The origins of the confrontation lies in the operating costs of running mobile networks with mobile carriers viewing content providers as freeloaders, riding the gravy train paid by the carriers. But the once unlikely bedfellows are now cosying up to one another in a tale of “coopetition”.
The challenges facing mobile operators are familiar ground. OTT services like Whatsapp, Messenger and FaceTime are putting a squeeze on mobile carriers’ profits. The Average Revenue Per User (ARPU) has declined from 34.58% in 2007 to 22.11% in 2015. And it’s estimated that by next year the OTT market will have doubled with over 330 million active users.
More and more consumers are opting to use the free services instead of paying for SMS and calls, while mobile carriers are footing the bill for network costs. “As a result, CS core network is gradually becoming less important and technologies like IMS are becoming popular among the telecom operators,” writes Ahmed Habib, a Strategic Planner & Mobile Tech Manager in his article that looks at the burdens OTT services have put on mobile carriers.
Added to this gloomy consumer trend, the move by European legislators to axe roaming charges put yet another strain on mobile carriers’ revenue streams.
Data has become the central income pillar and mobile carriers are scrambling to rework the relationship with content and streaming services in a win-win scenario for consumers, content providers, and mobile carriers. It’s a shift in status to “in a relationship” that the industry has been waiting for and the glue that’s holding this symbiotic relationship together is content subscription.
The benefits of mobile subscription services
Mobile subscription services (or Value Added Services) is key to the reinvention of the telecom industry.
The surge of deals between content providers and mobile carriers is testament to the opportunities for both players: mobile carriers need to find new sources of revenue and content providers need to increase their market reach.
Martin Morgan, VP of Marketing for Opennet, a telecommunications and Tech company, says that content providers teaming up with mobile carriers to deliver services is a bit of a no-brainer. “Spotify, Beats, Deezer and Napster are all signing deals with mobile operators. Between them these four companies they have around 19M paying customers (compared with 3.6 Billion mobile subscribers worldwide). Using mobile as a delivery channel offers immediate access to a huge market,” writes Morgan in his article that discusses the benefits of mobile carriers and content providers developing this special relationship.
With more and more consumers watching and streaming content on their mobile phones, the sky really is the limit for providing content via a mobile carrier paid subscription. Movies, gaming and even dating platforms are jumping head first into relationships with mobile carriers to reach more consumers.
This “friends with benefits” relationship will allow the telecom industry to take a slice of the content pie instead of trying to fight back by walling off content. Consumers are also catching on to the benefits of paying their mobile carrier for content. Rather than using all their monthly data allowance on a single video they can stream as much content as they like, with unlimited plans.
“If you only wanted to watch video with your data package then 32 minutes of video streaming a day on LTE would use up your monthly allocation of 4GB. It’s an expensive way to watch half an episode of House of Cards,” says Morgan.
The end of Net Neutrality in the US also has serious implications for content providers and mobile carriers as they struggle to gain control of the market by favoring servers that host their own content.
Mobile carrier and content provider partnerships in the US and EU
Telecom companies across Europe are making moves on content providers. Vodafone UK offers its consumers Netflix, Spotify Premium and Sky Sports when they sign up to its 4G contracts. Likewise in France and Spain, mobile carriers are heading into partnerships with content providers and seeking to produce their own original content in parallel.
“In France, telecom operators are now seeing content as a differentiator and appear to be ready to spend more money on content and use content more prominently as a way to justify higher prices,” comments Francois Godard, from Enders Analysis, a subscription research company.
Meanwhile in the US, the story is of acquisitions and mergers rather than mobile carrier and content providers entering into partnerships together. After the multi-billion dollar merger attempt between AT&T and Time Warner, more and more mobile carriers are making moves on content providers. T-Mobile US announced that it would be providing streaming services after buying Layer3 TV and Chief Financial Officer Braxton Carter told press at an investor conference that T-Mobile would be making further moves on smaller acquisitions.
The logistics of mobile carriers providing content
Of course both the partnership and acquisition models raise logistical conundrums and sometimes legal quagmires for mobile carriers. The US trend of simply buying content companies is an aggressive and foolhardy move. It raises questions of monopolies and leaves little room for manoeuvre if trends change in the future.
The partnership model comes with its own challenges. A mobile carrier would need to buy or license the content solution, implement a payment aggregator and then handle the distribution and customer support. It’s a mammoth task that most mobile carriers are not ready for but need to implement in order to remedy dwindling revenues.
More and more mobile carriers are beginning to understand that there is a “third way” when it comes to striking deals with content providers. The middle ground for overcoming these challenges is to use mobile tech firms that provide sales of licensed digital content and mobile payment aggregation, the customer support and distribution, which allows mobile carriers to continue focusing on the bread & butter of their business—mobile infrastructure development.
In a world where content is king and mobile is becoming ever-so-personal, are we about to witness the most significant change in entertainment and how will recent regulations impact the ever-evolving relationships between mobile operators and content providers?