In my recent keynote at the recent MEF Connects Digital Transformation 2021 event, I shared my thoughts on how the future of direct carrier billing (DCB) fits within the broader payments ecosystem amidst the evolution of mobile carriers underway. In addition, I highlighted some best practices from the most progressive network operators worth emulating and identified some key challenges and opportunities for the industry.
As we all know, network operators face the dual pressure of revenue decline in core connectivity services (including roaming) and the need to commit additional capital expenditure on 5G spectrum acquisition and network rollouts. In this environment, they have a critical choice – do they sit on the sidelines and just play the smart pipe game or do they choose to play a more active role in the increasingly digital lives of their customers?
So those operators who are choosing the more proactive approach are driving what we at DOCOMO Digital consider to be the second wave of convergence in the telecoms industry beyond the shift to all IP networks. This sort of convergence 2.0, if you will, is taking place higher up the services stack in categories as diverse as fixed-mobile bundling, TV and content, automated homes, smart mobility, health and wellness and of course, digital commerce.
Telefónica, Turkcell and América Móvil lead the way
The most progressive operators leading the way in convergence 2.0 are investing in the creation of digital ecosystems. These can include digital and physical goods, loyalty programmes, a wide range of payment options, and all of this presented to consumers through a compelling app or digital wallet.
We see that operators in South Korea and Japan have been front runners in these new digital ecosystems. Certainly, DOCOMO Digital shareholder, NTT DOCOMO, provides some essential learnings, which I will discuss in more detail later. Telefónica, a group we work with in many markets, is also a leader and is particularly good at seeking new merchant partnerships. Another good example here is Turkcell which carved out Paycell, its payments subsidiary, to address the regulatory environment in its market by creating an ecosystem of payment partnerships with carrier billing at its core.
In Latin America, DOCOMO Digital works with América Móvil, which is driving this approach to growth in the non-core connectivity space with both carrier billing and bundling. But it’s not just in the consumer segments where we are starting to see changes. For example, in the enterprise segment, carrier billing is going to enable the Internet of Things (IoT) and business-to-business (B2B) content, especially with the advent of fifth-generation (5G) networks. Although it’s still early days, we are starting to see traction in both these areas. For example, DOCOMO Digital recently launched carrier billing with a B2B merchant providing drone services in Japan.
Further opportunities for monetisation through carrier billing
Analysts at research firm Omdia project that carrier billing is going to grow at a compounded annual rate (CAGR) of almost 7% over the next five years, from US$50bn in 2020 to around US$80bn in 2025. Growth continues to be driven by leading app stores, games, streaming and entertainment, and bundling. As we all sheltered in place during the pandemic, carrier billing revenue experienced a real spike in transaction volumes. Existing users purchased more online games and streaming services, and most importantly, a wave of new users discovered the convenience of carrier billing for the first time.
In our business, we observed increased purchase volumes anywhere in the range from 5% to 30%, depending on the country and the network operator. And in terms of new users, globally across our connections, we observed a 10% increase during the height of the pandemic about a year ago, with the most substantial increases coming in Asia and Latin America in terms of unique new users.
There has been increased activity, especially in games and streaming video, as merchants rushed to take advantage of this particular moment in time by adding carrier billing as a check-out option. Carrier billing is enabling these merchants to engage with new customers in new markets. Examples from DOCOMO Digital’s business include recent launches with leading brands Razer in gaming and Storytel in audiobooks. In addition, we are now seeing merchants from new categories express interest in carrier billing – in the fitness space, ed-tech, productivity tools like photo editing – all starting to ask questions to understand better the benefits of adopting carrier billing as a payment method.
Where could this new wave of convergence in the services layer enabled by carrier billing take network operators? Today carrier billing accounts for less than 5% of network operator revenues, and although it’s starting from a small base, its growth rate is high, outstripping the growth of core voice and data connectivity over the next five years.
Know your customer (KYC), and insights from the carrier billing data stream offer attractive monetisation opportunities for operators. One of the most compelling of these is bundling, which leverages an operator’s brand, distribution and billing assets, and OTT merchants gain fast and efficient access to a large untapped customer base. Carrier billing enabled bundling with OTT merchants also helps operators offset the sooner than expected erosion in 5G premiums brought about by the pandemic. For network operators, these OTT partnerships also provide a compelling alternative to offer cord-cutting consumers.
5G Bundling to drive innovation and revenue growth
5G revenues will exceed non-5G revenues by 2025, but the pandemic has already accelerated the erosion of the 5G premiums that operators have earned on the new technology. In this environment, mobile operators are beginning to realise the value of bundling, which, if done well, can drive higher acquisition of new customers and increase customer lifetime value for their existing base through higher average revenue per customer (ARPU) and reduced churn.
