Digital services are clearly the next big wave for mobile operators with the escalation in the number of mobile transactions, the amount of content consumed on mobile and the amount of spending that takes place on these devices.

1. Ploughing the Digital Fields:
Mobile Operators’ Strategies for Digital Services
By M Prushothma Rao
Director, Telecom Strategy and Solutions, PCC Mobile Broadband
This year, Mobile Network Operators (MNOs) see the unfolding of a new game plan for the telecoms
industry. For the first time, the revenues from data are surpassing the revenues from the traditional voice, with
OTT players wiping out large chunks of voice and messaging income via their popular chat, messaging and video
applications. Though most MNOs are fast to transform the speed and quality of their pipes through rapid 3G and
4G LTE roll-outs, the final products dished out to subscribers are becoming highly homogeneous, differentiated
only by add-ons and app bundles, resulting in an industry that is moving fast towards commoditization, with
downward price pressures eating away at its margins. This year also saw a few more surprises in the market as
content providers took bold steps to venture downstream to own the last mile connection and other niche
players, including the virtual operators sprucing up their efforts to take a bigger bite out of the connection
market.
At the same time, MNOs are observing new and exciting trends in parallel markets, namely the digital
services segment. MNOs, already having the ‘last mile’ control in a world that is becoming increasingly
dependent on data, especially mobile data, are seeing great opportunities in the upstream integration of
network services with digital services, on both fixed and mobile networks. If the recent trends in the market are
of any indication, digital services are clearly the next big thing for the telecoms industry.
The role and strategic positioning of MNOs in the digital services segment is expected to evolve fast in
the next few years as they continue exploring the market to identify the range of services, solutions and
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2. partners that will best fit their long term goals. Given their market reach, brand popularity and subscriber
relationship, most MNOs are well positioned to design, customize and finally monetize these services – creating
new businesses, revenues streams and possibly a whole new value proposition for themselves. Digital services
are already moving into the mainstream operations of some MNOs, with these players signing up partnerships
with content providers, building their own integrated digital service platforms such as cloud market places and
offering innovative service bundles that include Operators’ own chat and messaging applications, media
channels and cloud storage facilities.
It is imperative that MNOs carve out clear strategies for their digital service businesses, outlining the
core services that they should target in the near term, upon which complementary services can be built on in
the longer term, creating the MNO’s own unique digital services ecosystem. Both demand and technological
factors will continue to influence these decisions. The endless flow of new content and applications in the
market are creating huge shifts in the subscribers’ appetite for digital services while on the technology front,
intensified research and developmental initiatives are creating more scalable and flexible solutions that can now
cater for a wider range of service roll-outs. These and a host of other influencing factors will determine not only
MNO’s choice of digital services, but also the operational and partnership models, bundling and pricing
strategies, choice of back-end solutions and more interestingly tie-ups with other MNOs on certain services such
as the mobile payments and content libraries.
Figure 1: Major Digital Services Segments for Mobile Network Operators
For quick entry into the digital services market, MNOs can leverage on their ready subscriber base to roll
out simple, personalized information services such as digital search and notifications. Location-based and eventbased services also fit into this category, providing subscribers timely and relevant information. For MNOs
making foray into the digital services, the insights from these services, especially information on participating
subscriber groups, data spending patterns and take-up rates on each service will enable them to understand the
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3. dynamics of the local markets and tailor the next level services according to the actual demand on the ground.
While full-fledged content services – for example, media libraries and MNOs’ own social media applications –
require a more thorough evaluation of the market and more complex implementation plans, the simpler valueadded services penetrate the market more easily, paving way for MNOs to cross-sell the next level services such
as booking and reservations, ticketing, cloud storage and light content such as short video clips, karaoke
services, e-cards and tune clips. Having a foot in the door, MNOs can then start capitalizing on their internal
analytics and insights on their subscribers to take in creative inventory from 3rd party advertisement networks
and employ intelligent mechanisms to ‘serve’ advertisements to the target audience and hence, spin off mobile
advertisement revenue streams.
Figure 2: Mobile Network Operators and Mobile Advertising
Further down the road, MNOs can move on to enrich their digital services ecosystem, for example, by securing
top-notch content via partnerships with big content names and start rolling out richer content which includes
audio and movie channels with downloadable and remote playback capabilities, e-libraries with extensive
collections of literary works, apps stores with hundreds of downloadable apps, e-gaming centers and other niche
content that matches their subscribers’ profiles and data consumption patterns.
