For years we’ve been hearing about the threat of over-the-air (OTT) services on carriers and the impact they will have on future revenue. As the mobile space continues to be the hotbed of technological innovation, this threat has turned into a cold reality for many carriers, and has forced them to re-think everything from who they do business with, what services they offer, to the openness of their network, as well as how and what they charge for services.
AT&T took action to diversify revenue streams and combat this threat this September when they announced that they were partnering with Twilio and selling Twilio’s products as the AT&T Advanced Communications Suite, which is targeted at SMBs.
This may have been a surprise for some, but for industry insiders, it represented a natural evolution that’s been years in the making. The truth of the matter is that it wasn’t until customers starting turning to cheap and free services en masse, that CFOs at major telcos started seeing the effect this had on their balance sheets and began taking preventative measures to stop the sky from falling.
With so many now left in a position of scrambling to play catch up to innovative new players in the space, it’s a clear signal that the traditional telco industry is about to see dramatic changes.
Here’s what I believe are four key takeaways from the AT&T Twilio partnership and what this can tell us about the future for wireless carriers.
1. Carriers understand they need to be more than just access points, or data pipes.
Voice and SMS revenue is down, and is expected to continue decreasing. According to a November 2011 report by Telco 2.0 Research, mobile executives expected that in Europe and the Middle East, voice revenue would decrease by 20 percent by 2015, and SMS revenue would decrease by a staggering 40 percent. Thanks in large part to OTT services, once-dependable voice and SMS revenue needs to be supplanted, and a revamp of the pricing model for mobiledata alone isn’t going to cut it. Carriers will also have to differentiate themselves with things like competitive pricing, as well as improved quality, increased speed and ubiquity of network coverage.
Increasingly, we’ll also see more and more telcos roll out services like Vodafone’s first-party Joyn app, which provides OTT services like video chat, IM, and voice, as well as apps similar to Virgin Media’s SmartCall, an app that lets iPhone and Android users use their landline minutes for local and international mobile calls as long as they make the calls over a Wi-Fi connection. Clearly, this is an attempt not only to to prevent users from cutting the cord on their landline subscriptions, but also to add value to the mobile service.
2. Apps (both consumer and enterprise) are the most dynamic part of the mobile market and provide a cash haven for telcos who want to tap into additional revenue
It’s true that apps currently aren’t generating nearly as much revenue as traditional voice and data services, but they are one of the fastest growing segments of the mobile industry. According to an ABI Research report, apps made about $8.5 billion in 2011. That’s out of a global mobile revenue figure north of $1 trillion in 2011. By 2016, though, app revenue is projected to skyrocket to $46 billion.
As businesses customers and consumers turn to software solutions for their communication needs rather than cellular service, carriers have realized that in order to reclaim their good standing, more resources need to be funneled into app development.
For example, AT&T’s cloud storage app, AT&T Locker, hopes to compete with the likes of Dropbox and Google Drive, and the telco giant has apps available for everything from navigation to QR code reading.
AT&T no doubt hopes the AT&T Advanced Communication Suite will influence software-conscious enterprise customers in their choice of carrier, and this will eventually extend into consumer mobile devices and ultimately affect purchasing decisions as well.
3. APIs have become the preferred means of cross-platform integration
AT&T and Twilio’s partnership signals a new era for carriers – one that reduces their proprietary tendencies and sees them opening their network capabilities in order to become more valuable to developers, and still remain attached to mobile subscribers.
Historically, most carriers have kept network internals private. But, as is the case with computer applications, APIs are fueling a new generation of interoperability across platforms, devices, and networks.
This has ushered in a new era for Communications As a Service (CASC). Look for multiple examples of this beyond Twilio such as T-Mobile’s Bobsled, which — although proprietary — goes beyond traditional voice and messaging to offer other revenue generating opportunities such as virtual goods and services.
4. Enterprise developers will turn to more carrier-utilizing features
Availability, complexity, and cost, have been the chief barriers to communications-enabling business processes (CEBP). Those barriers are rapidly dropping while the need and expectations for communications are increasing. Leveraging communications to enhance a business application’s utility and experience is a given — the only questions are when and what type of tools to use. AT&T intends to introduce these tools to a slew of new SMB and enterprise companies. Look for countless others to follow suit.
Just two weeks ago, Twilio announced an expanded partnership with Parse to launch cloud support to mobile developers.
The new Cloud Module allows developers to take advantage of hosted services including voice response, and mobile app distribution, and they claim this is just the first of many Parse integrations that will make it easier to develop mobile applications that integrate with third party services.
With new partnerships rolling out by the day, we’re clearly in a new era that sees OTT services becoming less of a threat and more of a tremendous opportunity for carriers to stay relevant without having to worry over customer churn.
This type of diversity may be a new phenomena for carriers, but it’s a necessary one that signals a new playing field where developers will have a considerable impact on future carrier revenue.
Andreas Bernstrom is the CEO of Rebtel.