowhere near ubiquitous Wi-Fi. The fact is, both the industry and consumers stand to benefit more if innovative startups and traditional operators partner to deliver a combined service.
Reducing Customer Churn
Some innovative operators already have caught on to this and are using partnerships to develop a sustainable defense of their core revenues and to grab a hold higher up the value chain. They understand that partnering with an OTT provider expands the total size of the communications services for all parties.
In an industry that relies heavily on the “next big thing” and suffers from a customer churn rate of between 25 and 35 percent, there’s a clear opportunity for operators to partner with innovative OTTs. Most OTT apps are seen as sexy, slick and easy-to-use as well as often being cheap or even free, something that tends to strike a chord with today’s digital consumer. Operators struggle to compete in these areas due to the size and inherently inflexible nature of their business, making it difficult for them to earn brand loyalty, retain revenues and differentiate themselves in this competitive market.
However, if operators were to work in tandem with OTTs, they could use the partnerships as a way of increasing trust, customer satisfaction and decreasing these churn rates.
Pump Up the ARPU
Partnerships with OTTs could also be used as a bundle for increased data tariffs and ARPU. With free talk-time at hand, people are likely to call out of network more frequently. If they are using the operator’s app for free calling, they will probably use it for international calling as well, which is an area where operators could stand to bring more revenue.
A collaboration will enable both sides to piggyback on each other’s brands and value propositions. The synergies are obviously there and the partnership between Japanese firm KDDI and Skype is a great example of just that.
In 2010, KDDI entered into a strategic alliance with the now Microsoft-owned VoIP giant, Skype, which was integrated across KDDI’s services. This allowed the operator’s subscribers to benefit from Skype-to-Skype calls (without the minutes being subtracted from their monthly allotment), Skype Instant Messaging, as well as the ability to make international calls for significantly lower rates than with a traditional operator.
The KDDI and Skype marriage proved to have a significant impact on both companies’ ARPU. The partnership also improved KDDI’s brand perception and awareness within younger markets, reduced its market share loss and provided the company with an opportunity for long-term data revenue growth. Ultimately, the partnership was a win-win situation for consumers and the company.
Communication services, and in particular voice and messaging, will go beyond “calls” and “texts” generating the need for new business models, new platforms and new forms of user interaction that can only be reached through a focused innovation agenda based on consumer and market insights.
Right now the operators lack all of the above, but are starting to show the willingness to change. That willingness is a key ingredient for future growth opportunities; let’s just hope it’s not too late.
Andreas Bernstrom is the CEO at Rebtel, the second largest mobile VoIP provider after Skype (based on revenue). Prior to Rebtel, the Goldman Sachs alum was COO of Taptu, a U.K.-based mobile search engine, and TradeDoubler, a performance-based marketing company.