The recent success of Facebook in acquiring whatsapp was a wake-up call for Telcos, compelling them to realize that they are increasingly side-lined by OTT players and other disruptive innovations, turning them into mere pipe. Close on heels to this announcement, came another blow, in the form of the support of Host Card Emulation (HCE), by payment solution giants, Visa and Mastercard. HCE is a cloud based mechanism for hosting NFC applications that bypasses the Telco intermediacy for payments. Bloomberg reports that, “Free social-messaging applications like WhatsApp cost phone providers around the world from Vodafone Group Plc (VOD) to America Movil SAB (AMXL) and Verizon Communications Corp. $32.5 billion in texting fees in 2013, according to research from Ovum Ltd. That figure is projected to reach $54 billion by 2016.”
The whatsapp valuation is a bucket of water on the face of Telcos to drive home the point. The surprising aspect of this acquisition is that each subscriber’s valuation on this app stands at $42, without it having a clear business model in view for monetization of the service. In stark contrast to the opportunity and assets that the likes of whatsapp and its ilk have, Telcos possess a far bigger subscriber base and wealth of information that has much larger monetization opportunity and valuation. Yet, so far Telco have failed to tap into this opportunity and are slowly receding to the background of this communication revolution.
The Opportunities Telcos Possess
Long before the disruptive innovations in voice and messaging started eating into Telco’s revenue, Telcos were offering very similar services as them to their subscribers, for almost decades. All that these new disruptors introduced was - a little tweak into the business model.Instead of generating revenue from subscribers, they realized the value of advertising, leveraging on the consumer reach and consumer insights,to monetize them. The doggedness, and to a great extent, the sloth of Telcos in looking beyond the traditional sources of revenue pushed them into the sidelines, giving a free run to the OTT players on their turf. A quick review of the enormous assets that a Telco owns will make the picture very clear. Starting with the sheer size of the subscriber base to the various touch-points (billing, customer care and retail points and so on), the subscriber insights (behavioral, demographic, location,and contextual) and the long term relationship that the Telcospossess opens up a myriad options for innovation that could result in superior customer experience and multiplying revenues. With assets like these, Telcos are far better placed to take advantage of these opportunities compared to any other player in the ecosystem.
The Way Forward
Telcos can still reclaim their lost ground before it is too late if they act in tandem with the times and beat the OTTs in their own game. All they need to do is embrace the new‘two-sided business models’to monetize their infrastructure, insights, billing, customer care and reach. They need to keep a close tab on the changing needs of their subscribers and provide them with a superior user experience. In doing so, they open up a new opportunity for monetization that may turn out to be more profitable than charging bare subscription fees. Many of the world’s top Telcos, like Telefonica and Verizon, have already embarked on that path and have successfully monetized subscriber insights for location based advertising as well as providing marketing insights to retail brands, and so on. Though, these experiments are fragmented across markets and thus, fail to thwart the advance of the OTT players, who capitalize on this opportunity. Another opportunity lies in building a nexus of forces by forging partnerships in the industry to offer innovative services. A good example of this would be Dropbox integration with Samsung devices to provide free space for content syncing. Telcos must respond rapidly to the market demands and deliver services before other disruptive innovations pounce on those opportunity.
What makes Telcos stand apart is the trust and security they offer to subscribers as compared to the OTT players who are, often, more vulnerable to hacking or compromise data security. Together with the security assurance and the enormous assets the Telco possess, they can combat the fatal threats posed by disruptive innovation and play a central role in the whole ecosystem.