Digital innovation a “luxury”? For operators, it’s in the DNA

Telecoms.com periodically invites expert third-party contributors to submit analysis on a key topic affecting the telco industry. In this piece Dr Andy Tiller, AsiaInfo’s VP of Corporate Product Marketing, takes issue with Google’s claim that breaking new ground is beyond the means of the mobile operator and looks at how telcos are getting better at partnering with OTT players.

During a speech this summer, Google executive Tim Carter declared that operators simply can’t afford to innovate, claiming that that the “luxury” of digital innovation is now the sole preserve of the rich (i.e. Google) and entrepreneurs with little to lose. But is this really true?

Firstly, many operators are far from struggling, rather bringing in sizeable profits and, as a result, able to drive innovative initiatives.

Secondly, what does innovation actually mean for operators?  Is it proliferating basic connectivity through balloons and drones (represented by Google’s own Project Loon)?  Or is telco-driven innovation in fact much more sophisticated, based on the operators’ unique understanding of mobile users’ needs?

An excellent example of overarching operator innovation is WAYRA – the global start-up business accelerator belonging to the Telefónica Group, which is catalysing innovation around the world.  Two years into the project, WAYRA had received more than 20,000 business proposals that feature the internet and technology as a driving force. WAYRA selects the most innovative projects in their initial stages with major economic potential, and provides them with resources and expertise to accelerate their commercial development and help them to become scalable businesses.

While the first two decades of GSM-based mobile communications were largely based on voice, text and fairly unsophisticated data services, the third decade is seeing operators innovating to unleash the full capabilities of their networks and their customer data. Today, as well as enabling seamless connectivity for voice and data communication, operators are creating and delivering an increasingly wide range of targeted services, offering flexible tariffs, self-service account management, appropriate QoS, and safeguarding their customers’ privacy.

Realizing the full value of the network

One example is China Telecom Group, who anticipated the threat from the so-called over-the-top (OTT) services and transformed it into an opportunity to create new revenue streams.  In recent years, OTT players have evolved into a major challenge to operators, with their impact spreading throughout the telecoms value chain. However, OTTs also represent a tremendous opportunity for operators to unlock more value from their assets.

China Telecom Group seized on this, and began deploying a business to business collaboration platform back in 2011, with two aims. The first was to allow the operator to converge its products with those of the OTTs and other digital service providers, creating offerings worth more than the sum of the parts that can be sold through multiple channels. The second was for the platform to act as an API hub, enabling a fast and cost-efficient way of opening up their back office IT and network systems, such as billing and CRM, and network assets such as SMS gateways, to enhance the OTT services, and to promote and monetize them at a scale and precision that was previously not possible.

While these APIs are made available for free, China Telecom claims a percentage of revenue collected from end customers. The incremental revenue from these innovations added to China Telecom’s business each month  is over $170 million.

€6 billion opportunity

The development of this revenue stream is not limited to China.  Further proof of the value of innovation with OTT partners comes from the latest research from Northstream, which focuses on the opportunity presented to operators if they partner with OTT players, rather than ignoring or fighting them.  Northstream’s business case analysis shows that operators in 16 Western European countries can collectively benefit from more than €2 billion in increased profits over the next three years by taking a more systematic and scalable approach to OTT partnerships.

Giving end customers more control over their mobile services, pricing and usage is another area of innovation. Investment in these ‘real time self service’ capabilities by some of the leading US operators has been a key driver in the increase of their data ARPU year-on-year by up to 20%, more than compensating for declining voice revenues. On the other side of the world, in Malaysia and India, operators are using these new capabilities to offer innovative data products and price models that address consumers’ need for connectivity – and boost data revenues by up to 90% year-on-year.

The business case is proven in practical implementations – and complementary research commissioned by AsiaInfo in 2013 showed that mobile operators in Western Europe could increase annual data revenues by more than €4 billion by putting their customers in control.

Innovation has always been – and will continue to be – the lifeblood of the communications industry, regardless of the carriers’ size and wealth. The mobile operator community is identifying and seizing opportunities to push the limits and extend our understanding of what we can expect from the network.  Innovation is not the exclusive territory of Google.

Andy joined AsiaInfo in 2012 to create a global Product Marketing function based out of the new European HQ office in Cambridge, UK. Prior to joining AsiaInfo, Andy was SVP of Product Marketing and Strategy for ip.access, where he was responsible for the product roadmap, market strategy and communications. He was also a Board member and Director of the Small Cell Forum. Previously, Andy was CTO and VP Product Marketing for ShoZu, a GSM Award-winning mobile service for sharing videos, photos and other user generated content.