With increasing pressure on traditional revenues, telecom groups expanded their focus on digital services by creating dedicated business units over the last three years - notable examples are Telefonica Digital, SingTel Digital Life and SK Planet.
In this initial phase, operators addressed a wide variety of service areas including content/OTT, advertising/analytics, payments/e-commerce and M2M. Operators have tried four basic execution models:
- Partnership-based approach: Telefonica Digital has partnered with MasterCard (JV in LatAm for payments), Onstar (M2M), Capita (e-Health), Blackstone/Axonix (advertising)
- Acquisitions through venture companies: SingTel Innov8, Telefonica Ventures and SK Ventures are all examples of venture funds taking stakes in internet companies
- Acquisition for capabilities: SingTel acquired Amobee to gain traction in mobile advertising; Telefonica Digital acquired JahJah to launch its own OTT services (Tu Go, Tu Me)
- Build capabilities in-house: SK Telecom created its own Open Market Place (OMP) 11th Street.
In the last year, the next phase of operators' digital services strategy has unfolded with an emphasis on delivering revenue streams. The key trends that have emerged are:
- Closer cooperation between digital services units and opcos for better execution. With the recent news that Telefonica Digital is being merged into the Group, we expect that there is increasing pressure to deliver successful service.
- Partnerships between internet specialists and mobile operators. Rocket Internet has formed joint ventures with Millicom, MTN and most recently with Ooredoo to create commerce focused entities - reducing risk for the mobile operators working with an internet player with an established track record.
- Partnerships between mobile operators. SK Planet has expanded its OMP offering to Indonesia with XL Axiata - translating existing services to new markets.
Moving to the next phase of their digital services strategy, we see operators seeking higher financial impact with a low risk of failure.
To do this they are sharpening their areas of focus within digital services to invest in. We expect commerce/payments and advertising to be key areas of focus - both are activities that are local in nature and are enabled by smartphone adoption. Content services are challenging given the absence of effective monetization models.