GigaOM » Telia

In new era, operators scorn over-the-top services at their peril

Andreas Bernström, Rebtel — Sun, 11 Nov 2012 18:30:44 +0000

Telecom operators are standing at a critical crossroad. With a continuous decline in profit from voice and messaging services – thanks in no small part to the adoption of Over-The-Top (OTT) services such as Google Voice, Skype, Whatsapp (and my company Rebtel), among many others – operators must explore their options and seek out new revenue streams. As the industry gets increasingly complex and crowded, operators simply must have a firm grip on what their future business model is: Will they be demoted to mere bill carriers or will they embrace the potential for new revenues by partnering with OTT services?

The four waves of revenue

Telecom analyst Chetan Sharma says that the telecom industry has been through three distinct revenue waves in its history. First there was the voice wave, then messaging and finally data.

Both the first and second of these waves produced phenomenal profits for decades but now are in serious decline due to market saturation and the rise of consumer-friendly OTT alternatives. While many in the industry see the third wave as being a replacement cash cow, others believe operators must look beyond data revenue to the fourth wave: OTT and Value Added Services (VAS).

Having become accustomed to diets of “all you can eat” data bundles, consumers naturally expect the price of data to drop over time, not rise. If operators bump up data costs, we can assume consumers will respond by flocking to services like Freedom Pop, which relies on Wi-Fi as the main source of data, switching only to cellular data when Wi-Fi is unavailable. So while data will undoubtedly continue to be a major part of operators’ revenue, there is only so much cash they can directly extract from it. And more importantly it’s highly unlikely that that revenue will ever compensate for those lost from the decline in voice and text use.

The fourth wave is already building rapidly, as people are now using their mobiles to do everything from paying their grocery bills and online shopping to downloading digital media or even checking their medical records. Virtually all of these services are provided not by operators but by third parties. This has understandably rattled most operators’ cages. Many have panicked and gone so far as to throttle their users’ service in response – or even completely blocked them from using services such as Skype (and later defending their moves citing policies hidden deep in the terms and conditions of consumers’ contracts).

Industry discovers benefit of OTTs

In January 2012, the Internet Telephony Services Providers’ Association in the UK condemned mobile operators Vodafone, T-Mobile and Orange for their use of such anti-consumer practices, leading European Commissioner, Neelie Kroes, to call for greater transparency. And since then tide in Europe slowly seems to be changing.

In September Swedish operator Telia not only backed down on plans to charge customers extra for using VoIP services, but even introduced special VoIP packages themselves. Such a move is an implicit acknowledgment of how operators must embrace progressive technological change and the desires of their customers, instead of trying to thwart them.

Indeed, more operators are continuing to accept this view and have begun the process of working with OTT services. Weeks ago Deutsche Telecom teamed up with online music provider Spotify to give users the option to choose a payment bundle with unlimited music streaming– even going so far as to not deduct usage from the user’s data allowance. Crucially, such deals not only enhance an operator’s offering to customers, but instantly transform the OTT service from being a competitive threat or parasite to a valued business partner.

These types of partnerships are not unheard of, of course. Examples include, with varying degrees of success, Vodafone and Three working with Skype in the UK; or AT&T combining with Twilio; and Sprint working with Google Voice. The problem has been that many such OTT acquisitions or partnerships from previous years have often felt reactive rather than a proactive from operators. A high failure rate in such partnerships often confirmed this suspicion. When such partnerships are run effectively however everyone benefits: Consumers get more choice, operators have more to offer and OTT services get to monetize their software.

Recent months have also seen a surge in news relating to operators partnering with established companies from other industries. AT&T recently teamed up with computer giant IBM to offer cloud-computing resources to Fortune 1000 companies. A potentially hugely profitable venture.

Elsewhere, Telefonica set up a new division within its company to analyse and then resell user tracking location data, mining and monetising the huge amounts of real-time consumer data already available to them.

It’s do or die time

OTT services are not a passing fad – to the contrary they have become so significant as to be a legitimate fourth wave of revenue for the telecom industry. Operators then must seek to partner with (or compete with) OTT services, and monetize those efforts. Failure to do so will inevitably lead to ceding their turf, consigning them to be nothing more than data carriers.

To preserve their market position, operators need to be among the vanguard setting new industry trends, to be more flexible so they may respond quicker to market demands. And they must look for opportunities to form intelligent partnerships with relevant technology companies.

Operators are standing at a critical crossroad. They need to not only choose their path, but whom to walk it with.

Andreas Bernström is CEO of Stockholm-based Rebtel.

Photo courtesy of Shutterstock.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

Telia holds Skype hostage, may block VoIP in Sweden

Kevin C. Tofel — Thu, 26 Apr 2012 20:12:43 +0000

Skype may be blocked for use by a wireless provider in the very country one of its founders,Niklas Zennström, is from. Sweden’s Telia is reportedly considering a block on Skype’s mobile video and VoIP services later this year unless customers pay an additional usage charge. The situation has some Telia customers incensed enough that they’ve created a protest page on Facebook.

