Telco alliances are great in principle, hard in practice

Mark Newman/Ovum
22 Feb 2016

Another Mobile World Congress (MWC), another operator alliance. Although the alliance of 10 telecoms operators announced on February 15, 2016 seems to have occurred without the involvement of the GSMA, it will inevitably be a key topic of discussion at MWC2016 in Barcelona.

The Partnering Operator Alliance brings together telecoms operators from North America (Rogers), Europe (Deutsche Telekom, TeliaSonera, Telecom Italia, Orange, BT, and MTS), India (Reliance Communications and Jio Infocomm) and Africa/Latin America (Millicom). It is intended to facilitate and accelerate partnerships between internet and app companies and telecom operators.

The partnership differs from previous operator initiatives in its focus on developing products with third parties. Thankfully operators now seem to see more potential in partnering with internet and digital media firms than in attempting to develop products that compete with them. However, few details are available to explain how precisely the alliance will work. The Russian operator MTS announced joint efforts in partner scouting and exchanging knowledge about forthcoming trends and services, but the level of collaboration will need to be much deeper and broader than this for the alliance partners to commit fully to the initiative.

Partnering with internet and digital media firms has been a strategic priority for telecom operators in recent years – Ovum has tracked 720 such partnerships since 2013. A large proportion of these partnerships involve either zero-rating specific internet applications (so that customers can use them without worrying about using all their data) or bundling a paid-for service with a mobile subscription.

For mobile operators the attractions of partnering include differentiating their core services from those of their competitors, reducing churn, and attracting new customers. But service bundling does not necessarily increase profitability. Indeed, Ovum’s research into the bundling of music streaming services such as Spotify and Deezer indicates that in many cases operators have actually lost money on the new customers that they have attracted because the payments to the streaming providers have exceeded the incremental revenues.

Ovum endorses the principle of partnerships and urges operators to take a proactive, confident approach when it comes to agreeing commercial terms. Operators have a number of levers that can be used in commercial negotiations. These principally fall into two categories. The first relates to distribution, branding, and marketing: operators have shops, run advertising campaigns, and, most importantly, have billing mechanisms. The second relates to their networks and network services: operators can offer quality of service, access to APIs into their network and IT systems, and communications services such as SMS, voice, and broadband, all of which third parties can use to build relationships with their users.

The Partnering Operator Alliance could coordinate the use of a number of these levers. For example, if all members could offer the same APIs or if they could negotiate collectively it would strengthen their hand when it comes to securing attractive deals. However, when operators have tried to take such an approach in the past it has been extremely difficult to find common approaches because their strategic prerogatives, pricing approaches, and partner priorities have tended to differ. Regulatory approaches also vary from market to market. For example, the Indian regulator has ruled against the principle of differential pricing and, therefore, zero-rating.

Nevertheless, at its launch the alliance announced that it has already established relationships with 30 innovative partner businesses, including Airbnb, Celltick, Disconnect, Idomoo, Magisto, Mojio, and Spotify. Given the enthusiasm for partnerships, Ovum expects more operators to join the alliance. However, it will be some time before we know if it can deliver meaningful, measurable benefits to its members. If it cannot, it risks becoming a once-a-year meeting and talk shop in Barcelona, like so many other operator alliances.

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