If anyone is in doubt that the telecoms industry is experiencing a major transformation, they need only look at recent product news from Orange. The telecom giant has just unveiled a Voice over Internet Protocol (VoIP) service called Libon allowing users, including its own customers, to make extensive free calls and messages on their mobile.
Some industry commentators, tongue only partially in cheek, referred to this as the telecom operators ‘disrupting themselves’. Indeed, to the casual observer it may seem odd behaviour from Orange to effectively undercut itself by making it easier for its customers to lower their calling bills, but there is logic behind the move.
Revenue from voice and messaging is in decline. Industry analyst Ovum claims that in the past two years $23 billion in revenue has been lost by operators as a result of social media and Over The Top (OTT) services. The rise of VoIP and OTT (Over the Top) services like Skype, Rebtel, Viber and WhatsApp have played a large part in this.
Orange isn’t the first operator to dip their toes into the VoIP waters, either. Other similar examples include T-Mobile with CleverConnect and O2 with Tu Me.
These moves into VoIP are signs of growing acceptance from operators that they must adapt their game, build new business models and source new revenue streams as the traditional ones won’t last forever.
An obvious revenue alternative for operators is data. Whilst data will generate major cash for operators for some time - particularly as the era of the smartphone and tablet has truly begun - it isn’t simply going to replace what they are losing from voice and messaging.
For instance, the growth of free Wi-Fi around the world, as well as innovative hardware like Freedom Pop (which switches you from paid to data to free Wi-Fi whenever it is available) will all impact on the profits data can create.
Furthermore, if operators rely too much on data they risk becoming nothing more than data pipes. To truly remain dominant in the industry, operators need to innovate and that means looking at new revenue sources and providing their own services to rival OTT offerings.
There is evidence, albeit in small doses, that operators are cottoning on to this.
In October Deutsche Telecom teamed up with online music service Spotify to offer users the premium streaming service without eating into their personal data allowance. We’ve also seen partnerships between Orange and Facebook or AT&T and Mi-Fi. (ed: Three and Skype in the UK has been the longest standing of such agreements). Operators are taking these steps because they know if they don’t offer the services customers want, the customers will simply source them elsewhere. With every service a user gets from on OTT provider, the relationship between user and operator weakens.
As well as working with OTT services to provide offerings their customers are demanding, operators are also beginning to cast their net wider and source revenue from outside the telecoms industry. AT&T is at the forefront of this, recently teaming up with IBM to offer Fortune 1000 companies cloud-computing resources. Similarly, O2 has set up an analysis division to try to monetise the vast amount of real time mobile data it currently harvest.
The above are just a couple of examples of the pickings outside the traditional telecom revenues that are there to be had by sharp operators.
So while some commentators may be confused by operators ‘self-disrupting’, there is method in the apparent madness. To remain relevant operators need to become more flexible and take a proactive stance in regards to new business models.
The chances are that those operators which go on the offensive and ‘disrupt’ themselves will gain far more than those that simply get defensive and try to cling onto past markets.
Andreas Bernström is the CEO of Sweden-based Rebtel, the world’s largest independent VoIP company by revenue. He has overall responsibility for company strategy and direction. Andreas works to ensure that the business runs smoothly now and in the future.