Last month, Telia spokesperson, Charlotte Züger, provided the first hint of the possible Skype block, speaking to Sveriges Radio: “It’s going to mean that there will be service plans where it’s not included so it won’t work. I believe, quite simply, that we need to be able to get paid for our various services no matter what, as different service plans include different things.” Such actions would likely apply to all other mobile VoIP services, as Telia would defend against losing voice plan revenues.

Telia appears committed to this path as I found this official Telia customer service response to the situation from April 19, translated from Swedish via Google Translate:

“Telia fully supports an open Internet that is accessible to all. Our customers will have the opportunity to use services of their choice, wherever they are, with high quality.

Our customers can now use mobile IP telephony and will continue to do so. Depending on your needs, you as the customer continued to be able to choose a subscription where mobile VoIP is included or choose a subscription which is not included and therefore need not pay for it. We will also launch an additional service for mobile VoIP to the consumer when the need arises.”

The response jives with other reports that a fee for mobile VoIP will only be charged to new customers while existing customers will be grandfathered in and allowed to use Skype at no extra charge. Leave Telia and come back however, and you may be blocked from Skype unless you want to pony up an additional fee, reportedly around 6 Euros a month.

As operator revenues get squeezed by third-party services — both free and paid — this situation is more likely going to get worse before it gets better. And it also raises questions on net neutrality for mobiles, something that will become increasingly important as the world population shifts online activities from fixed lines to mobile. Interestingly, Telia was the first carrier to roll out an LTE network back in 2009; could this be a sign of things to come for other 4G networks around the world? Let’s hope not.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

Everything's Relative, Especially Wireless Broadband Speeds

Stacey Higginbotham — Tue, 26 May 2009 15:24:56 +0000

Swedish wireless companies, in an effort to satisfy the nation’s consumer ombudsman, have come up with what they’re hoping is a better representation of wireless broadband speeds, what they’ve dubbed the “practical maximum speed.” In most countries, network operators advertise their wireless speeds based on the maximum levels achieved in the lab, which is the equivalent of advertising the maximum amount of weight lost by people shown in weight-loss commercials as typical. But in reality, wireless broadband speeds depend on several constantly changing variables, such as how far a person is from a tower and how many people are on the network at any point in time.

So to help consumers get a better sense of what they’re really buying, earlier this month, the ombudsman, Gunnar Larsson, said that Tele2, Telenor, Telia and 3 shouldn’t be allowed to advertise theoretical maximum speeds. Using the maximum speeds for an HSPA network, for example, means operators are advertising speeds of up to 7.2 Mbps down. But I’m not convinced the Swedish operators are being all that transparent with their ombudsman, either, for they have decided that the “practical maximum speed” of an HSPA network is some 6 Mbps.

Since that struck me as still too high, I reached out to Peter Rysavy, a wireless analyst at Rysavy Research. In a report issued last year, he put typical speeds for an HSPA network at a range of 700 kbps to 1.7 Mbps (the chart and accompanying footnotes can be found on page 37 and 38). Notably for those excited about LTE, his estimates for LTE are 10 Mbps on the downlink and 5 Mbps on the uplink.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

The Telia-Cogent Spat Could Ruin the Web For Many

Om Malik — Fri, 14 Mar 2008 21:02:19 +0000

Updated: Swedish telecom operator Telia and U.S.-based connectivity provider Cogent Communications have gotten into an ugly spat and have stopped interconnecting, according to some of my sources in the telecom business. What this essentially means is that Telia’s DSL customers could have trouble seeing Cogent-connected web services. Telia, now part of TeliaSonera is one of the largest networks in Europe.

The bickering could be because one of the two parties feel they need to be paid for the traffic they are sending. I am looking into this and have emails out to all my sources in the bandwidth business, and will update accordingly. (If you have any information, drop me a line.)

Cogent had previously gotten into a slugfest with Level 3 Communications. Cogent’s stance towards Telia is hypocritical. Here is a press release they issued back in 2005 when complaining about Level3. As a reader points out, Cogent has been involved in such spats with other carriers as well. OpenTransit (France Telecom), Teleglobe, ATDN are some of those who have had Cogent issues.

This is a letter Telia sent to its customers:

Dear Customer,

We would like to give you the following information:

Cogent has decided not to exchange traffic directly with TeliaSonera’s AS 1299 or indirectly with AS 1299 through a third-party provider. As a result, Cogent has partitioned the Internet and disrupted the flow of traffic between Cogent and TeliaSonera customers.

While this has a negative impact on some users of the Internet, this effect is the result of Cogent’s decision and is unfortunately beyond TeliaSonera’s control. Until Cogent rectifies this situation, TeliaSonera customers experiencing any difficulty reaching Cogent’s network can continue to purchase IP Transit from TeliaSonera along with another Tier 1 provider. This will fix the immediate problem and ensure optimal connectivity going forward.

We sincerely apologise for the inconvenience caused…

If you have further concerns, please address your commercial contact at TeliaSonera

Updated with inputs from our readers. Thanks guys

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.