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© Copyright Openet Telecom, 2013

Content and OTT Partnerships The Key to Unlocking New Business Models

White Paper

White Paper- Content and OTT Partnerships – The Key to Unlocking New Business Models

2 © Copyright Openet Telecom, 2014

INDEX

INTRODUCTION 3

WORKING WITH THE OTTs 4

Operators Marketing OTT Services 4

The Rise of OTT IM and the Decline in Text 5

Leveraging Operator Assets to Enhance OTT Services 6

The Emergence of the Next Level of Telco / OTT Partnerships 7

CONTENT PARTNERSHIPS 8

Music 8

Leveraging Mobile Bundles – Adding Music To Existing Share Plans 8

Why the Music Industry Wants to Work with Mobile Operators 9

Video – TV and Movies 9

Video – Does My Bill Look Big in This? 10

Options for Managing Data Heavy Content 11

Customers Using Too Much Data 11

Customers Fearful About Using Data 12

Sponsored Data: Option to Subsidize Delivery Cost of Content 12

Intelligent Network Selection for Selected Video Traffic 13

Alternatives to Charging By MBs and GBs for Video 13

OPENING UP BSS TO THIRD PARTY PARTNERS 14

SUMMARY 15

ABOUT OPENET 16



INTRODUCTION

More than ever, telecoms operators are working with new partners in order to provide a wide range of services to their customers and better leverage their assets to drive new revenues. Operators have the capabilities and resources to play a central role in the digital value chain, and this is not lost on many of the innovative (and open) content providers and OTTs. Operators have always had the delivery channel for digital goods and services, they’ve got established customer and charging / billing relationships, they’ve got the brand and they’ve got the mechanism to collect customer usage and behavioural data.

Up until recently OTTs were seen as the anti-carrier. They made their money by loading more and more traffic on the operators’ networks, thus causing the operator to pay for network capacity upgrades to facilitate the OTTs’ increasing VoIP and IM traffic that was the root cause for decreases in the operators’ core voice and SMS revenues. It all seemed somewhat unfair. However, circuit switched voice and SMS are on the way out, and as operators move towards becoming fully IP based digital services providers many are entering into collaborative agreements with OTTs in order to generate new revenues and provide a deeper range of services to their customers.

As well as OTT partnerships telecoms operators are rolling out an increasing range of content offers and developing partnerships with leading content providers. Spotify and Netflix are perhaps the two most visible players here, developing partnerships with several of the leading operators in the world.

This White Paper will discuss some leading examples of operators working with OTTs and content providers. It will also highlight the transformational impact on BSS (Business Support Systems) that these new partnership models will have.



WORKING WITH THE OTTSOperators know that people don’t use data. They use Facebook, they use Google Maps, they use Twitter, they use WhatsApp. Data in itself is not a product – it’s an enabler.

Operators Marketing OTT ServicesThere are many operators selling application service passes which provide a low cost means of using an OTT service from a smartphone. For example, in Kuwait, Ooredoo offers a WhatsApp service for only 750fls (2 euro) a month (see Figure 1). This is a good example of offering a low cost service limited only to a specific application to generate a new income stream and encourage mobile data adoption. Ooredoo promote this service as an alternative to trying to find a free Wi-Fi zone.

As well as offering low price services for one app, operators are also zero rating popular services, such as Facebook or Twitter in order to get customers using their services. In June 2014 TMF ran a survey of 67 operators looking at uses of real-time convergent charging and policy management. In this survey 56% of operators said they are offering zero rated deals, under which the use of services such as Facebook and WhatsApp don’t count against customers’ data allowances.

WhatsAppA Service specially for WhatsApp Fans!Now you don’t need to find a Wi-Fi Zone to use your WhatsApp Messenger. Get the new WhatsApp service from Ooredoo for just 750 fils/month and stay connected to everyone all the time.

Figure 1 – Ooredoo WhatsApp Service



In the same TMF survey, as can be seen from Figure 2, another 33% of operators said they have started work on other types of OTT collaboration, and two years from now they expect that number to rise to 68%, making OTT collaboration one of the most important use cases of real-time charging and policy management .

