OPINION: Pulling power

It’s no secret that consumer focused network operators are facing a real dilemma in the content and applications market thanks to the rising threat of OTT services chipping away at messaging revenues and posing an increasing drain on voice as well.

So it was interesting this week to hear that China’s Ministry of Industry and Information Technology (MIIT) has issued a draft proposal considering the introduction of MVNOs to the market. The thing here is that Chinese OTT players are firmly in the frame for local MVNO status, not least because they give the smaller operators, China Unicom and China Telecom (smaller in Chinese terms, at least), the ability to differentiate from clear leader China Mobile. But also because they have some considerable pulling power themselves.

The proposed MVNO trials would take place over two years, with mobile operators having to take on at least two MVNOs each, and the pilot would be restricted to domestic companies only. China represents an attractive market for domestic and foreign brands alike, mainly because of its sheer size (there are over a billion mobile subscribers in China) but also because of the diversity of its cultural demographic, with a luxury audience similar in size to that of Western Europe.

According to my colleague at Informa, Asia Pac analyst Tony Brown, Chinese OTT player Tencent—which runs popular messaging services such as QQ and WeChat —has already been strongly tipped as an MVNO, while search giant Baidu has similar aspirations. WeChat already has 300 million users, and it’s noted that achieving MVNO status would give the company chance to test out premium offerings, based on its ability to properly guarantee quality of service.

And while the domestic market is attractive, Chinese content and apps firms are also keen to expand their presence overseas—Orange has just signed an exclusive partnership with Baidu to bring mobile web apps to customers in the Middle East and Africa—the first time Baidu has signed such an agreement with a global operator. But MVNOs offer a ripe channel to facilitate this move in any market, especially in countries where foreign investment has traditionally been difficult. Take for example the Middle East: Saudi Arabia’s telecoms regulator has just this week confirmed it will invite applications from companies for a possible three MVNO licences.

The authority favours opening up the market to MVNOs, rather than new network operators, as it avoids the need for further spectrum or new radio access networks. However, this model also gives operators the chance to make money from OTT players by selling them wholesale capacity, as well as forming (exclusive) partnerships to leverage their pulling power, which surely counters the argument many operators have about OTT not paying its way.

The growing number of apps and tools for communication means that SMS over cellular has for some time now not been the only, or even cheapest, option for customers to message one another. In March 2012 WhatsApp announced that it had hit the two billion messages per day volume worldwide, just five months after reaching the one billion mark.

Clearly, a partnership with these players can introduce significant benefits for both parties, whereas an operator blocking or throttling such services would likely run into issues maintaining customer loyalty after depriving users of their favourite services. But still operators in Western Europe are looking to initiatives like Joyn to help build viable alternatives to the likes of Skype and WhatsApp.

I’m sure such partnerships as Joyn have their merits, but they will always be going up against well established alternatives. Is it possible that in the near future, we will see most innovation in the OTT space coming out of China? And when I say coming out, I mean into other markets.

Last summer China Telecom launched its long-awaited UK MVNO aimed at Chinese residents, as well as students and tourists. China Telecom was the first Chinese operator to launch an overseas MVNO, and has a potential market of around 500,000 customers of Chinese descent in the UK, in addition to the estimated one million Chinese tourists who visit each year. The UK is just China Telecom’s first stop in launching MVNO services throughout Western Europe and the rest of the world and is interesting in that it is leading the charge of ethnic MVNOs that target a specific community, rather than generalist audiences.

China could well show the rest of the world how it’s done when it comes to monetisation of OTT services.