Whitepaper: Over-The-Top (OTT) Services: How Operators can overcome the Fragmentation of Communication

Over-The-Top (OTT) Services:
How Operators can overcome the
Fragmentation of Communication

A report by Sponsored by

PAGE 1 │
August 2012

Table of contents

Information 3

Introduction 4

Executive summary 6 - 8

OTT evolution & fragmentation 9 - 12

Forecasts 13 - 18

The operator view 19 - 20

│ PAGE 2

The impact for operators: traffic & revenues 21 - 25

The operator response 26 - 29

Can operators make money from OTT? 30 - 31

Opportunities for operators 32 - 34

PAGE 3 │

Information

Methodology Sources
Research was conducted by mobileSQUARED Mobile operators included in the OTT research are:
during May and June 2012. The first wave of operator AT&T, EverythingEverywhere, T-Mobile Czech Rep.,
research was conducted in 3Q2011. Orange LA, Telefonica Spain, Telenor, TeliaSonea,
mobileSQUARED forecasts are based on Sprint, T-Mobile International, 3UK, Tigo, T-Mobile
subscriptions, and not subscribers, and factors in UK, Bouygues Telecom, MTS, Vodafone Italy,
consumers owning more than one smartphone Turkcell, H3G Italy, Orange France, Zain, O2 UK,
device. Telekom, BanglalinkGSM, CYTA, Starhub, Maxis,
Telecable, Vodafone UK, Orange UK, T-Mobile Ger-
The forecasts are based on smartphone users many, Vodafone Germany, Orange Poland
identified in the leading 68 mobile markets globally
(see above). Total mobile users and smartphone fore- Nb: Not all operators wanted to be listed.
casts are from mobileSQUARED’s ongoing research
into the leading 20 mobile markets. The remaining 48 The 68 countries researched are:
markets were researched as part of process for this China, India, us, Brazil, Indonesia, Russia, Japan,
project. Pakistan, Germany, Nigeria, Mexico, Italy, Bangla-
desh, Philippines, UK, Vietnam, Egypt, Thailand, Iran,
Total OTT subscribers and OTT subscriber growth Turkey, France, South Africa, Ukraine, South Korea,
is based on the average subscriber penetration as Spain, Argentina, Poland, Colombia, Saudi Arabia,
identified by mobile operators during the research Algeria, Taiwan, Romania, Malayia, Venezuela, Peru,
process, and applied to the smartphone population in Morocco, Canada, Netherlands, Australia, Chile,
each market. Both Skype and Whatsapp were Guatemala, Portugal, Sri Lanka, Ecuador, Greece,
identified during the research process as the leading Czech Rep., Nepal, Sweden, Hong Kong, Austria,
OTT voice and messaging service provider, and Belgium, Hungary, UAE, Bulgaria, Israel, Finland,
therefore provided the most visible use cases for the Singapore, Denmark, Azerbaijan, Slovakia, Norway,
forecasting. Jordan, Ireland, Lithuania, New Zealand, Lebanon,
Estonia, Montenegro.
Voice traffic (frequency) is based on Skype’s off-net
usage (including Skype’s projected growth), and mes-
saging traffic is based on Whatsapp (including growth
during the forecast period).
Termination costs used in the forecast process are
based on a variable rate for off-net-to-fixed calls,
ranging from $0.015, $0.025, $0.035, and a universal
rate of $0.06 for off-net-to-mobile calls, and a flat-rate
of $0.01 for SMS.

INFORMATION │ PAGE 4

Introduction

The inevitability of the mobile sector is that voice
revenues are declining, and messaging revenues
will tread a similar path in the next year or two. Over
The Top (OTT) services are already having a major
impact on the mobile space, and this will only be
exacerbated in the future. OTT service providers are
shaking up the communications space and causing
considerable consternation along the corridors of
mobile operators around the world.

The debate of whether OTT services should be
considered a threat or opportunity is old hat. Mobile
operators will view OTT as an opportunity to generate
incremental revenues, the only question is when.
Operators openly facilitating an OTT strategy will be
able to explore the opportunities and enjoy the OTT
revenue pie considerably sooner than an operator
viewing OTT as an insurgent service.

This White Paper explores the ‘Fragmentation
of Communication’ and focuses on how mobile
operators can capitalise on the OTT opportunity. It is
based on research conducted by mobileSQUARED
between May and June 2012 and incorporates
mobileSQUARED’s original OTT research from Q2
2011.

PAGE 5 │ INTRODUCTION

Executive summary

The rapid adoption of smartphones has provided Similarly, Skype is to voice what WhatsApp is
consumers with access to a wide variety of becoming to messaging. Based on existing app
communication services which go beyond the download data, mobileSQUARED estimates there
traditional services of voice and messaging provided are 75 million WhatsApp users globally, and this
by mobile operators. Yet the majority of these is projected to increase to 250 million by 2016.
proprietary OTT (Over-The-Top) communication Presently, WhatsApp users are sending 2 billion
service providers do not permit cross-platform messages a day, which equates to 27 messages per
functionality and therefore limit the capability of user per day. By 2016, mobileSQUARED forecasts
their services. Consequently, the rise of these the 250 million users to be sending 11 billion
OTT services has created an era of fragmented messages per day (or 4 trillion per year), with an
communications in which consumers cannot easily average user sending 44 messages per day.
communicate outside the ‘walled gardens’ of their
respective service/app. This weakness presents There are now multiple communication channels
mobile operators with an ideal opportunity to adopt open to users – in particular smartphone users. By
a key role in enabling OTT services and associated 2016, global smartphone penetration will stand at
revenues, as they seek new business models to 39%, meaning over one third of population of mobile
offset the decline in voice and messaging revenues. users will be able to access OTT services via their

The rapid adoption of smartphones
smartphone. An iPhone user, for instance, can send a

has created an era of fragmented
message via SMS, iMessage, Facebook, WhatsApp,
Viber and Skype to name but a few. As OTT services

communications whereby
proliferate further, more companies and developers

proprietary OTT service providers do
will look to get in on the act, and flood the market with

not permit cross-platform
OTT services. This period can be described as the

functionality and therefore limit the
‘Fragmentation of Communication’, and the mobile

capability of the service.
operators that best understand how to capitalise on
this opportunity will be the ones that are best able
to offset the inevitable voice and messaging decline
with OTT.

Skype is leading the OTT charge with over 900 Mobile operators are concerned. Research by
million users spending over 1 billion minutes a day mobileSQUARED reveals that:
making peer-to-peer Skype-to-Skype calls (free) and
• 79% of operators believe that OTT clients on
with its number of daily off-Skype minutes (charged to
smartphones are a threat to traditional SMS- and
mobile or fixed-line) approaching 40 million minutes
voice-based services.
per day. Skype has now become to OTT what
Facebook is to social media. • 73.7% of operators identified messaging as the
service most challenged by OTT.

EXECUTIVE SUMMARY │ PAGE 6

Executive summary

73.7% of operators identified
messaging as the service most
From a total global mobile subscription base of over

challenged by OTT.
7 billion, mobileSQUARED forecasts that the total
number of OTT users on smartphones will rise from
276.8 million in 2012 to 1.32 billion in 2016. As of
2012, 20% of global smartphone users are actively
using OTT services, and this will reach 45% by 2016.
• 57% of operators expect 11-40% of their Perhaps most notably for mobile operators, is that
customer base to be using OTT services by the OTT users in 2012 will only account for 2% of the
end of 2012. total global mobile subscription base, and 18% in
2016.

