Will operators lead the way in the digital future?

Operators got an ear bashing from the outgoing digital commissioner this week, when she told them that the market won’t be characterized by “players stuck in gilded cages”.

In a speech to European operators at the FT ETNO Summit in Brussels, Neelie Kroes asked what the telecom sector’s relationship to the digital sector would look like in the future.

“Will you be leading us there? Or will you be dragged along behind, against your will, resisting until the last?”

The Commissioner went on to urge telcos to work with over the top (OTT) players rather than against them.

“The current situation of European telcos is not the ‘fault’ of the OTTs,” she said. “OTT players are the ones driving digital demand – demand for your services.”

Over the years operators have experimented with different strategies in dealing with the OTT threat: blocking access to their services, developing rival applications and, more recently, partnering with them.

The partnership approach seems to be gaining traction and operators see the merit, in theory, of a revenue share model. However, many are stuck on getting the commercials to stack up in practice.

This is typically because partnerships have been made with well-known OTT brands – Facebook, Spotify, Netflix, etc – who they have to be ‘seen’ to associate with for purposes of marketing and subscriber retention/ acquisition. These partnerships offer little in the way of revenue share.

AsiaInfo commissioned independent research that made a case for a sea change in the operator approach to OTT partnerships. Instead of pursuing ‘zero cash’ partnerships with these big brands, operators should consider modest revenues from multiple (hundreds/ thousands) partners who would work on a revenue share basis and actually, in many cases, bring with them the ‘Cool’ factor (Facebook is ubiquitous and partners with everyone – where’s the differentiation factor?)

In this way, the partnership model would finally become attractive: a symbiotic relationship that would be sustainable – and cash generating – in the long term.

So, the Commissioner is right. There are certainly big opportunities to be had in working closely with the OTTs (our research actually suggests that operators in Western Europe could generate an additional €2.2 billion in OTT profits if they change their approach). But it will certainly require a mind shift in what the desired outcomes will look like.