The Rise of OTT IM and the Decline in TextWhile working with OTTs is still at an early stage for many operators the opportunity is to not view OTTs as a threat but to use them to build more comprehensive offers that customers want and help to build loyalty. Instant messaging is on the rise and texting is starting to see its first decreases in usage since it was launched. In August 2014 research firm Deloitte reported that the average person sends seven text messages a day, compared to 46 instant messages. In the UK alone they forecast that the number of instant messages will reach 300 billion by the end of 2014, up from 160 billion in 2013. As can be seen in figure 3, SMS texting is forecast to fall from 145 billion to 140 billion by end of 2014. According to the Deloitte survey of UK consumers almost a quarter of smartphone owners use five or more messaging apps.

Figure 2: TMF – Current and Forecast Use of Real-Time Convergent Charging and Policy Management – The Increase on OTT Collaboration

Bill Shock Management

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Direct Operator Billing

Dynamic Pricing

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The vast majority of operators offer unlimited SMS in standard bundles, yet consumers are still reducing the number of SMS texts being sent in favour of OTT instant messaging. Telefonica 02 Germany carried out market research interviews in August 2013, comparing SMS and WhatsApp. The results show that consumers prefer the OTT IM service over SMS primarily because of cost, followed by social influence (or in other words ‘all my friends use WhatsApp’).

Leveraging Operator Assets to Enhance OTT ServicesOperators can look to work with OTTs in order to develop new revenue streams to replace the traditional texting and voice revenues. It’s not a case of operators ‘v’ OTTs. Operators have some key assets that can make them very attractive to OTTs as a route to market and develop win-win partnerships. These include:

yy Established customer relationship often built up over years

yy Established financial relationship – regular billing and subscription models, and pre-payment for services

yy Flexible charging, pricing and billing options – ability to provide innovative pricing plans which can help add value to the OTT’s services

yy Ability to prioritize the delivery of certain services – e.g. in a congested network operators can apply traffic prioritization

yy Ability to differentiate service delivery – e.g. tiered service delivery: supply certain video traffic over LTE and offload others to slower Wi-Fi networks to avoid network congestion

yy Use big data and customer analytics (e.g. cell site location, customer behavior) to upsell more relevant services and finely tuned advertising

Figure 3: UK Messaging Volumes and Forecasts to End of 2014 - Source: Deloitte Aug 2014

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The Emergence of the Next Level of Telco / OTT PartnershipsE Plus in Germany and China Unicom have launched prepaid SIM cards that lead with OTT services. The WhatsApp SIM card from E Plus and the WeChat SIM card from China Unicom offer mobile voice minutes, a data tariff and zero rated OTT IM services.

Looking at the E Plus example (see Figure 4), which was launched in April 2014, this offers a prepaid card which costs €10 / month and the main message is WhatsApp is always free, even when the subscriber runs out of credit (in the 30 day period). This is a major benefit over other networks who charge for the data required for WhatsApp (which is installed on 90% of all smartphones in Germany, giving a potential user base of more than 30 million people). By working with this OTT E Plus can leverage the popularity of WhatsApp to attract new customers and open new revenue streams. E Plus are offering new subscribers who port in from another network a €25 bonus and are also getting into the social networking aspect of WhatsApp by offering €10 credit to every consumer who refers two friends.

China Unicom has worked with the OTT IM service WeChat to offer a WeChat China Unicom SIM card that offers additional services over the traditional WeChat mobile IM service. These additional services include increased group chat limits and extra free icons. By differentiating the WeChat service available with the China Unicom WeChat SIM there is another clear incentive for WeChat mobile customers to switch to China Unicom. This service was launched in August 2013 in Guangdong and it was reported that in one month it gained 1 million customers.

These are just two examples of operators working with OTTs to provide additional benefits to existing and new customers by leveraging the operators existing assets and capabilities. Viewing OTTs as potential partners and not the enemy opens up a range of new opportunities.

Figure 4: E Plus WhatsApp Offer



CONTENT PARTNERSHIPSThe two most popular content partnerships are those concerning music and streaming TV and video.

MusicStreaming music services are changing how people listen to music. Getting people to pay a regular subscription for music on an on-going basis is the challenge that is facing the music streaming companies, and working with mobile operators is providing a solution.

The most recognizable players, Spotify, Beats Music, Deezer and Napster have all partnered with mobile operators. Some, like Spotify have pursued a strategy of partnering with many operators. This may help explain Spotify’s increase in paying customers from 6M in March 2013 to 10m in May 2014. Deezer has probably been the second most prolific in terms of mobile partnerships and they say their paying subscribers increased by 4M to 5M between May and November in 2013.