OTT users in 2012 will account
• 42% of operators expect over 40% of their

for only 2% of the global mobile
customer base will be using OTT, while 50%
expect 21-40% of their users on OTT services.

subscription base, and 18% in 2016.
• 100% of operators now believe voice and SMS
traffic over the mobile network will decline over
the next 5-10 years.

• 37% of operators believe the decline in voice and Messaging represents the largest off-net operator
messaging revenues will be 1-20%, and 53% revenue generating community, with 118.9 million
expect 21% and over – almost double the number users already sending paid-for messages this year,
of operators compared to the previous year. jumping to 534.9 million users in 2016, according
to mobileSQUARED forecasts. This is followed by
However, despite the various concerns, most of OTT-to-mobile voice users: 68.6 million users in 2012
operators believe that it is possible to make money rising to 434.7 million in 2016. And then OTT-to-fixed
out of OTT: voice users: 49.8 million rising 132 million in 2016.
Off-net-to-video users are expected to grow from 2.96
• 63% of operators believe they will make money
million in 2012 to 215.7 million in 2016 as the video
from OTT services, but only at the expense of
communications bug sweeps the globe.
voice and SMS revenues. 16% of operators
believe they will generate incremental revenue
mobileSQUARED forecasts the OTT market to be
from OTT services.
worth US$166.5 billion in 2016, but its impact is
already being felt by mobile operators today. The
• Only 21% of operators either believe operators forecasts include OTT messaging services costing
cannot make money from OTT services or remain mobile operators US$4.2 billion in 2012, rising to
undecided. US$12.5 billion by 2016. The impact of OTT on
voice is even more transparent, with total mobile
voice revenues forecast to fall from US$714 billion
to US$573.51 billion over the 2012 to 2016 forecast

PAGE 7 │ EXECUTIVE SUMMARY

Executive summary

period through a combination of OTT and competitive amount of users that would use a rival OTT
price erosion. service, it fails to present a compelling OTT off-
net based revenue-generating model.
Embracing OTT should not be viewed by the mobile • Partnering directly with OTT players: operators
operator community as a way of substituting the can partner directly with the likes of Skype,
decline in voice and messaging revenues, but as Google, etc., and benefit from their traffic.
a means of delivering a new incremental revenue However, this will probably benefit the larger
stream that will experience exponential growth in the operators.
long term. After all, consumers are embracing OTT
• RCS-e/Joyn: the GSMA-led initiative is very
services in their hundreds of millions – leaping to
long term and whilst operators prepare to deploy
billions within a few years. It is consumers opting for
RCS-e, operators can adopt other initiatives in
multiple communication alternatives that have created
parallel.
this Fragmentation of Communication. It is this factor
that will ultimately open the door of opportunity for • Third party access to OTT via mobile phone
mobile operators. numbers: mobile operators can position

Embracing OTT should be viewed by
themselves as the bridge between OTT off-net

mobile operators as a way of
traffic and the mobile customer and remove all

delivering a new incremental
walled gardens by using the mobile number. This

revenue stream that will experience
enables the operator to keep the traffic and gain

exponential growth in the long term.
a share of the revenues.

mobileSQUARED forecasts that OTT commun-
ications will generate termination and interconnect
Operators should focus on a multiple OTT strategy fee-based revenues for mobile operators of US$3.7
founded on developing a long-term relationship with billion in 2012 rising to US$8.4 billion in 2016.
the customer. Operators have a wide range of options Messaging will dominate the revenue landscape
to tackle the OTT opportunity: over the forecast period, followed by off-net calls to

• Blocking OTT: short-term strategy that mobile, while the contribution made to off-net fixed

will ultimately limit the revenue-generation line calls is negligible. Therefore, the incremental

possibilities for the operator. revenues generated from OTT interconnectivity
will reduce the annualised decline in voice and
• Retaining billing relationship/data charges:
messaging revenues (US$30 billion) by over 25%.
mobile operators can monetise the access to
OTT services via data charges bundled within the
monthly package.

• Telco app: while this strategy might limit the

EXECUTIVE SUMMARY │ PAGE 8

OTT evolution & fragmentation

OTT waves of activity Interestingly, Skype claims that it has up to 65 million
users logged on and using the service simultaneously
The OTT communications story has been well
at any given time during the day – though online
documented in recent years, but in order to grasp
Skype aficionados Skype Numerology claims this
how it will continue to redefine the industry, it is
number has only recently peaked at 42 million.
necessary to understand its progress to date.
Regardless, even with the latter figure it represents
an active online community similar to the size of
OTT has developed in two waves: Firstly, it was fixed
Spain, one that is large enough to have a significant
voice services, and especially international calling,
impact on the communications industry.
that provided the route to market for OTT service
providers like Skype and Vonage, using IP-based
Skype has disclosed that its users spend over 1
voice services to massively undercut the existing
billion minutes a day making peer-to-peer Skype-to-
operator rates. The second wave of OTT growth was
Skype calls (free), and the number of daily off-Skype
borne out of the rise of smartphones and the ability to
minutes (charged to mobile or fixed-line) is 30 million
package OTT services as apps that could be installed
– as of September 2011, though mobileSQUARED
as a client on the device. This latest wave not only
estimates this figure to now be 35-37 million minutes
supplemented existing fixed-line activity, but has
per day. While the latter is generating revenue for
targeted mobile voice, messaging, and most recently
the telco industry by way of interconnection (or
video.
termination) fees, the former is clearly subverting

OTT has developed in two waves: fixed
revenues from telcos.

voice services, especially international
On the back of Skype’s success, a number of rival

calling, and OTT packaged in
service providers have emerged, most notably

a smartphone app targeting mobile
Google Voice, though minimal information has

voice, messaging and video.
been released since 2009 about the service.
mobileSQUARED conservatively estimates the
service to have amassed around 9.5 million users
globally, primarily because Skype has now become
to OTT what Facebook is to social media, and has
Leading the OTT charge is Skype. MobileSQUARED
become the dominant force in the OTT fixed-line
research reveals that the Microsoft-owned company
space.
now has over 900 million users – and towers over
alternative telecoms service providers such as
The perceived threat of OTT services by mobile
Vonage at around 3 million users. To put this into
operators is undoubtedly real, and now being
perspective, Skype has a similar user base to
confounded by this next wave of smartphone-
Facebook. Skype then, is a behemoth in the OTT
based OTT apps. One of the original OTT services
space.

PAGE 9 │ OTT EVOLUTION & FRAGMENTATION


on mobile was RIM’s BlackBerry Messenger. Until – according to Google recently – can download any
recently BlackBerry had 75 million users worldwide, of the OTT services available.
but it is now haemorrhaging users at an alarming
rate as its users “hot leg it” over to Android or iOS. The lack of inter-device and platform interoperability

The lack of cross-platform
Apple has recently was explicitly highlighted in 2011

connectivity between BBM and both
confirmed that it is when RIM’s BBM network dropped

iMessage and Facetime on iOS are
now approaching for a number of days, preventing

synonymous with the fragmentation
350 million iOS its users from connecting – though

associated with the mobile industry,
devices globally, with basic voice and SMS services

and stifles the impact OTT could have
iPads accounting were unaffected. Intriguingly,
for 60 million BBM originally set a messaging

on mobile traffic and revenues.
devices. That means OTT precedent for its alternative
a potential (and proprietary SMS solution, but
growing) user base because the service is inextricably
of 350 million for linked to the Blackberry devices
iMessage. – which are experiencing an alarming decline in
sales and suffering from the greater appeal of Apple
Amid growing speculation, RIM is believed to and Android devices – BBM looks to fall victim of
be considering splitting off its messaging and its self-imposed walled garden. A similar outcome
email platform from its hardware division. If that could one day befall Apple and iMessage. While this
development happens, it could stand to gain lots of appears unlikely right now, the same could be said
adopters in corporate circles to run its services as of RIM several years ago, and clearly demonstrates
apps on other smartphone platforms. the compelling need to provide cross-platform

The OTT walled gardens
interoperability.

