D1 1150 david kennedy

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D1 1150 david kennedy

  1. 1. The Future of Voice David Kennedy, Research Director, Ovum CommsDay Summit, Melbourne 9 October 20121 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  2. 2. Agenda/Outline  Executive summary  Where we are now - and how did we get here  The OTT landscape  How telcos can respond  What happens next2 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  3. 3. Where are we now? Voice revenues on both fixed and mobile networks are declining  Not principally a result of competition from VOIP  Peer competition, regulation and strategic decisions Messaging revenues have already been hit hard by IP-based messaging, especially from social messaging  The estimated loss was 6% of total messaging revenue in 2010 and 9% in 2011 Voice revenues have not been hit as hard thus far – messaging is easier to do than voice Spectre of VOIP is haunting the industry  VOIP has hit the most lucrative services (e.g. international) hardest  VOIP hasn’t hit mobile hard yet – but the barriers are coming down and there is more pain to come3 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  4. 4. Why telcos should care  The direct impact on revenue is already considerable, and it is growing fast  It’s a tipping point phenomenon – once a critical mass of users have adopted an OTT application, it spreads very rapidly throughout the whole user base  In Korea the take-off point for Kakao Talk was 10%  Orange Spain believes the take-off point for WhatsApp was 5%  It loosens the already-weakening bonds between telco and customer  When customers get their services from another entity, the telco becomes an invisible pipe  Increasing churn and thus reducing profitability  Reducing the prospects of up-selling new services to the customer4 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  5. 5. How did we get here?  Very long term trend – communications prices have tracked underlying costs  In 1927 a five-minute call from NY to London cost $75 – at least $900 in today’s money  In 1961 a US long-distance call cost $12/minute – at least $70 in today’s money  Regulation and hyper-competition  30 years of regulation designed to weaken the market power of the telco has achieved the desired objective  Strong relationship between HHI and ARPU – the more competitive the market, the lower the ARPU  The shift in power from the network to the end-point  The advent of the PC put processing power in the hands of the user – even before the move to IP  The smartphone is the natural continuation of this trend5 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  6. 6. A ‘perfect storm’ will drive OTT VOIP on mobile • More bandwidth, easier use of VOIP Better bearers • More WiFi (including operator WiFi) makes WiFi – the second coming VOIP easier and cheaper • VOIP easier to install, easier to use, easier Smartphones and tablets to develop and upgrade client software • More use of VOIP in other contexts Embedded voice/VOIP detaches customer from MSISDN • More brains to develop, more market New VOIP players power to promote • A counter-trend, because mobility has Long-term FMS taken customers away from the desk/home6 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  7. 7. There is worse to come • Strategic extensions of existing major players Players • The next Facebook/WhatsApp/GoogleVoice • More and better sensors, and apps to make use of them Devices • Cheaper smartphones, and feature phone apps • OTT in more devices/platforms • SoftSIM/eUICC, Y-Comm and the ‘nightmare phone’ • OTT apps with contextual awareness from other cloud apps Applications • Better integration of OTT apps with telephone number services • VOIP add-ons and embedded VOIP in other applications7 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  8. 8. For users, the telephone no longer comes first  Substitution effects between different communications services  Ovum’s own research with UK consumers suggests that other communications modes are often the first choice for users to communicate with each other  30% of 16-24 year-olds say they make fewer mobile voice calls because of social network messaging  Ethnographic research by Professor Sherry Turkle of MIT suggests that we really are talking less – part of a bigger cultural change  Mixed evidence from the traffic data about this  Voice MoU is increasing in most markets – with a few exceptions8 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  9. 9. OTT landscape: a different approach to business  Four elements to commercial strategies for OTT players  Be a complement to someone else’s product  Sell the customer to advertisers  Fatten up for sale  Get the customer to pay  The diversity of business models makes it hard to prepare, anticipate, or compete with OTT players9 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  10. 10. Don’t prepare for the last war: this is a permanent, painful problem for telcos with no ‘quick-fix’ solution  You can’t take out the ‘rodent’ threats because new players will take their place  It’s hard to prepare an effective counter-offer when the OTT players’ offerings change so quickly – in response to customer demand and new technology possibilities  The biggest threats – Google, Microsoft and Apple – already have a strong link to your customers  You can’t compete commercially with ‘Godzilla’ players for whom selling communications services is a means to a different end – and for whom the destruction of your main revenue source is collateral damage, not deliberate strategy10 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  11. 11. Telco responses: five strategies Compete Partner If you can’t beat them, join them Stave off Wait and see11 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  12. 