Napster, who recently announced partnerships with Telefonica and SFR has demonstrated the importance of mobile as a distribution channel with around 80% of its listening happening on mobile devices, rising to 90% in some countries where the company has a strong partnership with a mobile operator.

Leveraging Mobile Bundles – Adding Music to Existing Share PlansSprint have added Spotify to their Framily (friends and family) plan. All Framily customers get a six-month trial of Spotify and they will get Spotify at the discounted rate of $7.99 a month. For family groups of 6 to 10 members, the rate falls to $4.99 a month.

AT&T is building on its Mobile Share plans by providing Beats Music service to family and individual customers. Family customers can connect up to 5 people and 10 devices to share music for $14.99 / month and individual customers can access Beats Music over AT&T with up to 3 devices for $9.99 / month. AT&T offers a 90 day free trial of Beats Music (see Figure 5).

Figure 5: AT&T Beats Music Promo

Music that’s always right for you



Operators are adding music services into bundles to increase data usage and also to increase loyalty. Adding music services as another element into a bundle may well make an operator’s services ‘stickier’ and could help reduce churn by enticing customers to stay. Music services are not just about helping to reduce churn, they can also open an additional revenue stream as operators can negotiate revenue share models with the music providers.

Why the Music Industry Wants to Work with Mobile OperatorsThe music industry acknowledges that it can significantly benefit from working with mobile operators. A report commissioned by Universal Music in July 2013 called Building the New Business Case for Bundled Music Services highlighted the following:

y� Telcos now have the ability to transform their roles in digital music from also-rans to market leaders because:

yy Streaming services need telco’s marketing reach and resources: most streaming services do not have extensive marketing resources, thus giving telcos significant positions of negotiating strength.

yy Telcos can convert free activity into premium revenue: telcos can transform large scale demand but low willingness to pay into premium revenue by hiding some or all of the cost to the end user. Making music feel like free to customers delivers the double benefit of attracting otherwise elusive consumers and of being able to clearly demonstrate the financial value of the bundle.

yy Telcos understand subscription relationships: the monthly subscription dynamic of streaming services is a natural fit for telcos and presents countless opportunities for sophisticated and seamless billing.

Video – TV and MoviesThe recent interconnect deals with AT&T, Verizon and Comcast that Netflix has struck illustrates that in order to deliver video at the speed and quality that the content providers (and consumers) want then telecoms operators and customers cannot be expected to pick up the delivery bill all the time. Perhaps this illustrates that content providers are recognizing (and will pay for) differentiated service delivery.

With over 50 million subscribers Netflix is enjoying substantial growth and has established payment of a monthly subscription fee. With viewing behavior changing and more consumers watching videos and TV shows on tablets and smartphones, companies like Netflix are seeing the potential for working with mobile operators (and vice versa).

In the UK Vodafone gives an option of free Netflix or Sky Sports Mobile TV or Spotify Premium for their LTE customers (see Figure 6). The options for Sky Sports range from 6 months up to 24 months free and then customers can subscribe to different Sky Sports channels bundles. With Netflix, customers get 6 months free and then after that they can subscribe directly with Netflix.



When Vodafone launched their 4G services the free Sky Sports and Netflix offers were heavily promoted in their advertising, stressing high profile video content as the differentiator. However, the data required to watch Netflix or Sky Sports on mobile devices is not free and will come out of the customers’ data allowances.

Video – Does My Bill Look Big in This?According to a data use calculator on a well-respected mobile operator’s site a customer who only uses their mobile for watching standard quality video on LTE for 30 minutes/ day can expect to use up 4GB/ month. Switch up to HD video and this figure goes up to 15GB. Using the same calculator for mixed data use (browsing, occasional music download, emails, etc), then the suggested usage of standard quality video use for a 4GB data package is just 6 minutes / day (see Figure 7 for usage illustration). At the same time mobile operators are extolling the benefits of watching House of Cards on your smartphone. Add some legacy BSS systems into the equation and there’s the perfect recipe for bill shock and some very angry customers.

Figure 6: Vodafone 4G Red Plan – Offering Free Netflix, Sky Sports TV or Spotify Premium

Figure 7: Usage Illustration – What Does 4G / Month of Usage Get You?



If operators are looking at partnerships with video / TV content providers then the first thing they need is real-time data collection, rating and notification systems. Most operators have very good data calculators but most people will use them once and then promptly forget about it and then baulk when they discover that watching TV on their smartphone has pushed them over their data limit.