In fact, the same can be said of Skype, but to date its
fixed-line dominance is yet to translate in the mobile
The lack of cross-platform connectivity between
arena. All the while, new talent is emerging and
BBM and both iMessage and Facetime on iOS, for
developing incredibly strong and loyal followers, such
example, are synonymous with the fragmentation
as WhatsApp and Viber. And that’s before the likes of
associated with the mobile industry, and stifles
Facebook and its Messenger service gets a mention.
the impact OTT could have on mobile traffic and
revenues. As yet, a proprietary messaging-based
As is customary with proprietary OTT services,
service has not been developed exclusively for
interoperability can be considered their shortcoming.
Android users, which means the 300 million Android
Indeed, we have identified three main areas of
devices globally (around 13 million Android tablet
users), and the 850,000 users being added every day interoperability:

OTT EVOLUTION & FRAGMENTATION │ PAGE 10


1. The lack of device/OS interoperability (BBM, Though coming from a smaller footing, Viber too is
iMessage) on the march. Between February and May 2012, the
2. The lack of app interoperability (WhatsApp, Viber) company leapt from 50 million users to 70 million,
3. The lack of interoperability with featurephones generating over 1 billion minutes and sending over 1
and non-IP-based devices. billion texts per month.

A lack of interoperability is a key
In South Korea, OTT messenger app KakaoTalk

shortcoming in OTT services, creating
has been downloaded by almost every smartphone

self-imposed walled gardens, which
user – there will be 42 million by the end of 2012, and

limit their reach.
already they are sending 1.3 billion messages daily.

By the end of 2012, there will be a cumulative total
of almost 190 million people using WhatsApp, Viber
and KakaoTalk – though there will be user crossover
Anyone with a smartphone can download WhatsApp, between the services. And this does not even
and therefore overcome the cross-platform limitations account for Facebook, which has around 500 million
offered by BBM and iOS. However, the vertical mobile users globally. However, while in all probability
limitations of one model are only rotated 90 degrees the majority of WhatsApp and Viber users are highly
to the horizontal model of WhatsApp, whose users likely to be on Facebook also, the penetration of
can only connect and send free messages to fellow Facebook Messenger among its mobile users is

The Fragmentation of
WhatsApp users. To date, there is no option to go believed to be low.

Communication
off-net, or in this case, “Off-What”. Whether looking
at OTT from a vertical or horizontal perspective, each
service has constructed what is more commonly
referred to as a walled garden.
There are now multiple communication channels

Based on existing app download data, open to people – in particular smartphone users. An

mobileSQUARED estimates there are 75 million iPhone user, for instance, can send a message via

WhatsApp users globally, and this is projected to SMS, iMessage, Facebook, WhatsApp, Viber and

increase to 250 million by 2016. Presently, WhatsApp Skype to name but a few. As OTT services proliferate

users are sending 2 billion messages a day, which further, more companies and developers will look

equates to 27 messages per user per day. By 2016, to get in on the act, and flood the market with OTT

mobileSQUARED forecasts the 250 million users services.

to be sending 11 billion messages per day (or 4
trillion per year), with an average user sending 44
messages per day.

PAGE 11 │ OTT EVOLUTION & FRAGMENTATION


As OTT services proliferate further,
more companies and developers will
The rise of Skype has confirmed the globalisation of

flood the market with OTT services,
communications: international calls are no longer the

further fragmenting communications.
communications playground of blue-chip companies.
Services like Skype, and its subsequent impact on
operator international call charges, has made the
service affordable, if not free.

If we regard the development of social networking as To meet the demands of global communications,
an indication for the development of the OTT market, operators must also ensure their global footprint is
it is worth remembering that there was a seemingly as far-reaching as possible. With over 850 mobile
endless flow of sites emerging until Facebook shone operators globally, that represents a lot of roaming
through and established itself as the principal social agreements: the average operator has between 150
network. Presently, niche social networking sites are and 400 roaming agreements. If operators are to use
cropping up and targeting smaller, less-catered for global reach to their strategic advantage to address
audiences. A similar pattern is likely to happen in the the mounting threat from OTT services, then they
OTT space. Whether Skype and WhatsApp end up too must limit any walled gardens within their direct
as the eventual market leaders remains to be seen, community and ensure their international footprint for
but it seems likely at this point. the delivery of both voice and SMS is as extensive as
possible.
Nevertheless, this period can be described as the

Operators must limit any walled
‘Fragmentation of Communication’, and the mobile

gardens within their direct community
operators that best understand how to capitalise on

and ensure their international
this opportunity will be the ones that are best able

footprint for the delivery of both voice
to offset the inevitable voice and messaging decline

and SMS is as extensive as possible.
with OTT.

For instance, the majority of these services do
not provide cross-OTT platform functionality, and
therefore operate within the confines of a walled
garden. While operators can use the lack of The globalisation of affordable (and free)
interoperability across disparate OTT services to communications by the OTT players provides the
potentially provide a strategic advantage, they too operators with a limited window of opportunity.
have their limitations brought about by the need to And this is only going to be squeezed as the OTT
interconnect with other operators. This too could be threat is exacerbated with the continued adoption of
costly to operators. smartphones.

OTT EVOLUTION & FRAGMENTATION │ PAGE 12

Forecasts

Smartphone forecasts with SMS across the US, where SMS is bundled with
data packages.
To consolidate this point, across the 68 smartphone

OTT-based messaging services
markets covered in this White Paper, there will be

are being used in conjunction with
1.12 billion smartphone users by the end of 2012,

SMS across the US.
rising to 2.9 billion in 2016, by which point global
smartphone penetration will be at least 39% of total
mobile users. There is a strong correlation between
smartphone users and OTT services, confirming
that consumers are finding a free or cheaper
communication alternative very appealing. This essentially makes SMS a sunk cost to
subscribers, so users do not need to stop using them

There will be 1.12 billion
for sending messages nationally.

smartphone users by the end of 2012,
rising to 2.9 billion in 2016, achieving
A survey of UK smartphone users by

a penetration of approximately 39% of
MyVoucherCodes revealed that 81% have

total mobile users globally.
downloaded at least one OTT service app. Of
those, 50% use iMessage, followed by BlackBerry
Messenger (BBM) on 40%, WhatsApp on 37% and
Skype on 33%. What’s more, the survey claims that
40% of smartphone-based OTT service users have
shifted their messaging traffic partially or completely
away from SMS.

