Tech mahindra
Tech mahindra

The Carrier Strikes Back!

Posted by: Murali Madhavan On November 21, 2014 10:09 AM facebook linked in twitter

When Apple introduced their new iPads – iPad Air 2 and iPad Mini 3 – recently, we saw the usual song and dance about their various features. But there was one feature Apple slipped in quietly, without mentioning it in the much-hyped launch event.

And that was the Apple SIM card.

Essentially, the Apple SIM card is a SIM card that comes pre-inserted into the (mobile data enabled) iPads. And depending on operators’ support, users can register with any operator and work with that operator's mobile network, without having to go through the cumbersome process of changing the SIM card.

So for example- if in India I want to use the data services of Airtel, I can use the same SIM card to register on Airtel network (after signing up with them, of course); and if after 2 months I want to switch to Idea, I can simply cancel my subscription with Airtel, and subscribe to Idea, continuing to enjoy services without changing the SIM card.

So what does this mean for the Carriers? I mean the Service Providers like ATT, Verizon etc in the US, Airtel, Vodafone, Idea etc in India, EE, O2, Talk-Talk etc in the UK?

Well, quite a lot, it looks like, from the reactions they have displayed!

ATT says they will ‘lock’ the SIM- so that if someone uses that SIM to avail of ATT services, the SIM will be locked and then if the user wants to switch over to another carrier, they will have to throw away that SIM and get another.

In the UK, apart from EE, every other operator has declined to support Apple SIM.

So in a nutshell, you could say that on the whole, Operators have reacted adversely to the idea.


Because they perceive this as another step in the direction of commoditization- of

‘dumb-piping’ the operators- that is, relegating them to the status of a utility provider like Electricity and Water Supply.

In effect, they fear that they will not be of any significance to the end user: they will lose mind-share. In the same way that consumers care two hoots about who their electricity provider is, but are more obsessed with the gadgets and devices that they use riding on the electricity service- similarly, end users will end up taking the telecom services for granted- treating it as just a utility that is noticed only when it fails; and if it fails it evokes national or international outrage!

So what’s the problem here?

The problem is- the telecom carriers have always considered the customer as their own; and they want to own not only the communications pipe, but also all the services that the customer avails of.

And so, they want the SMS revenue, the voice revenue, the data services revenue, the IPTV service revenue- in short, they want all the RGUs ( Revenue Generating Units) of the customer.

But they are in a losing battle. Against whom? Against those tiny service providers who offer modern and hep services like messaging and VoIP at zero or negligible cost. And it is a huge cause of alarm for them.


Let me give you an example.

Do you know how much revenue the carriers in India LOST during the last year, to free services riding on their data connections?  1.2 Billion USD ! That’s huge in the context of the Indian market. And who are the guilty parties? WhatsApp, Skype and Viber, chiefly.

And this figure is slated to touch 3.6 Billion USD by 2016.

Worldwide, the loss suffered by the carriers because of the onslaught of such ‘Over the Top’ service providers is estimated at a whopping USD 54 Billion by 2016, according to a report from OVUM!

Are you surprised then, that the operators are crying blue murder?

And now this Apple SIM has come along, adding insult to injury. Also recently, a Chinese handset maker has announced a phone with the SIM card functionality built in- which is similar to what Apple has done.

This is seen by some operators as the non-regulatory equivalent of Local-loop-unbundling!

So- what are the arguments from both sides?

Carriers argue that they are not getting adequate return on the investment made in building robust and reliable networks. They feel that OTT players have to pay them a part of the revenue they have skimmed off from them.

Singtel has upped the ante a little. In this year’s MWC they have openly warned that if they are not allowed to charge the OTT players, they will be forced to reduce the investments they make in improving the quality of their networks!. For example, Singtel’s Australian subsidiary Optus invested One Billion USD in 2013 to improve their network. But the return on this kind of investment has become hard to realize. Singtel fears the danger of being ‘totally disintermediated’ by the OTT players! (See Ref 1)

Another gripe from the Carriers is that they are subjected to lots of regulations and restrictions - which seldom apply to OTT players. For example, the 911 landline service is bound to offer a certain uptime and reliability, and failure can invite lawsuits. There is no such requirement for Skype or Viber!