This represents a dilemma for operators. Do they partner with providers of data hungry services, knowing that there is a demand for such services? At the same time they know that many customers may very well use only this service for a short period of time before becoming disgruntled and annoyed at their higher data usage and charges? This could increase the propensity to churn and result in a very short term revenue gain but lost customers.

Options for Managing Data Heavy Content (That Don’t Involve Data Plan Price Hikes) Customers Using Too Much DataThe introduction of data rich content combined with the higher speeds LTE brings causes consumers to burn through their data allocations quicker. And while operators are going as low as 100MB and 200MB entry level packages to attract more users this is adding to the need for education and real time alerts on usage. Telecoms.com carried out a survey in December 2013 of LTE customers’ usage habits and found out the in the most developed LTE markets many customers on the low end data plans regularly exceed their monthly data limits. As can be seen in Figure 8, which shows the share of Android 4G smartphone users using greater than 100% of their data limit, many subscribers are burning through their data allocation.

Figure 8: Share Of Android 4G Smartphone Users Using Greater Than 100% Of Their Data Limit (source telecoms.com)

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Customers Fearful About Using DataAs well as causing users to go above their limit, lack of understanding on data charging is also causing customers not to use data services out of fear of breaching their caps. Real-time alerts telling customers that they are about to reach their data caps are well established in many operators and people are starting to alter their mobile data usage to avoid the “you’re reaching your limit” email or text. In April 2014 Wakefield Research carried out a survey of 1,000 U.S. smartphone users on behalf of Citrix, and found that 82% say they are “aware of and fear that their app usage impacts the monthly data limit and have avoided using an app because of this”. If some consumers are restricting their use in order to keep data charges down, then the chances of these customers tuning into the latest Netflix blockbuster on their tablet or smartphone is somewhat slim.

Both scenarios – customers using too much data and going over their limit and customers restricting usage out of fear of reaching their data cap, could be avoided by looking at different charging and delivery options.

Sponsored Data: Option to Subsidize Delivery Cost of ContentHaving data delivery charges picked up, or subsidized, by the content provider or by advertisers could be a possible way to take the sting out of data heavy content charges. The delivery of media content has been traditionally subsidized (television, cinema, newspapers, radio) and it could be argued that this will not change for digital content delivered on mobile networks. If a customer was to watch a 30 minute TV show each day / month on a LTE network then the data charges would be around US$70 / month (for 4GB). Most customers would baulk at this. If part of the cost was picked up by advertisers then maybe the retail costs could come down, with the resultant increase in active subscribers, content usage, and advertising revenues.

One of the assets that operators have is detailed information on customers, their usage and also their current location. This can be used to make advertising more relevant, timely and personalized. These are typically the factors required to increase advertising conversion rates / click throughs, and so enable mobile operators / content partners to charge an advertising premium which can be used to sponsor the consumers’ associated content data charges.



Intelligent Network Selection for Selected Video TrafficAnother option is to decide which networks should carry certain video traffic. Rather than just have all video traffic on a LTE network an operator could offer options to offload onto available Wi-Fi at a lower (or no) cost. This is done by having on device ANDSF (Access Network and Discovery Function) software which enables operator controlled offload by assisting devices to discover access networks in their vicinity (e.g. Wi-Fi) and provide rules to prioritize and manage connection to all networks. This allows operators to dynamically control and define preferences – that is how, where, when and for what purpose a device can use a certain radio access technology – e.g. under what conditions is traffic offloaded to Wi-Fi. In this case, for video traffic from partner X, the most suitable Wi-Fi network is selected to carry this traffic and best manage LTE network resources, and avoid bill shock.

Alternatives to Charging by MBs and GBs for VideoMost people have no clue what they get for a MB or a GB. Calculating data usage is an unknown concept to most consumers. However, the concept of time is well understood. Bell Canada offers their mobile customers 10 hours of video usage/month for $5/month (see Figure 9)

Letting customers know how many hours of video they’ve used and how much they’ve got left in terminology that the customer understands could go a long way to take the fear away from customers who won’t use some data services out of fear of reaching their data cap and entering into bill shock territory.

Bell Mobility clients Over 40 TV channels on the mobile network. Watch over 35 live and 13 on demand TV channels on your Bell smartphone over the mobile network or using a Wi-Fi connection.$

$ 5/mofor 10 hours of viewing, with no impact to your data plan

Figure 9: Bell Canada Mobile TV Offer



OPENING UP BSS TO THIRD PARTY PARTNERSThe option for operators to work with OTTs and content partners are significant and they can do much more than just drive up data usage. In this paper we’ve discussed several current examples of live partnerships, but this is only the tip of the iceberg. As operators are looking to get into new verticals and offer a wider range of digital services they need to examine how they will build, launch and monetize new offers involving third party partners.

