Welcoming Our OTT Overlords

By TMCnet Special Guest
Thorsten Trapp, Co-founder and CTO of tyntec
  |  July 22, 2015

Modern commerce is complex, a massive fluid landscape where change is consistent, ever-present, and lightning quick. Technology has only accelerated this cycle, with rapid innovation rendering countless once-dominant products, business models, and even entire industries obsolete in the proverbial blink of an eye. The communications industry knows this better than most. It wasn’t all that long ago that pay phones and long-distance calls were major revenue streams, and now wireless-only homes are increasingly commonplace.

The disruptive force du jour for mobile operators these days is messaging, specifically the meteoric rise of OTT apps. Once a dominant revenue channel for MNOs, with traffic peaking at 7.8 trillion messages sent in 2012, the supremacy of SMS was unquestioned and largely considered untouchable.

Cue the dramatic upset music.

Since BlackBerry (News - Alert) Messenger was first introduced in 2007, OTT has gained momentum steadily – to the point that when WhatsApp’s CEO bragged in early 2015 about the company’s more than 700 million monthly active users and 30 billion messages sent daily, he was merely crystalizing a victory sealed well before. And while SMS is far from dead, the continued decline in traffic and revenue from traditional telco services has left MNOs in a tough spot. Facing ever-dwindling ARPU the search for solutions is shifting into high gear; and panic mode isn’t far off.

An Industry Divided

Reports projecting the increase in OTT traffic in the coming years are easy to find, but I’ll save you the trouble: It’s a lot. The point is, MNOs have no choice but to address this multi-billion shift in user preference. Business is Darwinian, and companies refusing to adapt risk failure. In that spirit, two primary solutions have emerged for MNOs – OTT partnerships and the RCS Joyn initiative. The latter is the GSMA’s (News - Alert) attempt to combat OTT with increased messaging functionality such as the ability to work across networks and devices.

Both solutions have grabbed a lot of headlines, with several high-profile MNOs rolling out RCS offerings recently with much pomp and circumstance. However, many believe this comes too late in the game and the delayed mobilization, lack of widespread MNO integration, along with cost of implementation may spell doom for Joyn. Meanwhile, a recent survey indicates that 81 percent of MNOs are already engaged with OTT providers or investigating partnership opportunities. So it seems that while industry messaging supports RCS, MNO actions suggest its failure.

Marriage of Convenience

Joyn was essentially an attempt at herding cats. The carrier cooperation required to achieve the standardization and simpler interconnection took far too long, which is to be expected when endeavoring to reconcile that many disparate interests. MNO-OTT partnerships, though also challenging, match disparate parties with complementary interests and strengths. They create a dynamic that breeds incentive for rapid problem solving through leveraging parallel operational aptitudes and even tapping hybrid third-party vendors to optimize integration, a notable contrast with the Joyn confederation. Additionally, by relying on what each party does best – as opposed to reinventing a metaphorical wheel – the resulting union is positioned for superior agility and innovation.

Pairing the user experience prowess and massive subscriber bases of OTTs with their own subscriber data and carrier-grade connectivity represents a potentially formidable alliance for MNOs. And the benefits are mutual as these new, popular OTTs can learn a few things from their older, more established partners, such as how to monetize all that popularity. Not only can MNO end user relationships and billing functionality open up new market capitalization options, their infrastructure improves OTT service quality by providing SMS as a fallback option if Internet service falters. Granted, inherent difficulties like culturally opposed corporate mindsets and forging new contractual agreements do exist. However, solutions are available and the upside is promising. High-profile examples include the T-Mobile/Pandora and WhatsApp/E-Plus MNO-OTT partnerships.

Necessity is the Mother of Reinvention

While embracing OTT apps is an important aspect to survival in the ever-developing world of mobile messaging, this does not mean that traditional SMS is no longer relevant. To the contrary, repurposing SMS promises to provide solid, albeit reduced, revenue streams for MNOs. The technology is finding a niche in the enterprise and government channels, which are utilizing application-to-person SMS to provide real-time, personalized customer services like account updates, reminders, and two-factor authentication. Last year, a survey by mobilesquared found that 32 percent of MNOs reported an increase of 6 percent or higher in A2P traffic in 2014.

So it turns out that the ubiquity, immediacy, and reliability of SMS gives it functionality well beyond the person-to-person communication that spurred its popularity in the first place. Projections put A2P revenue at $60 billion by 2018 as the public and private sector begin to fully realize the potential applications for SMS engagement. The A2P OTT presence is set to increase as OTT players begin to address their SMS interoperability problems and make their services universally available at all times. Judging by how the industry arrived at this point, the possibilities for technological evolution are certainly vast.

Embrace for the Future

Innovation and industrial progress often follow the kind of messy, unpredictable trajectories that major corporations are loath to endure. The sudden ascent of OTT apps established a new standard in messaging, streamlining and socializing it to degrees never seen before – an excellent upgrade from the end user’s perspective, and a pricing/billing/organizational nightmare from a corporate perspective. It involves carriers embracing these changes, working alongside OTT players to further innovation, and creatively repurposing existing technologies give themselves the best chances for survival. Because while we can only speculate on the complexion of the mobile messaging industry 10 years down the road, we can say with certainty that it won’t look like it does today.

Edited by Maurice Nagle