While on first inspection this figure should send
shivers down every mobile operator’s spine, an
overlooked eventuality is that consumers have
already paid for messaging (and voice) services as
part of their monthly bundled package – of which
SOURCE: OPERATOR RESEARCH BY MOBILESQUARED , 2012
the majority of smartphone users are on in most
of the developed mobile markets. For example, in
A survey exploring OTT adoption rates among US
2011 KPN revised its prepaid tariffs by reducing the
smartphone users by Acision reveals that Facebook
number of included monthly minutes and increasing
is used by 37% of users, followed by Skype (17%),
the available data in order to meet the changing
Twitter (17%), iMessage (11%), BBM (10%)
demands of consumers.
and WhatsApp (5%). Consequently, OTT-based
messaging services are being used in conjunction

PAGE 13 │ FORECASTS

Forecasts

OTT market forecasts As of 2012, 20% of global smartphone
users are actively using OTT services,
and this will reach 45% by 2016.
From a total global mobile subscription base of over
7 billion, mobileSQUARED forecasts that the total
number of OTT users on smartphones will rise from
276.8 million in 2012 to 1.32 billion in 2016 (FIG 2).
FIG 3 – PERCENTAGE OF OTT USERS IN 2012

The total number of OTT users on
AND 2016

smartphones will rise from 276.8
million in 2012 to 1.32 billion in 2016.

FIG 2 – TOTAL MOBILE UNIVERSE


OTT users in 2012 will only account
for 2% of the total global mobile
SOURCE: MOBILESQUARED, 2012 subscription base, and 18% in 2016.

As of 2012, 20% of global smartphone users are
According to the mobileSQUARED research, in
actively using OTT services, and this will reach
general operators expect (FIG 3):
45% by 2016, though this could be considered a
conservative estimate, as the impact of the network
In 2012:
effect could likely accelerate this number. Perhaps
most notably for mobile operators, is that OTT users • Almost one-third of operators expect 1-10% of
in 2012 will only account for 2% of the total global their customer base to be using OTT services
mobile subscription base, and 18% in 2016. by the end of 2012.

• 57% of operators believe 11-40% of their

FORECASTS │ PAGE 14

Forecasts

customer base will be using OTT services,
leaving 10.5% of operators anticipating more While the mobileSQUARED OTT research reveals
than 40% of the user base on OTT services in that virtually every OTT smartphone user will
2012. use the available messaging and voice services,
mobileSQUARED has broken down those forecasts
to reveal the extent of those users that will send off-
In 2016:
net communications – and will ultimately generate
• Every operator expects over 11% of their revenues for operators.
customer base to be using OTT services.
In fact, 42% of operators believe over 40%
FIG 4 – OTT SMARTPHONE USERS
of their customer base will be using OTT
BREAKDOWN BY SERVICE
services.

• More than 47% of operators expect 21-40%
of their users on OTT services, leaving 21%
expecting 11-30% of users.

In regards to regions, 95% of European operators
expect more than 20% of their subscriber base to be
using OTT services within three years. In fact, almost
50% of European operators expect over 40% of their
subscriber base to be using OTT by 2016. In North
America, the expectations are lower, with operators SOURCE: OPERATOR RESEARCH BY MOBILESQUARED , 2012
split between 11-20% and 31-40%. In both Asia and
Latin America, operators expect more than 40% of
users on OTT services in 2016. This means (see FIG 4):

42% of operators believe over
• Messaging represents the largest off-net

40% of their customer base will be
operator revenue generating community, with
118.9 million users already sending paid-for

using OTT services in 2016.
messages in 2012, jumping to 534.9 million users
in 2016.

• This is followed by OTT-to-mobile voice users:
68.6 million users in 2012 rising to 434.7 million
This data highlights the ease by which OTT players in 2016.
will be able to access mobile operator customers,
• OTT-to-fixed voice users will grow from 49.8
and shows their concern around the perceived threat
million to 132 million in 2016.
of alternative services.


Forecasts

• Off-net-to-video users are expected to grow 139.5 million by 2016.
from 2.96 million in 2012 to 215.7 million in 2016
• The number of OTT users sending off-net
as the video communications bug sweeps the
messages will increase from 26.1 million to 63
globe.
million over the forecast period. While the number

Messaging represents the largest
of users making off-net mobile and fixed line

off-net operator revenue generating
calls will rise from 13.3 million and 8.5 million
respectively, to 55.6 million and 14 million.

community, with 118.9 million
users already sending paid-for
FIG 5 – OTT REVENUES IN THE UNITED STATES

messages in 2012, jumping to
534.9 million users in 2016.

Research for this White Paper has revealed that calls
to mobile phones now dominate total voice traffic
across the developed world, and this has therefore
been reflected in the larger number of OTT-to-mobile
users compared to OTT-to-fixed users. SOURCE: MOBILESQUARED , 2012

Total OTT users in the US are
It is also worth noting, that as more smartphone

projected to total 47.5 million in 2012
users download OTT service apps, the potential off-

and grow to 139.5 million by 2016.
net community diminishes, and explains why OTT
user growth is significantly higher than OTT to off-net

Outlook for selected markets
activity growth.

In addition:
United States
• Off-net traffic will generate revenues in the US
• The number of smartphones in the US will grow of US$795.9 million in 2012 rising to a fraction
by 110 million over the 2012 to 2016 forecast over US$1 billion in 2016.
period, with 155.6 million smartphones in 2012
• While OTT-to-fixed call revenues will be
rising to 265.8 million in 2016.
negligible over the forecast period, off-net
• Total OTT users are projected by messaging will generate US$643.1 million and
mobileSQUARED to total 47.5 million and grow to US$756 million in 2016.


Forecasts

Total number of OTT users
in Germany is expected to leap
• Revenues generated from OTT off-net calls

from 14.9 million in 2012 to
to mobile will treble from US$71.1 million to

51.1 million in 2012.
US$245.6 million.

Germany
• Despite a slow start in smartphone adoption,
Germany is more than making up for it, with the
In addition:
number of smartphones almost doubling from 49
million in 2012 to 97.3 million in 2016. • The total OTT off-net opportunity in Germany
will be worth US$250.5 million in 2012 and
• The total number of OTT users is expected
US$366.7 million in 2016.
to leap from 14.9 million to 51.1 million over the
forecast period. • Revenues from off-net messaging will
dominate, generating US$202.4 million in 2012
• OTT users sending revenue generating off-net
rising to US$276.8 million in 2016.
messages will grow from 8.2 million in 2012 to
20.4 million in 2016. • Combined fixed and mobile off-net calls will
generate total revenues of US$48.1 million in
• The number of OTT users making off-net fixed
2012 and US$89.9 million in 2016.
calls will rise from 2.7 million in 2012 and 5.1
million in 2016, while those users making off-net
UK
mobile calls will leap from 4.2 million to 20.4 million.
• The OTT projections are based on strong
smartphone growth, with mobileSQUARED
FIG 6 – OTT REVENUES IN GERMANY
projecting the number of users with smartphones
from 43.1 million in 2012 and increasing to 70.3
million in 2016.

• OTT penetration will almost treble during the
forecast period, from 13.2 million to 36.9 million.

• A breakdown of the total OTT users reveals that
the number sending off-net messaging will be
7.2 million in 2012 and 16.6 million in 2016.

• There will be significant growth of the number of
OTT users making off-net calls, from 3.7 million
SOURCE: MOBILESQUARED , 2012
in 2012 and 14.8 million in 2016.

• A number that is considerably higher than those
users making off-net calls to fixed line: 2.4
million rising to 3.7 million in 2016.


Forecasts

OTT penetration in the UK will almost
treble during the forecast period, from
13.2 million to 36.9 million.

FIG 6 – OTT REVENUES IN THE UK

SOURCE: MOBILESQUARED , 2012

In addition:

• The UK’s OTT off-net market will be worth
US$264.9 million in 2016, up from US$220.6
million in 2012.

• Off-net traffic to fixed-lines will be non-
existent, leaving off-net calls to mobile and off-net
messages to attribute the bulk of revenues,
with US$42.3 million and US$178.2 million,
respectively, in 2012, increasing to US$64.9
million and US$200 million in 2016.