12. Compete Description • Offer services that are better than OTT • Exploit OTT weaknesses – there are many • Build on assets and relationships Examples • Joyn/RCS • “Rich voice services” – FonYou, Accession, etc • HD Voice Advantages • Brains of all your suppliers • End to End QoS (unlike OTT) • Value of standards and interoperability • Network assets, customer data relationships, and billing Disadvantages • Hard to compete with free • Interoperability and standards-based innovation moves slowly compared to OTT12 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  13. 13. Partner Description • Offer access to/from OTT services as part of commercial package • Provide supporting services – peering, caching, etc • Integrate between OTT and telco services – notifications, status messages, etc Examples • 3/Verizon/KDDI/Telcomcel and Skype • Sprint and Google Voice Advantages • Out-compete peers, encourage switching • Stimulate adoption of data services • Promote customer engagement and loyalty Disadvantages • Educate customers in the ways of VOIP • Asymmetric commercial deals13 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  14. 14. If you can’t beat them, join them Description • Develop your own OTT services, or buy some in • Leverage your brand and customer relationship Examples • KT Otelle Talk • O2 Connect • Lime Talk Advantages • Claw back some lost revenue • Muddle the market, deny scale to OTT players • Maintain skills and knowledge Disadvantages • Cannibalise existing revenues • Educate customers in the ways of VOIP14 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  15. 15. Stave off Description • Block or degrade • Barr in commercial T+Cs • Charge a premium • Introduce price structures (especially bundles) that dissipate the advantages of OTT VOIP Examples • Vodafone Netherlands; most operators (?) Advantages • Reduces revenue erosion • Delays ‘tipping point’ and knock-on consequences of VOIP Disadvantages • Blocking is customer-unfriendly – may encourage churn, especially if peer competitors break ranks • Technical challenges – needs DPI, and even then… • Potential for another fight with regulators in some countries • Short term – just pushes the problem in to the future15 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  16. 16. “Wait and see” Description • Track the impact • Evaluate technological and commercial options • No panicked response Examples The Strategy that dares not speak its name Advantages • Easy to define and execute • Customer-friendly, regulator-friendly • Frees resources to focus on areas of impact/benefit Disadvantages • Hard to sell as a strategy to investors, analysts, the board • OTT impact is sudden and fast – may not be time to respond • Hard to explain in the face of high impact on revenues16 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  17. 17. What happens next: some possible futures • We have developed four alternative scenarios for the longer-term future • We are presenting the two most extreme cases here17 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  18. 18. Apocalypse now  OTT services keep getting better, with increasing sophistication of contextual information (time, history, presence, location) available from device sensors and cloud applications  OTT apps transform in to ‘smart social agents’ which manage users’ social relationships as well as providing person to person communications  Users cope easily with fragmentation and new players, coalescing quickly around the most popular with occasional mass migrations  Telco services are miserable failures, always two steps behind the functionality of the best OTT services and unable to compete with ‘free’  Access becomes a pure commodity, with users buying it either short or long term depending on market conditions and commercial offerings  Telephone numbers follow telex addresses into near-extinction, becoming markers of low social status18 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  19. 19. The Happy Ending  Operators are alerted to the OTT threat in time  They develop new attractive and compelling services that leverage their network and customer assets  OTT services fragment and fray, undermining their attractiveness to end users who crave simplicity and straightforward inter- operability/inter-connectivity  Users abandon OTT services in favour of the more attractive telco services  New users go straight to the better-known and better-trusted telco services, which are better designed, easier to use, and more integrated with other communications services  The OTT services have educated the market as to the potential of rich media communications, but it is the telcos who reap the long term benefit – revenues from apps as well as access increase, churn and SACs come down19 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  20. 20. If ‘The Happy End’ comes true… • Prepare for continuous innovation in services, business models, tariffs, user interfaces • Invest in flexible platforms to support fast service creation • Maintain and grow user research, competitor research, and insight programs – with a special focus on ‘weak signals’ • Acquire new monitoring and intelligence tools to analyse traffic and revenue patterns • Build commercial and technical frameworks for working with partners and developers20 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  21. 21. If ‘Apocalypse Now’ comes true… • Re-orient the business towards delivering access profitably • Focus engineering efforts on efficiency, cost-saving – and hence scale • Focus commercial efforts on serving customers cheaply – especially B2B2C models • Out–compete peers by having the best pipe and most customer- friendly commercial and technical interfaces • Find effective ways to serve laggards who still want to buy telephony and messaging services from a telco • Create a new narrative that avoids the words ‘dumb’ and ‘pipe’21 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  22. 22. Thank you22 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.

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