This year the telecommunications industry should approach 800m bundled subscriptions globally, with subscription video on demand (SVOD) leading the way. Carrier billing is a natural fit for both hard and soft bundling partnerships between carriers and streaming content providers. While we see compelling use cases in new areas like artificial reality (AR), virtual reality (VR) and cloud gaming in some of the developed markets, in the short term, streaming video will continue to be the most dominant category in bundling. I expect that 8K immersive real-time video, including live sports made possible by 5G, will be a sort of catalyst for consumer uptake.
As one example of this type of innovation, just yesterday, one of my colleagues based in Singapore received a 5G bundling offer from SingTel with a leading VR merchant, and I expect to see many more examples of these exciting partnerships to come.
NTT DOCOMO building lifestyle proposition underpinned by carrier billing
Our parent company NTT DOCOMO has been leading in this space. It was a pioneer in carrier billing and has continued over many years to invest in innovation. Thanks to the regulatory environment in Japan, it was early in enabling the online purchase of physical goods using carrier billing, and in recent years added QR codes for in-store purchases. Just over 20 years ago, NTT DOCOMO launched i-mode, really the first comprehensive mobile Internet ecosystem. Since then, it has continued to embrace the ecosystem approach to growth driven by sustained innovation and a well-executed content partner strategy.
In recent years NTT DOCOMO combined its d POINT loyalty program and its D-barai payment eWallet, enabled with carrier billing, as well as this significant investment in building a compelling portfolio of online and offline merchants to create a market leading lifestyle proposition which has attracted strong consumer interest and engagement.
The D-barai converged ecosystem in many ways is similar to China’s Super Apps like WeChat Pay and AliPay but in this case with carrier billing at the core of its payment engine. It serves 82m service subscriptions, 35m use both the D-barai app and the d POINT loyalty program.
Between 2019 and 2020, user numbers have grown by 40%. One of the things driving that growth is a dramatic increase in the number of physical locations where these services can be used – 3.1m in Japan in 2020, for example, up 80% year on year. The real test of any payment solution is transaction volumes, however, and in 2020 NTT DOCOMO achieved US$7.5bn of transaction value through D-barai, more than doubling the 2019 total. So we can see that a compelling ecosystem that combines the right partners, payment methods and loyalty will drive substantial consumer engagement.
NTT DOCOMO is now looking to add a series of fintech offerings – in investment and insurance, for example – and already has some initial propositions out there. But, again, it sees the advent of 5G as an opportunity to do more in this space.
Telecoms industry collaboration can address challenges
As an industry, we can work together on raising awareness of carrier billing amongst merchants. I am consistently surprised when I talk to my business development team about the number of market-leading OTT merchants they engage with which have no awareness of carrier billing or the benefits it can provide. So raising awareness and educating merchants is a crucial priority for all of us.
Research from Ovum suggests that consumers appreciate the value that bundling gives to them in terms of ease of use and choice as a payment method and the perceived value it brings. But we need to work harder to get the network operator community and the OTT merchants to agree on core marketing programs more quickly. One of the most significant stumbling blocks we observe is that this can take far too long and sometimes opportunities disappear because we don’t have an industry-set approach to how this co-marketing should work.
Bundling is already being done with the premium streaming audio and digital brands, like Netflix, but we are starting to see some new conversations taking place with names like Title, and these are going on perhaps longer than they might. The more of these partnerships and bundles get put in place, the faster a market level will emerge. We don’t yet have a uniform market price for these co-marketing campaigns, and conversations and exchanging ideas around what could be best practice and how to get this done faster will push us into bundling opportunities with a broader range of brands beyond those high profile video and audio streaming providers.
Standardisation, fraud and bad debt management, improved analytics are all-important opportunities for working together as an industry to enhance the experience. Increased standardisation is critical so that we can more effectively compete with the growing strength of eWallets, for example. Beyond mobile, there are opportunities for carrier billing with web applications, set-top boxes and consoles. In particular, we have seen increased network operator demand for STB integration of carrier billing solutions. Here again, as an industry, we have a real challenge because of the high degree of fragmentation in the STB space, so there is a real opportunity to work on that.
New areas like microinsurance, vehicle rentals, telehealth, microinsurance for sports – all of these present exciting opportunities where carrier billing could be effective. I look forward to discussing how we approach that collective industry. Finally, the most substantial opportunity we have in front of us is to work collectively with regulators to get clarity or approval, to do physical goods, ticketing and transport with carrier billing as a payment method.
This has been in place in markets like Japan and South Korea for a long time, both of which have developed excellent use cases and seen mature, widespread consumer adoption. We would love to see that in Europe and other markets, but that takes all of us coming together. The MEF has a vibrant carrier billing working group, for example. I encourage network operators and other telecommunications and payments industry stakeholders to join and participate through forums like MEF. We will address some of these critical issues around raising awareness and standardisation and driving a unified approach to the regulations on physical goods.
I remain optimistic about the future of our corner of the payments industry. Carrier billing is growing from a small base, and the future remains bright.
You can catch an on-demand version of my keynote here.