In 2011, communication service providers (CSPs) lost €10.4 billion in text messaging revenues, according to Ovum. This, Ovum argues, was down to the increasing popularity of over the top (OTT) social messaging services, such as WhatsApp and Facebook Messenger. Given that €6.5bn was lost in revenue for the same reason in 2010, CSPs find themselves under increasing pressure from OTT providers who are offering competing services at cheaper prices. Yet, while the emergence of OTT services is undoubtedly a threat to CSPs’ revenues, they know that if managed and reacted to effectively, it could be a significant opportunity for them to generate new revenue streams.

OTT services have grown in popularity in recent years thanks to the rapid uptake of smartphones and other mobile devices such as tablets, simultaneously occurring with a social media boom. The growing number of channels and tools for communication means that an SMS over a cellular network that needs to be paid for has – for some time – not been the only option for customers to message one another. In March 2012 OTT provider WhatsApp announced that it had hit the two billion messages per day volume worldwide, just five months after reaching the one billion mark. Considering this pace of growth, it is essential CSPs act now to effectively manage the risks being posed.

Offering content beyond the norm

To take advantage of this opportunity some CSPs may look to launch their own OTT services, a good example being Virgin Media’s recently announced “SmartCall” application, which not only defends against OTT providers but helps grow a declining revenue stream. Using the application, Virgin Media’s home phone customers can make calls from mobiles over a wifi connection, regardless of their location (even if they are abroad) using minutes from their landline bundles. This application not only helps Virgin Media differentiate itself from competitors by providing a service others are not, but the innovative offering will drive demand for Virgin wifi access and home phone deals, which in turn can increase revenue gains as customers upgrade their packages.

However, if CSPs choose not to offer their own OTT services, there are many benefits to be had by working with, rather than against, OTT providers, such as increased brand affinity and positioning themselves as front-runners within the telecoms and mobile applications space. If third party developers see that CSPs are supporting OTT providers it is more likely they will partner with CSPs to offer new and innovative applications in their own stores rather than only for external markets, such as Amazon’s Appstore. This is something CSPs are increasingly looking to do to help capitalise on the mobile application boom. If successful, CSPs will generate a new revenue opportunity to optimise on the back of embracing OTT services.

Embracing OTT providers

CSPs can also turn to OTT providers to launch new and personalised offerings, which deliver increased customer satisfaction and new, varied revenue streams. By partnering with OTT providers, or content providers such as newspapers, to offer services, CSPs will generate new revenue streams, while gaining access to an increasing amount of customer data allowing them to personalise their offerings accordingly.

For example, some smartphone users use mobile applications to identify certain songs played during television programmes and commercials. If a CSP were to partner with such an OTT provider, they could offer the customer the chance to download the track being played at a discounted rate over their cellular network, or even over wifi. By striking up the necessary partnerships, CSPs could own the billing for such a purchase, meaning however it’s downloaded, there is a revenue opportunity for them.  The whole process will also be faster and more convenient for the customer, offering a better experience and increasing stickiness. In addition, CSPs creating such partnerships not only build a new service to monetise, but will also be able to develop an insight into their customers’ music tastes. This can be used to flag the latest releases by certain artists and the opportunity to download exclusive tracks and add the cost to their monthly bill, all of which will help further increase customer satisfaction and loyalty.

Standing out in a crowded market place

Many of the handsets CSPs will be offering on their networks in the coming months will no doubt be designed to run specific OTT services. For example, Nokia’s latest set of devices that run on Microsoft’s Windows Phone operating system will offer Skype out of the box, and it will be interesting to see how CSPs react to this as they negotiate carrying the handsets. CSPs that accept the offer of such services will have access to yet more customer data, enabling them to further enhance the customer experience, and grow revenue streams. By forming exclusive partnerships that accept the potential risk as well as the rewards of running third party OTT services, CSPs may also be able to differentiate themselves from competitors by being the only providers selling that particular handset, as we saw with O2 and the iPhone in the UK when it was first launched.

To optimise the increasing volume of customer data delivered through embracing OTT services, CSPs must ensure their back-end infrastructures are capable of delivering detailed insight into how customers are using the network, as well as which users are using OTT services most heavily. They will need a flexible billing system capable of bundling all customer information and charging them efficiently to improve the customer experience, effective analytics tools capable of processing customer data so that it can be actioned accordingly, and an order and design solution allowing CSPs to rapidly launch new offers and services to market – some of which are beyond CSPs’ traditional pricing models – in response to patterns it is seeing in its customer data.

Combatting the threat

One thing CSPs should avoid is blocking or limiting access to certain OTT services, which is what some are doing according to a report from the Body of European Regulators for Electronic Communications. The study found that up to 50 per cent of people in the European Union (EU) are locked into broadband and mobile broadband contracts that permit operators to limit access to VoiP or file sharing services. By limiting access to these services, CSPs ensure that users pay for their use of the network when using OTT services.

Blocking services will prove to be unsustainable for CSPs in the long run. Recent research from Rebtel claimed that over half of UK smartphone users are unaware that CSPs block or limit access to OTT providers, while almost 60 per cent of the UK’s total smartphone users would switch networks if they knew services were being blocked. This approach has the potential to significantly damage customer loyalty, and in an age where customer experience is king, CSPs simply cannot afford to take that risk.

Remaining relevant in the telecoms space

CSPs realise that failure to address the challenge of OTT service providers will result in their revenues from cellular network activity shrinking. As a result, they must fight to remain relevant to their customers and embrace and enhance OTT services that the majority of their customers want to use. Innovative OTT services will continue to enter the market in the coming years and their popularity will surely increase as 4G networks are rolled out, and the number of activities that can be done on the move hits new levels.  It is critical CSPs apply these learnings to their processes to remain relevant, boost their offerings and make full use of the resources available to them, such as the increasing volume of customer data. In doing so, CSPs will improve the customer experience while creating new and innovative revenue streams and trusted partnership models that allow them to take their fair share of the revenue available; something they have missed out on too often up to now.

Gordon Rawling, Senior Marketing Director, Oracle Communications EMEA