Facing The Reality Of “Ott” Players

It's no longer news that the Internet has given rise to a plethora of over-the-top (OTT) applications: Skype, Viber, WhatsApp etc. which are still growing exponentially. By June 2016, WhatsApp and messenger had over one billion monthly active users. It's also no longer news that with increasing data penetration and significant adoption of these OTT services, telcos' voice and messaging revenues have been severely impacted. This is expected to worsen as more customers own smartphones. GSMA projects that smartphone connections in Africa will have more than tripled, rising from 226 million in 2015 to 720 million in 2020.

The significant spike in data traffic necessitates telcos spending more CAPEX to improve customer data experience at a time when subscribers around the world are increasingly enjoying services on these expansive networks literally for free. But then isn't this all counter-intuitive? Should the OTTs not be the very best friends of operators? After all, they are developing products and services that should increase traffic on mobile networks. The problem is aggressive pricing competition on voice and data offers supported to some extent by regulatory interventions, have put significant downward pressures on tariffs which has directly affected operators’ overall revenues in spite of massive data traffic growth. In a recent McKinsey & Co Report titled “Telecommunications Industry at Cliff’s edge: time for bold decisions” the point was strongly made about slowing growth in telecom markets. Middle East & Africa (MEA) regional annual growth rate for the past six years slowed to 3.5% per annum as against 0.3% in other regions of the World. Over 50% of growth in the MEA Region was attributable to penetration in nascent low-income markets. In the MEA, the industry has monetized half of the voice growth but less than 15% of data growth. This is also worsened by other factors – number and profile of operators competing in a market and some macro-economic realities (GDP per capita, inflation, other economic indicators). So all of this is no longer news. OTT players are here to stay and telcos have to develop the right strategies to co-exist with them to generate more profitable traffic on their networks or better still create new revenue growth streams inspite of them.

So what appears to be the problem? It would seem that the biggest problem is the mindset of the operators themselves. Telcos must accept that a lot has changed and must liberate themselves from the fixations of the past and develop a whole new mindset to adapt to the new realities of the day. In the old order with a captive voice market, the old growth model was primarily on acquiring customers and selling airtime while in the new order, the new growth model is translating exploding data demand from data-centric and digital savvy customers to shape their everyday lives and provide solutions to power the economy. Innovation in developing relevant consumer ICT products and services to meet changing needs of customers is primarily what drives usage of the networks. This is a significant shift.

Without a doubt, the heart of the telco strategy should be translating customer relationships into continuous value streams. This will involve ensuring a great customer experience, deriving insights through analytics, promoting engagements which are translated into new relevant services and solutions for sustained value. What is also clear is that in this new model, telcos cannot do it alone, they will need to partner with Internet, Innovation players within their ecosystem or outside their core business to bring to life the new services and models that will drive profitable traffic or whole new revenue streams. This is generally a cultural challenge for most telcos. Telcos are traditionally poor at managing partners simply because they did not need them as much in the early days. This has to change if they want to be successful going forward. In the old order, the key enablers were network coverage and distribution while in the new order it will be customer experience and innovation management. Partnerships with OTTs and the rest of the innovation ecosystem is now an imperative.

The leadership mindset of telcos in the old order of astronomic commoditized organic growth surely cannot be same as the present age of maturing growth requiring customer-driven innovation thinking to create differentiation and unlock new growth. There has to be a much stronger customer-oriented and strategic leadership mindset. This new order will require new skills, new thinking, new operational metrics, new operational models …. indeed a whole new Organization! This requires courage and this is where most telcos fall short. Also, all of this is transformational in nature and will require a more deliberate medium-to long term view of the business. Again, this is where most telcos fall short. The telco business is no longer a short-term growth story, it is a now more deliberate long-term growth story marked by a rigorous continuous understanding of the consumer, socio-economic, technology and policy/regulatory environment. Some recent examples in the global telco space come to mind. Verizon recently agreed to buy Yahoo’s web assets for $4.83B which with an earlier acquisition in AOL will create a global advertisement and media enterprise. Softbank also recently agreed to buy ARM (UK chip designer) for $32B to position itself to lead the Internet of things (IoT) revolutionary growth. Verizon and Softbank have focused on these new investments to mitigate the impact of their maturing core telecom businesses. There is a real risk that telcos who persist in the old order of thinking and operating will at best become huge utility providers (like the PTT relics of old) or at worst, face contracting revenues and consolidate or die.

Telcos have always played a key role in respective economies. This is now being fully amplified in the new digital economy where underlying infrastructure will enable new business models and unleash entrepreneurial energy across the African continent. In the old order, telcos had an insular view of life as a predominantly operational organization. That should change. Telcos are now central in the socio-economic existence of citizens and economies alike. It means telcos are now a key partner in the development of African economies. It means telcos must be bolder in image, outlook and strategy. They must become real thought leaders in their economies not bystanders. Organizational positioning must change from being a network for today to being a partner for long-term socio-economic progress tomorrow. GSMA posits that Mobile networks have a critical role in addressing some of the United Nation’s 17 Sustainable Development Goals, designed to end poverty, combat climate change and fight justice and inequality. Telcos must make much more strategic deliberate and genuine efforts to work with Governments and other stakeholders to support positive socio-economic progress. This can only endear telcos more to Governments and hopefully assist to manage policy and regulatory issues which telcos are persistently facing in Africa. Some companies have adopted similar forward-looking strategic thinking to promote positive socio-economic impact at the same time as growing their businesses. Examples of this are Unilever (Unilever Sustainable Living Plan) and Nestle (Shared Value concept). These are traditional consumer goods businesses, telcos have a much more dramatic socio-economic impact and could do much better in this regard. Telcos must position themselves to be more influential in the public space. This challenges the leadership mindset and thinking in telcos who want to have a secure stake in the future.

Thankfully, there are some positive moves by African telcos. We are seeing more partnerships with OTTs to launch video, gaming and music related services. We are seeing some bold investments by telcos in the e-commerce space. Safaricom has in partnership with a Kenyan local software firm just launched a ride-hailing company which will rival Uber. Safaricom will help to develop the application, offer the network connectivity, put Wi-Fi in vehicles that will be signed on the cabs and use its mobile-phone based financial service MPESA to process payments. By creatively using their existing platforms and assets, African telcos can play a leading role to facilitate, support and participate actively in developing exciting services and solutions best suited for our markets. This can energize the innovation ecosystems in our respective markets. There is a lot to do especially with the huge internet growth expected in most markets in Africa.

This represents exciting new opportunities for African telcos. So enough of the debates on the OTTs. Let’s make some progress.