The operator view

The mobile operators are right to be concerned about to traditional SMS- and voice-based services, has
OTT services. Research by mobileSQUARED in May increased from 16.2% in 2011 to 19.1% in 2012.
and June 2012 reveals that 79% of operators believe This perhaps highlights that a small percentage of
that OTT clients on smartphones are a threat to operators are now approaching OTT with a certain
traditional SMS- and voice-based services. level of pragmatism, and starting to understand
the opportunities posed by OTT, rather than just

79% of operators in 2012 believe that
perceiving it as a threat.

OTT clients on smartphones are a
threat to traditional SMS- and
FIG 9 – WHICH ELEMENTS OF OPERATOR

voice-based services.
SERVICE TRAFFIC WILL BE MOST THREATENED
BY OTT CLIENTS?

That is a lot of operators, but is actually down from
83.8% compared to a similar study conducted by
mobileSQUARED last year (see FIG 8).

FIG 8 – ARE OTT CLIENTS A THREAT TO
TRADITIONAL OPERATOR SERVICES?


However, within the 79% of operators that continue
to identify the threat posed by OTT services, there
is a growing number that is increasingly concerned
with developments (see FIG 9). In 2011, 13.5% of
operators strongly agreed with the statement that
OTT clients on smartphones posed a significant
threat to their voice and SMS traffic and revenues.
SOURCE: OPERATOR RESEARCH BY MOBILESQUARED , 2012 That figure has leapt to almost 32% in 2012, a year-
on-year increase of 134%.

In 2012, a regional breakdown highlights that 100%
of mobile operators in North America, Latin America The research maintains that SMS continues to

and Asia agree or strongly agree with the threat be the standout concern for operators. In 2011,

posed by OTT. Similarly, the number of operators 67.6% of operators identified messaging as the

that are either unsure or disagree with the threat most challenged service by OTT, but that figure has
increased to 73.7% in 2012.

PAGE 19 │ THE OPERATOR VIEW

The operator view

With voice commoditisation now widely regarded as a
given across the telco industry – with or without OTT
services – the challenge of OTT to voice services
appears to be waning according to the operators,
with 18.9% of operators believing voice was the most
threatened in 2011 falling to 10.5% just 12 months
on.

In 2011, 67.6% of operators
identified messaging as the
service most challenged by OTT,
but that figure has increased
to 73.7% in 2012.

When it comes to video calling as a direct service,
such as Tango, Skype and Facetime, operators do
not expect OTT to have any impact, though “Other”
as a service category representing all operator
service traffic of voice, video and SMS, increased
between 2011 and 2012 from 5.4% to 15.8%.

THE OPERATOR VIEW │ PAGE 20

The impact for operators:
traffic & revenues

The operator survey by mobileSQUARED collected means OTT is now affecting traffic for almost
information on what the impact that operators have three-quarters of operators.
already seen in traffic and revenues, as well as the
• The research also shows that 42.1% of operators

Traffic
future impact (5-10 years).
had an impact coming from OTT of 1-10% of
traffic in 2012, up from 29.7% in 2011. Just over
10% of operators state that OTT has impacted on
It is inevitable, with so many OTT users, that this 11-20% of their traffic in 2012, compared to no
will impact on operators’ traffic, and subsequently, operators in 2011.
revenues, but the extent of how much remains to be

OTT is now affecting traffic for
seen. Regardless of the bearer, which could be IP,

almost three-quarters of operators:
packet switched or circuit switched, the traffic will still

26.3% of operators have seen traffic
require transporting, which means that it will actually

declining in 2012.
be the revenue associated with carrying the traffic
that will be impacted.

FIG 10 – HAS TRAFFIC DECLINED IN THE LAST
12 MONTHS AS A RESULT OF OTT?
In 2011, 2.7% of operators said that OTT was affec-
ting 21-30% of their traffic, yet in 2012 not one opera-
tor said over 21% of their traffic was affected by OTT.
Interestingly, 29.7% of operators were not aware of
the impact OTT was having on their traffic in 2011,
but 12 months on, that number had fallen to 21.1%.
Clearly, the challenge posed by OTT to operators is
a real one, and more operators are monitoring the
situation more closely.

When breaking down the operator research by regi-
SOURCE: OPERATOR RESEARCH BY MOBILESQUARED , 2012 on, the North American and Asian operators, as well
as 15% of European operators, were yet to determi-
The impact OTT services are having on operator ne whether OTT had had an impact on their traffic.
traffic is clearly expanding (see FIG 10): Around 25% of European operators said OTT had not
affected traffic, while 45% said between 1% and 10%
of traffic had been lost. Just under 10% of European
• In 2011, 37.8% of operators had not seen
operators said between 11% and 20% of their traffic
operator traffic declining, but that number has
had been lost to OTT.
since fallen to 26.3% of operators in 2012. That

PAGE 21 │ THE IMPACT FOR OPERATORS: TRAFFIC & REVENUES

traffic & revenues

In 2012, 31.6% of operators
claim OTT is yet to impact on
The operator research reveals that 100% of opera-

traditional revenues.
tors now believe voice and SMS traffic will decline
over the next 5-10 years, compared to 90% of ope-
rators in 2011 (see FIG 11). Most intriguingly is that
more operators now expect OTT to have a greater
impact on traffic in the future, than they did in 2011:
Taking operators out of their comfort zone and asking
them to predict the impact of OTT over the next
• Around 46% of operators in 2011 believed traffic 5-10 years provides a great variety of responses.
levels would drop by 1-20% in 5-10 years‘ time, For instance in North America operators are bracing
and 27% anticipated a traffic decline of 21% and themselves for a traffic loss of up to 30%, as are
over. around 10% of operators in Europe. A little over 20%
• But in 2012, 37% of operators believe the decline of European operators expect more than 41% of their
will be 1-20%, and 53% expecting 21% and traffic to migrate on to OTT. Similarly, 20% of Euro-
over – almost double the number of operators pean operators expect a traffic shift of up to 20% on

Revenues
compared to the previous year. to OTT, as do the majority of operators in Asia.

100% of operators now believe
voice and SMS traffic will decline over
In 2011 only one-third of operators had experienced

the next 5-10 years, compared to 90%
a decline in revenues as a direct result of OTT, but in

of operators in 2011.
2012 that had doubled, leaving just 31.6% of ope-
rators claiming OTT was yet to impact on traditional
revenues (see FIG 12).

FIG 11 – WILL TRAFFIC DECLINE IN THE NEXT FIG 12 - HAVE REVENUES DECLINED IN THE
5-10 YEARS DUE TO OTT? LAST 12 MONTHS AS A RESULT OF OTT?

SOURCE: OPERATOR RESEARCH BY MOBILESQUARED , 2012 SOURCE: OPERATOR RESEARCH BY MOBILESQUARED , 2012

THE IMPACT FOR OPERATORS: TRAFFIC & REVENUES │ PAGE 22

traffic & revenues

Over 45% of European operators are yet to see a FIG 13 - WILL REVENUES DECLINE IN THE NEXT
decline in revenues as a result of OTT, as are the 5-10 YEARS DUE TO OTT?
majority of operators in North America and Latin
America. Around 25% of operators in Europe have
seen revenues decline by up to 5%. Just over 10% of
operators claim more than 6% of their revenues have
been lost to OTT.

43% of operators expect
11% and over of revenues to
be hit due to OTT.

