In the first of three blogs documenting the debate, we explore the challenges they face in building and expanding revenue streams through the delivery of new digital services to their customers.
Service innovation, partnership integration and scale
Carriers around the world are already expanding their service and content portfolios, both in the consumer and the enterprise space. There are consumer opportunities around traditional PayTV, over the top (OTT) messaging, financial services, digital payments, smart homes and lifestyle services, for example, then new enterprise capabilities around cloud hosting, the edge, the Internet of Things (IoT), security, data analytics [as well as advertising and digital marketing, professional services, IT and business to business (B2B) content].
“Telcos need to do this now to generate new revenue streams to offset pressure on traditional services which are seeing revenue stagnate,” explained Iacopino. “To build a premium customer base in order to grow the consumer spend and increase average revenue per user (ARPU) while growing their presence in the digital ecosystem.”
Building that platform will allow the integration of different services which can only happen through partnerships. There are also benefits of moving beyond connectivity to help reduce churn on mobile and fixed broadband networks. The key question is how much progress carriers have made to date, with GSMA Intelligence research revealing wide variation in the volume of revenue 16 operator groups it analysed derive from services beyond their core revenue streams.
On one side of the divide is US telco AT&T for example, with non-core revenue calculated at 39% largely driven by its recent media acquisitions Time Warner and DirectTV. At the other extreme is China Mobile, estimated to make only 8% of turnover from value-added services, in no small part because its addressable customer base from mobile connectivity is so much larger than telcos in other countries. On average, however, the contribution across all operators and regions is 20%, reflecting an uneven pace of development that sees each engaged in different strategies and timelines.
Services beyond connectivity are also the only sources of revenue growth – core telecoms mobile and fixed services are either stable or declining. According to GSMA Intelligence and company earnings reports, those 16 operator groups across the globe made a total of US$175bn from PayTV and other digital services in 2018, a figure which will grow to US$200bn in 2019.
“When you put all those opportunities together you see significant opportunities to scale over the next five years, but operators have to innovate on services, establish ecosystem partnerships and implement a range of technology upgrades, including APIs and digital service platforms,” said Iacopino.
DCB growth expectations aligned with digital service expansion
One of the ways telcos can scale up their digital service provision is to make it much easier for their customer base to pay for them using DCB, either on a subscription or one-off transactional basis. Ovum’s Global Carrier Billing Forecast Report 2019 – 2024 has already forecast that DCB spending volumes will grow by more than 69% over the next five years. However, the COVID-19 pandemic could further accelerate expansion as people shift to online subscriptions for games, video and music content.
“The one big change is the exponential growth in video streaming services,” explained Gonzales-Mesones. “Countries like Japan and South Korea have been experimenting with DCB in the last few years and are setting the pace, but we now see a common path across the world.”
On one side payment methods and transactions, volumes are being driven by the number of merchants now partnering with telcos and the enablement of DCB through app stores. But there are lots more opportunities around additional services like ticketing, parking and transportation, and beyond that physical goods. To capitalise on the opportunity, operators need to integrate with a larger number of merchants, something that is easier to do if they work with existing payment providers like DOCOMO Digital that have already negotiated the necessary partnership deals in different parts of the world.
Carriers also need to make sure that their eCommerce platforms can manage a higher number of merchants to scale their activity and manage all the value-added services that go beyond pure billing. The key learnings from NTT DOCOMO in Japan – which has seen DCB grow at a spectacular pace in the last five years – is that operators have to drive consumer awareness through marketing campaigns continually. In Japan, DCB has 40% penetration, and will soon have US$20bn transaction totals, estimates Gonzalez-Mesones.
“You have to keep innovating and finding new ways to engage customers and merchants, enabling payments through QR codes with DCB in physical stores, for example,” he explained. “You also have to be able to manage the risks, know your customers and manage bad debts – it’s a payment method not just billing capacity.”
Once telcos establish their DCB capabilities and consumers get used to paying for goods and services using their smartphones, there will be opportunities to expand further into additional financial services – investment, insurance, payments and remittances for example, as well as lending and credit risk scoring – using historical data and consumer behaviour patterns spanning multiple years of mobile account ownership.
“It is all based on the knowledge you have on customers because they are using DCB,” said Gonzalez-Mesones. “One of the key pillars of NTT DOCOMO’s success is a loyalty program that gives users points on every engagement, for example.”
Events page: Unlocking the Operator Service Opportunity