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Infonetics Research: Putting VAS transformation in focus

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With the telecom industry under greater competition than ever before from cross-industry players and content providers, many operators today realize that transformation in the VAS space is important for business growth. And for this, a change in mindset is key, says Shira Levine, Directing Analyst with Infonetics Research.

A need for transformation

WinWin: Operators today are threatened by players in different industries. How can telcos transform themselves in the VAS space in order to deal with this?

Levine: Operators have always had competition. The difference now is that they are dealing with competitors that have brand. So you look at Apple or Google: They have content relationships, which operators have typically not been good at establishing, and they don’t have the same legacy infrastructure that operators have to face.

So how can operators leverage VAS to deal with this? I think they really need to understand what they have at their fingertips, what kind of assets they can capitalize on, things like presence information and subscriber information. So I think it has become important for operators to figure out what kind of strategy they want to take. Do they want to partner with the over-the-top providers, possibly providing things like subscriber data, do they want to create their own ecosystems, or do they simply want to be the pipe? I would say most operators are not going to pursue that last strategy. You’re always going to get some subset that figures out what’s their best business model. So there is no one-size-fits-all strategy.

WinWin: What other factors are now driving operators to transform in the VAS space?

Levine: I think the No. 1 factor is churn. Some of the developed markets are rapidly hitting their saturation points, particularly in the mobile space. In emerging markets, we see very rapid subscriber growth, as well as hyper-competitive markets. What operators have found, though, is that the larger number of services they can sell to a subscriber, the stickier that relationship becomes. So they’re really looking for ways to maximize the number of services they can sell, and really improve their retention that way. The other factor is revenue per user. We’re seeing ARPU flat or even declining in some markets. Price pressures are really affecting operators, particularly in markets like North America – where they have really gotten the all-you-can-eat model – with operators not being able to increase prices due to the competition. So they’re looking for ways to improve revenue per user by providing value-added services.

Mindset is most important

WinWin: What steps can operators take to get the best return on their VAS investment?

Levine: I think the most important thing is not a technology issue; it’s a people issue. It’s a mindset issue. Operators need to have buy-in at the highest levels. Because what they’re talking about doing with VAS strategy is breaking down traditional service creation and service delivery silos, and creating more of a unified approach to delivering services to the customer. From a technology standpoint, I think it becomes important to look at solutions that can grow with subscriber growth, grow with services growth, otherwise you just end up with yet another silo, and that really defeats the entire purpose.

WinWin: Can you give us a few cases of how operators today are approaching VAS transformation?

Levine: Transformation today is an ongoing thing, and operators aggressively pursuing it are in the early stages. And they are using different approaches. You look at an operator like Telefónica, for example, actively pursuing a digital app marketplace approach. It’s really targeting the consumer market with value-added services. You have other operators like Zain for example, which is basically providing value-added services to third parties like advertisers, by exploiting subscriber data and location information. And then you have operators like SFR, which is taking more of an enterprise approach to VAS in terms of cloud-based services to their enterprise customers. There are certainly a number of ways to approach this opportunity.

WinWin: A number of operators have joined the Wholesale Applications Community (WAC) in an attempt to combat the Apple’s App Store and other similar stores. What advantages and disadvantages do they face in this regard?

Levine: I’d say the primary disadvantage facing operators now is that they’re late to the market. When you look at the success of the App Store and the Android Marketplace, you see they are far ahead of where the operators are, and where they need to be. The other primary issue is brand. Everyone knows the Apple App Store, and operators really need to play catch-up with that. What operators have, though, is that relationship with the subscriber. They have subscriber information, they have a direct relationship with the subscriber, and I think that’s going to be their primary advantage in devising their app store strategy. And an advantage of the WAC is that it lets them outsource the developer relationship, which is something that has historically not been their core competency. The WAC enables them to hand it over to a third party.

Key technologies

WinWin: How vital is the SDP to VAS transformation?

Levine: I think the SDP needs to be the basis of the VAS transformation. Typically, services have been delivered in vertical silos: You have a video service delivered over a video-specific network and service-delivery environment, and the same thing goes for voice and data.

With VAS, the idea is you’re able to be more creative in combining, packaging and selling services. That is really the point behind a service delivery platform; it’s more of a horizontal services layer. I think if you’re really looking at a comprehensive VAS strategy, you need something like an SDP.

WinWin: How can cloud be utilized in the VAS space?

Levine: I think cloud really enables operators to reduce some of the risk related to technology associated with VAS, and also allows them to outsource some things that may not be part of their core competency, things like content relationship, API exposure and so on. So I think you’ll see a lot of operators looking at cloud as a way to get into the market quickly and with minimal risk and minimal capital expenditure.

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