Given that operators believe the impact of OTT on
traffic has increased from 2011 to 2012, it is not
About 18% of European operators are expected
surprising that operators now believe OTT will have
to put up a stoic fight against OTT services, by
a greater impact on their traditional revenues (see
claiming the next-generation services will not impact
FIG 13):
on current operator revenue levels. This is in stark
• In 2011, 54% of operators believed OTT would contrast to almost 75% of European operators that
impact 1-10% of operator revenues in the next do anticipate an impact revenues; 10% are bracing
5-10 years, with an additional 16% believing that themselves for more than 21% of revenues lost to
the impact would be 11% and above. OTT, with the majority anticipating between 11-15%
lost.
• Jump forward 12 months, and the landscape has
changed considerably. Almost 32% of operators
North American operators are split between
expect 1-10% of revenues to be impacted by OTT
uncertainty and more than 21%, while Asian
services, with 43% expecting 11% and over of
operators are sitting in the middle expecting a
revenues to be hit – up by a staggering 169%.
revenue decline of 11-20%.


traffic & revenues

Forecasts on the financial impact
of OTT for operators
• In total, the mobile operators’ core services will
generate revenues of US$1.114 trillion in 2012,
and US$1.15 trillion in 2016.
The ultimate question remains: what is the financial
impact of OTT on the communications industry? To FIG 14 – MOBILE MARKET FORECASTS
analyse this, we needed to look at the total mobile
market:

• In 2012, the mobile industry (made up of voice,
messaging, VAS & access, devices, infrastructure
and OTT) will be worth US$1.5 trillion, up from
US$1.4 trillion in 2011, according to mobile
analyst Chetan Sharma.

• By using these market numbers as a platform
to apply uniform total mobile market growth,
mobileSQUARED projects the mobile market will SOURCE: OPERATOR RESEARCH BY MOBILESQUARED , 2012
be worth US$1.97 trillion in 2016.

In 2012, the mobile industry (made
Over the 2012-2016 forecast period, data revenues
will offset the decline in voice and messaging

up of voice, messaging, VAS & access,
revenues, which will be attributed to OTT directly and

devices, infrastructure and OTT) will
indirectly (see FIG 15). Chetan Sharma says the total

be worth US$1.5 trillion.
OTT market will be worth US$59.8 billion in 2012.
Again, by using these numbers as a platform upon
which to apply market growth, mobileSQUARED
believes the OTT market will be worth US$166.5
billion in 2016. But how much of this growth can
During this period (see FIG 14):
account for the decline in mobile operator revenues?
• Voice revenues will drop from US$714 billion to

The total OTT market will be worth
US$573 billion.

US$59.8 billion in 2012.
• Messaging revenues, which are expected to
peak in 2012 at US$196.8 billion, will then fall to
US$166.5 billion over the same period.

• At the same time, data (and access) revenues
are projected to almost double: US$222 billion to
US$407 billion.

THE IMPACT FOR OPERATORS: TRAFFIC & REVENUES │ PAGE 24

traffic & revenues

FIG 15 – TRADITIONAL MOBILE REVENUE economics and technological advancements, in
GENERATION FORECASTS disintermediating some US$182 billion, equating to
an annualized revenue hit of over US$30 billion over
the same period.

FIG 16 – IMPACT OF OTT ON MESSAGING
REVENUES


As already identified earlier in this White Paper,
services such as Skype are shifting billions of dollars
of voice traffic away from the mobile operators each
year. Can the same logic be applied to messaging?
mobileSQUARED in fact believes that the impact of
OTT messaging services on messaging revenues is
significantly less than previously thought. For example, total global messaging ARPU will
be worth $35.2 per annum in 2012 and $23.35 in

Total global messaging ARPU will be
2016, based on Sharma and mobileSQUARED

worth $35.2 per annum in 2012 and
data (see FIG 16). If we then apply this figure to

$23.35 in 2016.
the number of OTT messaging users projected by
mobileSQUARED, it shows that OTT messaging
services will cost mobile operators US$4.2 billion in
2012, rising to US$12.5 billion by 2016. Cumulatively
over this period, OTT messaging will potentially
The impact of OTT on voice is very transparent (see
cost mobile operators US$41.9 billion in lost SMS
FIG 15). Over the 2012 to 2016 forecast period, total
revenues.

OTT has been a driving force, along
mobile voice revenues will fall from US$714 billion

with competition economics and
to US$573.51 billion. The cumulative loss over that

technological advancements, in
period to the mobile industry is US$140.5 billion.

disintermediating some US$182
When combined with the loss of messaging over the

billion in the operator market.
aforementioned forecast period (see FIG 16), OTT
has been a driving force, along with competition


The operator response

At Mobile World Congress 2012, the chairman of the long-since responded to the threat of OTT to their
GSMA and CEO of Telecom Italia, Franco Bernabe, voice traffic by introducing low-cost VoIP-based
told delegates that OTT players “hinder competition national and international call services, requiring
by relying on non-standardized technologies”, placing consumers to dial a prefix to activate the service on
a “significant burden” on mobile operators. He also the operator’s network.
claimed that the fall in ARPU across Europe from €26
in 2006 to €20 in 2011 was increasing the pressure Yet it is the impact OTT is having on messaging
on operators looking to invest sizeable sums in that is most alarming. Netherlands incumbent KPN
next-generation networks, to largely cater for OTT- announced earlier this year that it will lay-off 5,000
generated traffic. US operator AT&T used the mobile employees as an austerity measure attributed to
showcase event to disclose that it is looking at ways the growth of OTT messaging apps which continue
of ensuring app developers pay for the traffic their to reduce SMS traffic 15% year-on-year. While
apps generate. OTT is extremely high on operators’ WhatsApp – which is particularly prevalent in the
agendas. Netherlands – cannot be picked out as the sole
contributory factor to this decline, it is undoubtedly

The majority of operators have
one of the key reasons. The strategy of thwarting

long -since responded to the threat
this impact on revenues is entirely understandable,

of OTT to their voice traffic by
prompting some operators, such as TeliaSonera in

introducing low-cost VoIP-based
Sweden, to block OTT services or to place a premium

national and international call If you can’t beat ‘em, join ‘em
on their customers using the service.

services, requiring consumers
to dial a prefix to activate the service
on the operator’s network.
But if you can’t beat them, join them. In some
cases operators are directly partnering with OTT
players: operators such as 3 UK and Verizon have
partnered with OTT players, such as Skype.

Operators are responding to OTT in
Because of the emergence of data heavy sites

various ways, mostly by direct
such as Youtube, and video-on-demand catch-up

partnerships with OTT players,
services like the BBC iPlayer, these are generating

creating their own telco app and
massive amounts of traffic, yet operators see none

investing in Joyn/RCS-e.
of the revenues but face the burden of building
infrastructure to support this.