Some MNOs have moved in the direction of offering their own chat, messaging and social media apps,
coupling these with free cloud storage for user-generated content. This strategy works well to address the
erosion of revenues from popular OTTs, shifting back those lost revenues from the open global platforms to
Operators’ own services. In some jurisdictions, applications which are ‘culturally’ responsive have proved their
mettle by outdoing bigger players with their special appeal, which includes local languages, local content and
custom effects such as emoticons and stickers – a great hit in the Asian markets as observed in the meteoric rise
of the hugely popular China’s ‘WeChat’ and Japan’s ‘Line’. However, making inroads into these types of
applications, especially those which require the management of huge amount of crowd-sourced content will
require advanced network and application capabilities which include high performance databases, superior
content delivery networks with global footprints, robust processing abilities, scalability, feature-rich and
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4. continuously evolving interfaces. O2, Orange, China Mobile and Telefonica are among the big players who are
capitalizing on their huge market size to launch proprietary OTTs that mimic the popular apps in the market,
enabling their subscribers to now communicate and share rich content at more attractive rates. However, the
incumbent applications that have captured pockets of subscribers all over the world will continue to pose huge
threats for these new entrants necessitating MNOs to work harder on the quality and costs aspects to hold up
against the competition from those bigger and more matured players.
In the medium term, the mobile commerce (m-commerce) segment is expected to attract the most
attention. The mobile version of e-commerce, m-commerce, is commanding a lot of interest from MNOs with
the advent of the payment system revolution enabled by Near Frequency Communications (NFC)-enabled smart
mobile devices. Smart mobile devices are already pushing the data usage to new levels, but with NFC enabled
SIMs, MNOs are looking at an entirely new equation in the market. The m-commerce segment which comprises
digital stores, m-banking, m-money, m-wallet and payment alternatives such as m-coupons, m-tickets and mpasses will depend on NFC-enabled SIMs to affect payments at physical stores and on transportation and hence,
accord MNOs the ability to influence mobile commerce transactions at the last mile. The subscribers’ choices of
retailers, transport providers, e-wallets and even their retail banks will therefore be determined by the
Operators’ affiliations with retailers, other MNOs, banking institutions and payment intermediaries. With this
new found power, MNOs are expected to enjoy a huge chunk of retail action that takes place on mobile devices,
raking in revenues from advertising, transaction fees and various reward and loyalty programs. Collaboration
among the various players are already materializing in many markets, with the recently launched Isis System in
US being one good case study where the giants AT&T Mobility, T-Mobile, Verizon Wireless and a handful of
Payment Card Issuers are teaming up to offer the Isis System and Isis Wallet to enable complete fulfillment of mcommerce services for their subscribers.
However, as in any sector that promises huge returns, there is already strong competition in the digital
services segment, not only among MNOs but also against players from other industries including content
providers, OTT players and retailers. Players such as Google, Amazon and PayPal are making huge inroads in the
Mobile Wallet segment, OTT players are perfecting their Apps, making them leaner and more complex while
content providers are churning newer and better ideas to engage and retain their users. E-stores have matured
both in the B2B and B2B2C segments and are likely to stay ahead in providing the perfect platforms for trading
and purchasing a wide array of merchandises. However, despite the competition, the escalating internet
exchange charges and the expected slowdown in data revenues by 2018 coupled with the huge income potential
from digital services are spurring MNOs to take bold initiatives in the digital services sphere. On one end, MNOs
may choose to maintain a lean presence in the this segment, delivering only select services on their network but
on the other, may go all out to establish their global content delivery network, build their own data centers and
offer the whole suite of digital services with extensive partnerships with various other players in the ecosystem,
especially content providers. The choices will definitely reflect the risk appetite, the investment requirements
and operational complexities that come with venturing into a different vertical altogether and will also be
influenced to a great extent by the political will to have more ‘national’ content delivered to subscribers as well
as the availability of ready off-the-shelf solutions that simplify the design and delivery of these services. That
said, the digital services segment remains a vast greenfield that will provide Operators a renewed opportunity to
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5. overhaul their business models, recreate their brand positioning and capture a bigger subscriber base than ever
before.
© 2013 PCC Mobile Broadband. All Rights Reserved.
PCC Mobile Broadband (PCCMB) is a leading digital media services company and provider of analytics and consulting
services for the mobile broadband segment, with particular emphasis in the OSS/BSS domain and the policy and charging
control vertical. PCCMB’s Consulting Service provides strategic advisory on the development of innovative mobile broadband
services, including digital services and mobile commerce and the design and deployment of mobile broadband solutions.
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© 2013 PCC Mobile Broadband. All Rights Reserved.