Next Generation Services Now

Operators search for new revenue stream

By ITP.net staff writer
Saturday, September 08, 2007

Japanese network operators have been particularly successful in selling new services; average revenue per user there is over US $50.

Intense competition in the telecommu-nications arena has steered market players towards finding alternative sources of revenue streams as voice-driven average revenues per user (ARPU) plummet. GULFCOMMS Times analyses the market trends.

The telecommunications market in the Middle East and Africa has been buoyed by the regional developments of industry and infrastructure. Despite unparalleled demand from end-users all tiers of the telecommunications industry are experiencing a dip in revenues as the regional trend towards market competition means vendors and service providers to lower prices.

Voice-driven ARPUs are decreasing across the global market with network operators in the ‘mature' markets of Europe, Japan and North America leveraging the relatively high levels of disposable incomes in order to buoy markets where penetration is either reaching or already surpassed 100%.

US-based provider of next generation converged services platforms and applications Telenity argues that network operators should look to the realms of ICT convergence in order to provide differentiated services in order to shore up their revenues streams.

"Mobile data applications should successfully follow the web2.0 success in the internet domain, service providers must deploy the right service delivery infrastructure from ground-up that will enable both new service creation and rapid time to market," says Didem Karabatur, Telenity's director of marketing communications.

The company also claims that the role of governmental bodies is crucial to the development of this market segment. "The regulatory bodies should creatively enable the liberated environment that would feed the growth of multi-model voice, data, location, content, messaging powered services," adds Karabatur.

According to figures published by leading research house iSuppli telecommunications companies across the globe will fork out US$41 billion during 2007 in a bid to offer enhanced premium content services. While this figure may appear staggering the firm highlights that it represents a slowdown in growth with representing a 1.6% year-on-year increase in telco spending from US$40.4 billion in 2006.

This figure seems paltry in comparison to the 10.7% year-on-year rise in spending 2005 and 2006, and the 8.3% rise during the 12 months prior to that, the report concludes.

Market players in the Middle East and North African region are regarded as lagging behind their counterparts in the west despite its population benefiting from oil-rich economies.

As a company specialising in providing communications software to small-to-medium sized businesses in the Gulf region, Avaya reports that many sectors of the region's industries are dawdling when it comes to the uptake of next generation services. "The amount of businesses in the enterprise and government sectors still using fax documents as a primary mode of communications is sizable, even when it comes to large enterprises," says Neville Perry, converged applications manager for Avaya MENA.

"There are certain financial reasons for this as a lot of companies in the region have upgraded to using fax systems as little as three years ago and they are now somewhat hesitant to throw them out," he adds.

"However, there are some companies and industries are making the move towards the e-channel. There has been some decline in the UAE's public sector use of fax traffic but in the banking and telecommunications sector I can see no substantive shift to using other forms of data transfer."

Network operator Jordan Fastlink, a subsidiary of regional telecommunications powerhouse MTC, acknowledges this fact but anticipates future growth in the segment claiming that data and value added services account for 12% of its total revenues.

"There is a lot of potential for both the Middle East and African Markets. The data and value added services contribute to around 4% to 12% of total revenue," claims Ziad Al Masri, senior manager, mobile data services at Jordan Fastlink.

"Fastlink, with 12%, is one of the market leaders in this segment in the MEA but compared to Western Europe and the developed Asian markets such as Japan and Korea, the MEA markets have a long way to go," he adds.

The company also reports that SMS messaging accounts for a significant amount of revenues in the consumer market, noting that regional competitions where contestants send their entries using text messages has bolstered traffic.

Telenity also acknowledges the importance of peer-to-peer messaging claiming that it provides the bulk of non-voice revenue traffic service revenues for operators across the global market.

However, it also maintains that location and rich multimedia enhanced community services such as ‘Friend Finder', location based chatting, video RingBack Tones, multimedia-blogging and content sharing, will spur the market both globally and regionally.

With voice traffic unlikely to grow much further, regional operators are banking on data services to propel their revenue growth.

Karabatur also cites research claiming that Middle East and African operators will leverage the broader deployment of both cable and wireless technologies to drive non-voice revenues, acknowledging the GCC region and South African the biggest drivers in this segment.

"According to industry analysts OVUM, non voice revenues in the MEA region will grow from US $5.8billion in 2007 to US$9.5billion by 2010, representing a 13% compound annual growth rate (CAGR). This is compared to a 9% CAGR in Eastern Europe, a 6% CAGR in Western Europe and an 11% CAGR in Latin America," says Karabatur.

Telenity further claims that the MEA region is second only to the Asian market in this market segment in terms of profitability, with earnings before earnings before interest, taxes, depreciation, and amortisation (EBITDA) standing at 47% compared to 48% EBITDA in Asia.

With the UAE widely regarded as one of the most developed markets in the MEA region, due to its status as a regional business hub and population of early adopter end-users, the regional enterprise sector is looking towards network operators du and Etisalat to lead the market in terms of service provision.

Market newcomer du claims that market players must increase the levels of cooperation in order to boost content-based services such as WiFi and WiMAX.

"Roaming agreements on GPRS, 3G, WiFi across borders will help to foster data services especially among the business and leisure visitors to the region," claims a company spokesperson.

"One other element is the need to ensure standards in the devices that can provide access to non-voice applications, today this is a fragmented market," he adds.