Yet responding to the challenge of OTT is not a
recent phenomenon. The majority of operators have

THE OPERATOR RESPONSE │ PAGE 26


Other operators are challenging the likes of Clearly a number of operators are exploring OTT
WhatsApp by launching their own take on the options, while others are moving in the opposite
service: T-Mobile USA has launched Bobsled, and direction and confronting the issue. mobileSQUARED
Telefonica has introduced Tu Me, both of which offer believes hindering a consumer’s access to OTT
free voice and texts. Bobsled has attracted over 1 services, either through a paywall or blocking, will
million users globally, with 95% of these users not ultimately prove deconstructive and drive churn.
T-Mobile subscribers, whilst Telefonica is striving While there is no evidence to support this
for a similar impact. Telefonica Digital’s Tu Me app assumption, experience from the mobile industry
uses a customer’s data plan and allows not only O2 suggests that consumers will leave existing operators
customers, but any smartphone user, to make calls, for something they cannot have. And that is precisely
send voice messages, instant messages, photos and why AT&T and O2 paid a premium to secure
location from one control within one screen. What’s exclusive deals with Apple for the early days of the
more, it lets users make free calls internationally if iPhone’s release in order to attract customers from
they use wifi, and will automatically search existing rival mobile operators who had their eyes set on
contacts for other Tu Me users. Telefónica Digital owning an iPhone.
claims “Tu Me puts all your communications needs
into one place, for free, and is a great way for people The iPhone had mass consumer appeal. And from
to stay in touch with those close to them.” a service standpoint, so does OTT. The problem
between the two is that the benefit to the bottom line
To counter the dominance of KakaoTalk in South is transparent with the iPhone, whereas this is not the
Korea, mobile operators SK Telecom, KT Corp and case with OTT services. This is certainly reflected in
LG Uplus have joined the GSMA’s Joyn initiative our operator research, which reflects their disparate
and will deploy Rich Communication Services- response to OTT.
enhanced (RCS-e) during the second half of 2012,
joining the likes of Orange, Vodafone, Telefonica, In 2011, the traditional (or standard) operator
Telenor and T-Mobile. response to combat OTT clients was to say they
were generating revenues from data. Last year,

Hindering a consumer’s access to OTT
almost 50% of operators believed this to be true, but

services, either through a paywall or
in 2012, that number had almost halved to 26.3%.

blocking, will ultimately prove
Operators, it appears, are starting to respond to OTT

deconstructive and drive churn.
service providers in a number of ways. The number
of operators blocking OTT services has almost
doubled from 5.4% in 2011 to 10.5% in 2012,
and the number of operators imposing
surcharges has trebled from 5% to 15.8%. These
are certainly not customer-friendly reactions to OTT,

PAGE 27 │ THE OPERATOR RESPONSE


and could unquestionably result in churn as users In fact, 25% of operators had a very similar dual OTT
seek alternative operators that are responding to OTT strategy: This was to roll out IMS/LTE to offer RCS/
in a more constructive manner. RCS-e while also partnering with OTT providers.

The number of operators blocking
OTT services has almost doubled from
While none of the operators divulged additional
information during the research process, they clearly

5.4% in 2011 to 10.5% in 2012.
see customer value in not delaying access to OTT
services, and most likely, would pursue a strategy
of migrating the customer onto their own RCS/
RCS-e service once IMS/LTE has been deployed.

For example, the mobile operator research highlights This could, however, prove a risky strategy given

that a little over 47% of operators are rolling out IMS/ that OTT service providers are developing a tried

LTE and will be able to offer unified communications and trusted user community. An operator trying to

by way of RCS and RCS-e. migrate established Skype users onto its in-house
OTT service would be the equivalent of an operator

In Europe, Telefonica, Vodafone and Orange have developing its own social network and targeting

all made commitments to RCS-e. Over one third Facebook users, such as Tuenti in Spain or Vodafone

of operators have launched their own OTT-based 360.

47% of operators are rolling out
clients, and almost one-third of operators have

IMS/LTE and will be able to offer
partnered with OTT providers.

unified communications by way
FIG 17 – WHAT ARE OPERATORS DOING TO

of RCS and RCS-e.
COMBAT OTT CLIENTS?

While every European country will see LTE rollouts,
with some smaller operators opting to not deploy the
network, the vast majority are already trialing LTE
(see FIG 17):

• Our operator research reveals that presently
almost 45% of European operators are rolling out
IMS/LTE, compared to 100% in North America.

• Similarly, 100% of North American operators are
partnering with OTT service providers, compared

THE OPERATOR RESPONSE │ PAGE 28


to around 18% of European operators. And the
same number of European operators is looking to
block or impose charges to OTT services.

25% of operators had a very similar
dual OTT strategy: This was to rollout
IMS/LTE to offer RCS/RCSe while also
partnering with OTT providers.

This perhaps most saliently highlights the power-
shift occurring in the operator space. Operators are
in a Catch 22 scenario; they are not in a position to
prevent customer usage of third-party services where
they do not participate in the revenue flow, as this
would leads to a mass exodus of customers, leaving
them with little option other than to provide access to
these services.

PAGE 29 │ THE OPERATOR RESPONSE

Can operators make money from OTT?

Almost 16% of operators believe they will generate operators expecting revenues at the expense of voice
incremental revenue from OTT services. However, and messaging.
two-thirds of operators believe they will make money
from OTT services, but only at the expense of voice mobileSQUARED forecasts that (see FIG 19):
and SMS revenues. The remaining 21% of operators
• Off-net OTT communications will generate
either believe operators cannot make money from
mobile termination and interconnect fee-based
OTT services or remain undecided (see FIG 18).
revenues for mobile operators of US$3.7 billion in

48% of operators believe it’s
2012 rising to US$8.4 billion in 2016

possible to generate revenue from
• Messaging will dominate the revenue landscape

OTT services.
over the forecast period, followed by off-net calls
to mobile, while the contribution made to off-net
fixed line calls is negligible.

• The cumulative total revenues from off-net
FIG 18 – CAN OPERATORS MAKE MONEY OTT communications between 2012 and 2016
FROM OTT? will be US$29.43 billion.

Off-net OTT communications
will generate mobile termination
and interconnect fee-based revenues
for mobile operators of
US$3.7 billion in 2012 rising to
US$8.4 billion in 2016.

SOURCE: OPERATOR RESEARCH BY MOBILESQUARED , 2012 With off-net messaging traffic forecast to be worth
US$2.93 billion in 2012, and US$6.4 billion in 2016,
Less than 12% of European operators believe OTT and OTT-offnet voice revenue worth US$805.5 million
services will generate incremental revenues, with in 2012 and increasing to US$1.92 billion in 2016,
almost 75% expecting revenues at the expense only the most dynamic and far-reaching operators will
of voice and messaging. The remaining 13% of be best-placed to capitalise on this opportunity.
European operators do not anticipate OTT will
generate revenues. It was a similar split across Asia, Operators with the broadest reach in terms of
North America and Latin America, with the majority of roaming agreements will be well-placed to potentially

CAN OPERATORS MAKE MONEY FROM OTT? │ PAGE 30

Can operators make money from OTT?

terminate the OTT off-net traffic, provided of course provider to mediate next-generation OTT originated
that they can accommodate the OTT-generated traffic (messaging, voice and video) with mobile
traffic. operators by converting it onto the SS7 network.

FIG 19 – WHAT ARE THE OTT SERVICES THAT In this instance, OTT users are each issued with a
WILL GENERATE REVENUES FOR OPERATORS? mobile number to ensure two-way communication
between their OTT provider and mobile operators.
Such a solution overcomes the walled gardens that
have been erected by the OTT providers and can be
applied to any operator anywhere in the world.

One alternative option is to partner
with a third-party provider to mediate
next-generation OTT originated
traffic (messaging, voice and video)
with mobile operators by converting it
onto the SS7 network.

Operators with the broadest reach in
terms of roaming agreements will be
well-placed to potentially terminate
the OTT off-net traffic, provided of
Mobile numbers provide mobile operators with a

course that they can accommodate the
compelling future-proof solution because they ensure
interoperability with the inevitable emergence of new

OTT-generated traffic.
and even more innovative OTT service providers,
therefore maximizing mobile operators’ revenue-
generating potential from OTT off-net traffic.

