Just before we begin this article, I should point out some definitions just in case you’re not fully on board with them:
OTT = “over the top” — that is, services that run on your data connection and have nothing whatsoever to do with the mobile operator.
RCS = “Rich Communication Services” — services that your operator typically deploys, manages (and charges you for).
So, with those out the way, let’s hear from Stefan Zehle, the Telecoms Analyst at Coleago Consulting. He has written the following thoughts on how operators are fighting back with RCS against the deluge of OTT possibilities. Do consider the recent news from today’s FT regarding research that reckons operators have lost almost $14 billion in revenues as a result of OTT competition.
Have operators missed the boat with their own RCS services? Let’s hear from Stefan:
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WhatsApp and other Over the Top (OTT) communication services are not only impacting on SMS but also on voice usage. The mobile operator community is fighting back with its Rich Communication Services (RCS) initiative. “For consumers, it will deliver an experience beyond voice and SMS by providing them with instant messaging or chat, live video sharing and file transfer across any device, on any network, with anyone in their mobile address book. RCS-e taps into how your consumers are already sharing their life moments with each other.” (source: RCS-e website). This sounds familiar because this is what Skype, FaceTime, and WhatsApp are delivering today.
The key difference between RCS and OTT communication services is that with the former services are provided by the mobile operators each country and with the latter they are provided by a single cloud based service provider. RCS fits into the traditional telecoms world in which mobile operators interconnect traffic. This is why it takes time to implement it across networks to become an equally universal service as voice and SMS today. Service universality is of course what made global telecoms so successful. But times change.
The cloud based approach is not only faster to market but a key advantage is precisely that the service is not linked to the access network or a particular device. For example, a Skype video call can be made between a Smartphone user connected via HSPA and another using a laptop connected via ADSL. Such cross network / cross device “rich calls” are also possible with RCS Release 2, but compared to Skype it is non-existent.
While the RCE community is busy talking about roadmaps and inter-operability, millions have signed up to Skype and WhatsApp or use iPhone’s FaceTime. Mobile operator’s “rich services” such as MMS and mobile video telephony have been around since the advent of 3G but failed to take off. And as regards universality, those who attempted international mobile video calls can attest to the low chances of success. Nevertheless, mobile operators hold the relationship with the client, notably a billing relationship and RCE service may yet turn out to be adopted alongside OTT services.
Of course mobile operators could simply ride the OTT train and let people do what they want and charge them for the service they use, namely access and transporting bits. RCS is designed to prevent mobile operators being relegated to a mere bit pipe. However, transporting bits is where most of the investment goes. Billions are being spent of building HSPA and LTE networks and acquiring spectrum, yet data transport is often priced at a low level or an add-on to a voice centric mobile phone tariff plan. And even worse: As we see in the Q4 2011 earnings releases from Verizon, AT&T and Sprint with profits and cash flow being hammered by iPhone subsidies. By subsidising Smartphones, mobile operators in effect subsidise OTT service providers.
Perhaps the answer is to change the mobile operator business model. Mobile operators have in effect opened their network to competition at service level to OTT service interlopers. In an open market, if pricing does not relate to cost, interlopers will attack where pricing is well above costs. International call pricing is a good example.
OTT service providers such as Skype and WhatsApp are global in scale. Therefore, as regards the cost of providing services (excluding access), OTT service providers have a huge cost advantage compared to mobile operators. The other issue is time to market. New services are easily and rapidly implemented in a cloud. The operator / interconnect model cannot match this agility. This matters because we do not even know what services might be around the corner.
There is of course one huge issue. Telecoms operators are tightly regulated from a telecoms regulatory and competition perspective. One key regulatory objective is to promote competitive markets and consumer choice. Interconnect regulation, with its requirement to interconnect on non-discriminatory basis, is a cornerstone of this. However, these rules do not apply OTT providers. For example, other operators cannot “interconnect” with Skype in the sense that they cannot provide their own Skype like software client to their customers which would have the same functionality as Skype itself: See who is online, access to the only address book, video conferencing, screen sharing, etc.
Instead what we are seeing is regulatory asymmetry, in as much as the principle of net neutrality is high on the regulatory agenda and this means that mobile operators cannot block or charge more traffic to OTT service providers. However, the reverse is not true. While there has been some discussion around NGN interconnect and APIs, perhaps regulators are not yet worried about the implications for monopolistic behaviour of OTT service providers because other services such as Apple’s FaceTime provide an alternative. However, the issue may well become the regulatory challenge of the future. And challenging it would be, because national regulatory agencies (NRAs) may find it difficult to regulate a cloud service like Skype or WhatsApp.
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Fascinating points, Stefan.
I know quite a few executives who were commenting that OTT vs RCS was a serious issue back in 2010, so if it was bad then, now wonder we’re seeing profit warnings and pained looks from the operators.
My own view is that in most cases, it’s far too late. The market has moved on. That decision has been made.
What do you think?