CSP-OTT Partnerships: Sleeping with the enemy

CSP-OTT Partnerships: Sleeping with the enemy Dominic Smith looks at the urgent need for CSPs to embrace partnerships with third party application and OTT service providers – subject of an interactive panel session at the recent Management World 2012 event in Dublin, featuring Cerillion’s CEO, Louis Hall, and representatives from Heavy Reading, Amdocs and OpenVault.

There’s no doubt that most CSPs are at a crossroads where a decision needs to be made on their future direction and strategy for over-the-top (OTT) services. As discussed in the conference keynotes at Management World 2012, the combination of smarter devices and faster networks, has created the perfect breeding ground for new applications and services, with OTT providers seemingly able to turn the traditional Telco business model on its head almost overnight.

Netflix, Skype, WhatsApp, YouTube, … the list goes on and on, with the key question for CSPs being how to fight back against this endless stream of OTT apps that threaten every corner of their business. And from the smallest emerging market player, to the largest of global operators, all are wrestling with the same challenges and options.
One of the biggest dangers is acting too slowly, or worse still, doing nothing at all - CSPs who simply bury their head in the sand and pretend there is no problem, or kid themselves they will always have a steady stream of revenues from their core network services, are just inviting the OTT providers to eat their lunch.

This will be a rapid downward spiral, as CSPs will need to continue investing in their infrastructure to prevent a complete network meltdown, but with no sign of any significant return. So why do it? In the long run, only a small number of global network operators will be able to achieve the economies of scale and margins needed to make this business model work.

So what’s the alternative? Well one such option is for CSPs to stand and fight. We’ve already seen some operators lobbying regulators and calling publicly for OTT providers to pay for the increased bandwidth needed to carry their services, and I think there is growing backing for this approach. The argument goes that if the OTT providers don’t contribute, then their services will fall victim to a significant degradation in performance.
 
However, this is completely at odds with net neutrality, where countries such as The Netherlands have already taken the lead by passing laws to ensure that all internet traffic is treated equally, regardless of the type of content being delivered. This legislation effectively prohibits ISPs from arbitrary ‘throttling’ or ‘traffic shaping’ policies and will further marginalise CSPs who have no clear OTT strategy.

Another approach is for CSPs to launch their own OTT-style services, and there has been a concerted push in this area from the GSMA’s ‘joyn’ initiative which was unveiled at MWC Barcelona earlier this year. However, this is one that faces many hurdles both from a regulatory perspective – CSPs are generally restricted in their offerings by the countries or regions in which they are licensed to operate; and from the difficulty of engineering a fully interoperable solution that is acceptable to all.

So what choices are left? To partner with OTT service providers is the only remaining option, but for many CSPs this will seem like sleeping with the enemy. This goes to the very heart of company culture, where CSPs have grown up owning the network, owning their customer relationships, and doing their level best to keep complete control of the end to end service delivery. The so-called ‘walled garden’ model, which is littered with failure across the industry.

The irony is that the one company who has really succeeded with the walled garden model is the ultimate OTT provider – Apple. However, such is the draw of Apple’s products, many CSPs have not just been sleeping with the enemy, but actually paying them for the privilege, just to get first mover advantage with the latest and greatest devices in their market.
On the face of it this may appear to be a desperate measure, but successful partnerships are ones that expand the overall market size and give each partner the chance to grow their revenues, and there’s no doubt that the iPhone has been the catalyst for the phenomenal growth in data services of the past 3 years.

One of the big risks of CSP-OTT partnerships is cannibalisation of existing revenue streams. However, the presence of OTT services is eroding CSP revenues anyway, so it is surely much better to be part of the revolution and secure a place in the new digital value chain, than to defend an outdated business model. Just look at what iTunes has done to the music industry and Amazon’s Kindle to the publishing sector.

The key challenge for CSPs is to identify the value they can bring to such a partnership. What is it that they can provide that OTT providers cannot do easily on their own? Is there an extra layer of convenience or value that can be delivered to the end customer?

The most obvious area is the ability to manage an end-to-end QoS, with the clichéd example being for the delivery of video-based offerings, and in particular HD-video. But this end-to-end control is of even greater value for services in other verticals such as automotive, security and health applications, where guaranteed QoS could make the difference between life and death.

However, for the consumer market there are also many other assets that a CSP can bring to the table, including fully equipped customer service teams; a brand that customers trust to look after their data and financial information; and the BSS infrastructure itself for billing on behalf of the OTT provider. Even a brand as big as Google sees value in carrier billing for its Play Store, and has been slowly signing up operators in the US, Europe and Asia to extend its reach and improve the customer experience.

It must be remembered that for every Netflix or WhatsApp, there are dozens of other wannabes trying to make their way into the OTT market. CSPs must therefore ensure they have the flexibility in their BSS platforms to support the different levels of engagement and partner business models, recognising that there is no one size fits all approach.
To survive in the digital economy, it’s no longer a case of if, but when and how to partner with OTT providers. The traditional Telco business model is in terminal decline, and only those CSPs that can embrace OTT partnerships and transform their business models will survive.

Image courtesy of Richard Hoare