Telecoms operators’ ability to extract a monthly payment from tens or hundreds of millions of customers is – after the networks themselves – their biggest single asset.
It is the envy of digital media firms, which have to rely on advertising revenues or meager one-off app store payments rather than regular monthly income.
Operators have had mixed success in leveraging this asset by selling more of their own or third-party services. Rather than building a business – and additional lines of revenue – by specifically leveraging this billing relationship with mobile users, they have tended to focus on developing their own content and service capabilities.
This has started to change over the last two to three years as partnerships have come to the fore. Bundling third-party music or video services in the consumer market and cloud services in the business market is now an established practice, although it is not clear that operators make incremental revenues specifically from these services. Operators’ own multi-play services also leverage this billing capability.
Partnerships have a strategic rationale, but carrier billing represents a more pragmatic approach to addressing a long-tail opportunity. Ovum uses the term “carrier billing” to define relationships with third-party content providers and app store owners where the operator fulfils the functional role of allowing the end user to charge the service to their mobile phone bill or prepaid airtime credit rather than another form of payment.
Ovum recently updated our forecasts for carrier billing. The market will be worth $16.6 billion in 2015, rising to $25.5 billion in 2025. Given that carrier billing barely registers on the list of promising new growth areas for telecoms operators (M2M will generate only $13.8 billion for mobile operators in 2015) the carrier billing opportunity seems to be being overlooked.
On closer inspection, though, the carrier billing market is more fragmented and less tangible than other opportunities. It comprises a number of different segments. The highest profile of these is OS apps stores such as Google Play, but this segment represented just 15% of the market ($2.19 billion) in 2014.
Other categories include independent apps stores, the rapidly shrinking markets for premium-rate mobile services delivered to feature phones, browser-based services (principally driven by online mobile games in Japan), and online PC games (to which China contributes a large share).
OS apps stores will be the fastest-growing segment of the carrier billing market over the next five years, driven by deals between operators and Google Play. The pace of new Google Play carrier billing connections has picked up considerably over the last 18 months, from 20 at the end of 2013 to 78 today. However, there are still no deals in place in Latin America or Africa. Ovum estimates that operators get to keep between 8% and 15% of Google Play revenues enabled by carrier billing, which represents a huge fall from the 50–50 (or better) deals that they historically negotiated for premium-rate services. However, volumes will ultimately be much higher because of the popularity of OS app stores.
Operators are increasingly looking to house their carrier billing activities within digital service units or divisions. One operator in South-East Asia told Ovum this month that carrier billing was already accounting for half of its total digital revenues. Leveraging their billing relationship with customers to sell third-party services is never going to generate as much interest as new market opportunities such as IoT or data analytics. However, it does represent a genuine – albeit modest – opportunity to generate incremental revenues for telecoms operators that are struggling to replace traditional communications service revenues.
Mark Newman is chief research officer of Ovum's telecom research business. For more information, visit www.ovum.com/