Market incumbent Etisalat was the first network operator in the Gulf region to launch its Blackberry service to enterprise customers 12 months ago and claims that UAE businesses have responded so positively that it extended the service to incorporate leisure-users in 1Q07.

"After the success of the Blackberry service in the enterprise segment we have decided to implement a segmented approach with this solution," says Dr Sadik Al-Jadir, senior manager of markering [sic] for businesses at Etisalat.

The company claims to have leveraged Blackberry's reputation in the push e-mail segment to win over an additional 8, 000 consumers since its launch in February 2007 with an additional 1, 000 users taking up the service every month.

"We believe that this trend is being driven by the end-users who are utlising the service to access both work related data as well as personal e-mails," adds Al-Jadir.

Etisalat also claims that a process of localisation will prove a boon for the service in the segment. "We are currently working closely with Research in Motion (RIM) to be the first operator in the region offer this service on an Arabised platform in Q307," Al-Jadir says.

Jordan Fastlink agrees that localised content specifically targeted towards Arab and African audiences will encourage uptake of these services.

"Different segments demand different services to cater for their specific needs and requirements, which is why operators and their partners need to develop and work towards the customisation of their services and not just a simple plug and play solution and service. The consumer has a specific requirement, and so does the corporate sector. Integration with their backends and system is crucial for adoption," Al Masri says.

Additionally, the company argues that the development of this segment depends on several variables and that operators must be patient when it comes to expecting a return on their investment.

"Smartphone penetration across the region is crucial to the development of this segment, as are the levels of internet penetration which remains low in most markets in the MEA," asserts Al Masri.

With network operators in almost universal agreement that the enterprise segment will provide be the next driver for this market, due to its demand for ‘always on' e-mail connectivity, the next challenge appears to be how to broach the all-important consumer market.

Dubai-based Wireless equipment service provider Workz recently paired with multimedia company Mobile Streams in a bid to offer regional network operators premium content aimed at local audiences.

"We have agreements with some of the world's leading content providers and media producers and a large amount of this media can easily be translated to the internet message access protocol market and its wide segment of users," says Warren Platt, executive vice president, global business development, Mobile Streams.

The two companies maintain that content services such as downloadable monophonic, polyphonic and real-tone ring tones, wallpapers, music and videos as well as cartoon animation and games increasing customer satisfaction and balancing or increasing ARPUs by appealing to the youth segment of the market. "With the rising cost of new subscriber acquisition, it is crucial for mobile operators to maximise revenues through existing users. Encouraging existing users to access premium network services will increase customer revenues significantly," says Alan Barry business development director at Workz.

"With the operators directly hosting the media content they also have the potential to provide the customer with an overall improved user experience thereby increasing customer satisfaction," he adds.

Network providers are increasingly looking towards the developed markets of the Far East where content services have grown exponentially in recent years highlighting the need for increased availability of higher bandwidth across the region.

Telenity cites research highlighting how Japanese network operators have successfully leveraged 3G network infrastructures to achieve the highest ARPUs across the global market.

"According to figures published by the Yankee research group, Japan seems to outshine the rest of Asia with mobile data ARPU levels of US$57. While operators are struggling to retain profit levels, mobile data revenue streams continue robust growth, generating US$76 billion, with 860million people using the services in 2006," claims Karabatur.

du asserts that in many cases, operators need to educate customers on services that they have already launched while launching new services with across enhanced service delivery platforms (SDP). Telenity also adds that operators should have a complete ecosystem for the rapid deployment, provisioning, execution, management and billing of such applications.

In addition, the company claims that SDPs have the ability to combine both wire-line and wireless value-added services through common service enablers such as; messaging location, and multimedia.

"Operators will be able to launch 1000's of new services quickly using SDP and open up new business model to 3rd party application developers and content providers," adds Karabatur.

iSuppli estimates that the burgeoning internet protocol television (IPTV) market will provide the next boon for telecommunications companies in the near future, estimating that carriers will spend US$9 billion on IPTV-related communications equipment alone in 2007.

"The telecommunications companies have been losing an average of 4% annually from their subscriber base, and more than 4% per year from voice revenues. This phenomenon is universal, with no region and no telecommunications company unaffected," says Steve Rago, principal analyst, IPTV, broadband and digital home research for iSuppli.

Earmarking the North American and European markets as the main drivers of this trend, the company forecasts that global IPTV subscribers will soar to 105.8 million in 2011, representing 98% CAGR from 3.4 million in 2006, the telcos' IPTV budget will have to grow to account for 20 percent of their total capital spending by 2011.

With convergence technology apparently holding the key to balancing declining ARPUs that cohesion among market players is the one crucial step towards sustaining profitability.

US-based telecommunications vendor Motorola aims to take advantage of this need in the region by leveraging its handset portfolio, network infrastructure and extensive business tie-ups in the MEA region to ramp up consumer demand.

Motorola claims the crossover appeal of mobile TV will instigate a boom in demand for services.

"We anticipate that business and leisure users will want to rake advantage of the exciting new technologies available in the region," says Hassan Tavakoli, vice-president of Motorola MEA.

"The Middle East is poised to make an unprecedented leap in the next two years in terms of its capability to deploy solutions such as IPTV and create wireless broadband networks that will enable data access to grow well into double digits," he adds.