According to Korea Telecom, their Capex has increased from 3 Billion a year to 4 Billion a year, with stagnated revenues. Contrast this Viber- whose stated monthly expenditure on infrastructure is just 200k !

 But what is the story from the OTT players’ point of view (if there is one)?

Here’s where things get interesting. Recently, Viber’s CEO Talmon Marko jumped into the fray at the MWC, and launched a vigorous counterattack. According to Marko, the SMS service provided by the operators today is exactly the same as that in 1993!  20+ years have made no difference. Operators have been offering the same monotonous services, whereas Viber in just two years has added so many new services like Group Messaging, typing indication, location services, high-quality photos- and all without charging anything! Why wont the customer naturally opt for such rich and evolving services?

Viber cites the example of the tiny country of Monaco. 90% of the users in Monaco use Viber to send messages, ALTHOUGH SMS IS FREE IN MONACO! So obviously something more than mere cost is at play here!

So – is this now a doomsday scenario for the Carriers?

Well, we can’t write them off so easily! After all, they are here as large incumbents because they weathered major challenges before- like breakups, regulation, high cost of spectrum, cut-throat inter-carrier competition, economic downturn; a big list.

Operators can do one or more of these things in response to OTT challenge: Bundle, Service, Partner, Block, Throttle.

But the one thing they can’t do is - IGNORE.

I can cite two instances where Operators have used something they have and the OTT players simply can’t have – the network assets- to create irresistible offerings.

One is EE in Europe, with its Wi-fi calling service.

This is not the sameold-sameold Skype or Viber. This is where your phone switches to making calls through the wifi network whenever it is connected to wifi- and it uses the fact that you are a registered Mobile customer of EE. It is used mainly where there is no cellphone coverage and there is Wifi.

T-Mobile in the US is another operator who has done the same thing.

Importantly, operators are stressing the new service called HD-Voice – which is like HD TV for the telephone call. In traditional telephone calls, the voice is intentionally filtered to a range of 400 to 4000 Hz. But with HD calling, there is true, broad-spectrum call quality, and this is SLA-guaranteed automatically.

And the next step is of course, VoLTE – Voice over LTE. This is something operators are beginning to roll out, and it will truly improve the quality of voice, while making the communications more efficient for the operators as well.

The other instance is where Operators are acquiring OTT companies – like FRING. Last year, Genband acquired this Israeli VOIP and Messaging OTT player for 50 Million, and is using this to promote their own brand of OTT, to prevent revenue skim-off.

Another weapon in the Operator’s arsenal- and is a chink in the OTT players’ armour actually- is off-net services.

OTT players suffer from lack of off-net coverage. What this means is- unlike the operators’ SMS messaging which can be sent from one operator’s subscriber to the other’s, OTT messaging is restricted to the particular application. So Facebook messenger cannot reach Wechat or GTalk. Operators are trying to cash in on the opportunity through conversion- so for example, if a Whatsapp user knows someone’s telephone number and messages them, but the receiver is not a Whatsapp user, the message is delivered as SMS, thus earning SMS revenue for the operator. Skype calling to a phone also works similarly.

The future is going to see interesting turf-wars over the user’s mindshare- and the factors influencing who wins are going to be mind-bogglingly complex, ranging from Voice Quality to ‘Cool Factor’ to Dirt-cheapness. I suspect there won’t be clear winners in the near future. Operators will increasingly seek regulatory support to help them recover the investments, Gen-Y will scream for the ‘rights’ of the OTT players, and the party that will eventually win the game will most likely do it using analytics and AI !

Tags: Run Change Grow, Connected Industries
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Wireless carriers are infact preparing to become a utility by 2025 As sure as all communications move to i.P. , as sure as outsourcing will continue to compete and generate shareholder value. The carrier's future should be relegated to a bandwith utility. Google is the only one that can provide data resources and a suite of products that can actually generate income ,educate ,build the culture and inspire. They are quietely sneaking up on worldwide carriers, once the global Wimax network is deployed, most likely 2020, carriers like At&T should have also made the switch but will be trailing the Googs and loosing customers to them.

Posted by:Ernesto | 5/4/2015 6:49:38 PM

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