Operators will offer more services, involving more partners to a wider range of customers. They will also need to be able to launch services quicker, manage the product lifecycle in a more dynamic fashion, rapidly reacting to market changes and be able to retire services much quicker as well. The systems required to support much more diverse and dynamic business will need to be very different from the traditional legacy BSS that were designed to collect, rate & bill for circuit switched voice calls and SMS text messages in batch mode.

BSS will increasingly become automated and virtualized, enabling operators to ‘learn fast’ and rapidly roll our new partner offers. As the number of partners increases operators will increasingly provide secure access to their partners to enable the partners to build and maintain their own offers. By automating BSS and offering a portal for ‘partner self-service’ operators can reduce operating costs as well as enable a fast time to market. As can be seen in Figure 10 operators can open up their BSS systems to partners via self-service portals which go through APIs to the operators BSS.

By having direct access to an operator’s BSS partners can apply rules to manage the delivery and monetization of their content. Taking this a stage further, partners can access operators’ virtualized BSS environments to gain the same ‘learn fast’ capabilities that operators are developing to rapidly develop and roll out new offers using their operator partners’ infrastructure.

An open, virtualized BSS environment presents new opportunities for operators and all their partners (not just content and OTTs), which can include IoT providers, MVNOs and enterprise customers.

Figure 10: Opening Virtualized BSS to Partners / New Service Enablers



SUMMARYMobile presents a significant opportunity for content partners to leverage the reach, marketing and monetization capabilities of operators. As we’ve seen in the music industry there is a win-win opportunity for operators and content providers and the music business has been open about the benefits that mobile operators can bring to their business. Movie and TV content partnerships are now being rolled out and it’s interesting to see Netflix sign interconnect deals with operators in the US to ensure required bandwidth is available to best deliver their services. The market will be watching to see if video content providers and operators start to manage network resources to help develop different levels of offers (e.g. HD movies). The capabilities in BSS already exist to enable this to be developed today. Video partnerships present a great opportunity for operators and content providers, but they also represent a need to look at new business models and delivery mechanisms due to the volume of data that video uses. Options like sponsored data and intelligent Wi-Fi offload are just two possibilities here.

As for the OTTs, the collaboration is starting to happen. Operators are selling service passes for WhatsApp and zero rating social media offers in order to open new revenue streams and encourage data usage. In addition, offers such as WhatsApp and WeChat prepaid SIMs are allowing operators to leverage the popularity of IM services to win new prepaid customers and drive monthly revenues.

A few years ago OTTs were seen as the enemy and operators were setting up their own content portals. Things have changed. More than ever operators, OTTs and content providers are now looking to work together. This momentum is increasing as operators look to increase the number and range of partners in order to provide more services, enter into new verticals, generate new revenue streams and increase customer loyalty.

By looking at the changes in OTTs, content partners and operators it can be seen how dynamic the mobile market now is. This rate of change will only get faster and operators also want to be able to quickly experiment to be at the forefront of change. If an offer works, get it to market quick, if not, retire it quick. The market is evolving and it needs to be supported by BSS that not just grudgingly accepts this evolution but actually drives it by giving a platform and expertise for speeding up innovation. Operators should no longer have to wait months for a legacy system vendor to come in and rewrite code to make a system change. They, and their partners, should be able to change the business rules themselves in automated BSS and not be restricted by a vendor service heavy way of doing business.

Many innovative operators have seen this advance coming and are already investing in transforming their BSS in order to be at the forefront of this significant market evolution.

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ABOUT OPENET Since the introduction of mobile data services in 1998, Openet has helped service providers capitalize on opportunities and overcome challenges. With competitive pressure accelerating, today’s service providers rely on Openet software to evolve business models around networking smartphones, M2M devices and third party services. Openet’s portfolio combines policy and charging control with device and third party interaction to enable innovative charging models, to control operating cost and to personalize services. Many of the world’s largest and most innovative operators use Openet’s high performance software.

Openet has helped operators worldwide take advantage of growth opportunities by evolving legacy platforms to provide a flexible, real-time charging/OCS capability integrated with policy control (PCC).

For more information, please visit www.openet.com.

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