One solution to provide interoperability is to deploy
RCS/RCS-e, which the majority of operators in the
research confirmed they were doing. But this is a
timely and expensive exercise, and in part explains
why a large percentage of operators are exploring
multiple OTT strategies.

One alternative option is to partner with a third-party

PAGE 31 │ CAN OPERATORS MAKE MONEY FROM OTT?

Opportunities for operators

OTT services can only thrive in the mobile ecosystem that will partially substitute the decline in voice and
by way of mobile operators offering affordable data messaging revenues and will experience exponential
packages to ensure an open internet experience for growth in the long term. After all, consumers are
their customers. This threat is being compounded embracing OTT services in their hundreds of
by the fact that in smartphones, the mobile industry millions – leaping to billions within a few years. It
has finally found a form factor and user interface is consumers opting for multiple communication
that is not only compelling and intuitive, but has alternatives that have created this Fragmentation
transformed the relationship between the phone of Communication. This could open the door of
and user. Consequently, in this ‘Fragmentation of opportunity for mobile operators who have the ability
Communication’ period, third-party providers are to bridge the OTT and mobile network divide through
delivering services directly to consumers that are the provision of mobile numbers to each OTT user.
challenging the mobile operator hegemony.

Embracing OTT should be
viewed by mobile operators as a way
Operators looking to rebuff this challenge by

of delivering a new incremental
attempting to block OTT services to protect revenues,

revenue stream that will experience
has to be perceived as a short-term strategy that will

exponential growth in the long term.
ultimately limit the revenue-generation possibilities for
the operator.

Voice revenues have peaked and are now on a
downward spiral initiated by commoditisation and
more recently compounded by OTT services. Equally, TABLE 1 - OPPORTUNITIES FOR MOBILE
messaging revenues have long been projected OPERATORS
to decline by the analyst community, and have
for the time being at least, resisted all downward Options Short Future
overtures to date. But mobileSQUARED expects OTT term proof
messaging apps to finally stifle messaging revenue’s Blocking OTT  x
growth from 2013. Retaining billing  
relationship/data charges
That means operator cash cows of voice and Create an app  
messaging are on the wane and every operator Partnering directly with  
should be looking for new revenue generators. And OTT players
falling within that category is OTT. RCS-e/Joyn x 
3rd party access to OTT
Mobile operators should view embracing OTT as a via mobile phone  
way of delivering a new incremental revenue stream numbers / share of revenues

OPPORTUNITIES FOR OPERATORS │ PAGE 32


As Skype and WhatsApp have highlighted, users are operators must adopt a multiple OTT strategy to
attracted to free services. Skype’s business model cover all bases.
has developed using the attraction of free on-net
calls to then upsell users of cheaper off-net national By retaining the billing relationship, mobile operators
and international calls – at present the conversion will monetise the access to OTT services via data
is around 10% of the total Skype user base. Most charges bundled within the monthly package.
recently, the Microsoft-owned company has revealed

By retaining the billing
that advertising will be introduced to on-net calls.

relationship, mobile operators will
How its users react to the news remains to be seen.

monetise the access to OTT services
While it monetises its on-net traffic, it could also be

via data charges bundled within
used as a tactic to drive on-net users into becoming

the monthly package.
premium paid-for customers. Clearly, a similar
advertising-based strategy might be deployed on
WhatsApp at some juncture in the future.

OTT services generally generate user traction by
delivering a free service. But these will eventually But this can be expanded by adopting a multiple
require monetising, which means their model will OTT strategy founded on developing a long-term
adapt, and potentially undermine the user’s original relationship with the customer.
perception of the service. Mobile operators can use
this to their advantage. In the short- to medium-term mobile operators should
be looking to provide customers with access to third-

In the short- to medium-term mobile
party OTT services.

operators should be looking to
provide customers with access to
This can be achieved by launching their own version

third-party OTT services.
of an OTT service, such as Telefonica’s Tu Me app.
While this strategy might limit the amount of users
Telefonica could lose to a rival OTT service, it fails
to present a compelling OTT off-net based revenue-
generating model. Telefonica, as well as all operators
Although mobile operators are in a reactionary mode interested in capitalising on OTT, should have
to the challenge posed by OTT providers, they are complete interoperability secured with OTT service
well-placed to do so provided they are smart. For providers.
instance, they must first ensure that they retain
the central billing relationship with the customer.
Secondly, their global network must connect with as
many fellow operators as possible. And lastly, mobile

PAGE 33 │ OPPORTUNITIES FOR OPERATORS


Any such short- to medium-term strategy will provide
sufficient time for mobile operators to deploy RCS/
RCS-e, and then develop their long-term strategy
to compete directly with OTT. In doing so, mobile
operators can offer a long term proposition that
provides the user with stability to a model they signed
up for.

Regardless, whether short-term or long-term, mobile
operators can only capitalise on the OTT opportunity
by positioning themselves as the bridge between
OTT off-net traffic and the mobile customer and by
removing all walled gardens.

The use of mobile numbers enable
operators to capitalise on the OTT
opportunity by tearing down the OTT
walled gardens and providing
interoperability in the short term.

There are a number of routes available to mobile
operators to achieve this goal and ultimately monetise
OTT. RCS/RCS-e presents one option to address
the required levels of interoperability, while another,
which could be construed as both competitive and
complementary, is the use of the mobile number. The
advantage with the latter is that interoperability can
be achieved almost immediately allowing the mobile
operator to capitalise on the OTT opportunity and
limit the damage of the inevitable decline in voice and
messaging revenues almost overnight.

OPPORTUNITIES FOR OPERATORS │ PAGE 34

ABOUT MOBILESQUARED
mobileSQUARED provides specialist research which enables brands, agencies and the mobile
industry to increase engagement with the mobile consumer. We conduct primary research on the
mobile industry and mobile consumers, with a focus on delivering exclusive forward-looking data
on mobile device usage, mobile web, app and commerce trends and usage, and mobile
advertising responsiveness to help clients identify and respond to fast-changing mobile trends.
And for a wider view of the industry, we provide detailed mobile industry user and revenue
forecasts. Our clients look to mobileSQUARED’s expertise to provide candid insight into the
mobile market. We do this using our extensive global network of senior contacts to research,
collect and collate the latest data, developments, trends and insight on an ongoing basis.

For more information: www.mobilesquared.co.uk

ABOUT TYNTEC
tyntec (www.tyntec.com) is a mobile interaction specialist, enabling businesses to integrate mobile
telecom services for a wide range of uses – from enterprise mission-critical applications to
internet services. The company reduces the complexity involved in accessing the closed and
complex telecoms world by providing a high quality, easy-to-integrate and global offering using
universal services such as SMS, voice and numbers.

tyntec enables mobile operators with the capability to quickly and easily offer telephony in the
cloud for OTT services. Mobile operators can tap into OTT revenues by providing mobile numbers,
traditional voice and SMS into OTT services. In this way, operators can access revenue share and
termination fees from ‘off net’ calling, helping them to replace revenues lost to the growth of OTT.

Founded in 2002, and with more than 150 staff in five offices around the globe, tyntec works with
500+ businesses including mobile service providers, enterprises, mobile operators and internet
companies.

For more information: www.tyntec.com

PAGE 35 │

Whitepaper: Over-The-Top (OTT) Services: How Operators can overcome the Fragmentation of Communication

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Whitepaper: Over-The-Top (OTT) Services: How Operators can overcome the Fragmentation of Communication