Industry Blog

Mobile Operators and Their Mobile Data Charging Battle with OTT Applications

Over-the-Top (OTT) services continue to challenge mobile operators in many ways. These “free” services now have a track record of attracting subscribers away from other operator-centric forms of communication. They are challenging mobile operators with how to handle the increased data traffic and how to monetize that increased burden.

Mobile operators are already under siege from a generation of consumers who want everything, but expect it for free. Operators’ profit margins are taking a hit as more and more subscribers are using their data allowance for free OTT services which they would previously have had to pay the mobile operator. The resulting data-usage surge has meant that mobile operators are being paid less and less for carrying more and more traffic.

A perfect example of this can be found in SMS. The phenomenon of OTT messaging such as iMessage, WhatsApp and BBM, is pushing mobile operators’ messaging profits in many developed markets into decline as consumers opt to use these “free” ways of communicating to save their pennies. Using their data to send messages to other devices has resulted in more data traffic and fewer SMS messages sent. In fact in “Mobile Messaging Futures 2012-2016”, a report carried out by Portio Research, it is estimated that OTT messaging traffic will reach a massive 20.3 trillion messages by 2016.

Inevitably the same will happen in the world of video. The introduction of Facetime from Apple, and the growing popularity of OTT video services, means that the OTT phenomenon could dramatically impact the provision of mobile video data. Video has the potential to stretch mobile operators to their data-carrying limits, so how can they add value back into the mobile video experience and charge users for the true cost of data carriage?

It is becoming increasingly apparent that mobile operators need to consider application-based charging as a solution to their data-carrying issues. This is an evolution. Over the past 12 months, unlimited data plans have generally started to become a rarity (albeit with some recent limited exceptions) as mobile operators recognize that the cost of the plan nowhere near meets the cost of supplying the data. So the move to tiered-data plans seemed like a next best solution. Consumers who use more data pay for a higher data plan – those who use less data opt for a lower tariff. However, the majority of consumers have little clue as to what a GB is, let alone how much data-usage they get from it. With video data now thrown into the mix, consumers are even more baffled by exactly how much video-streaming can eat up their allowance.

However, through application-based charging, consumers would finally be able to understand exactly what the cost of their data usage is. Essentially, this allows users to have a quantifiable relationship with their data, knowing exactly how many hours’ worth of video, how many downloads of songs or games $5 will buy them. With application-based charging, subscribers find they are at last being billed in a language that actually makes sense.

Mobile operators could develop various data plans to ensure all the different needs of their subscribers are met. Consumers who use their data mainly on social networking and email could subscribe to a tariff that only allows them to use their data on that. Then if they need to stream video they will be required to purchase a “bolt-on” which would allow them a quantifiable amount of time of video data access. For example they could purchase one hour’s worth of video-data, 24 hours’ worth or even a week.

With application-based charging, the need for real-time user interaction becomes paramount. Application-based charging should be offered at the point of interest. So for example if a subscriber is using a lower-priced package which excludes video, they could be offered a video upsell if and only when they try to view a YouTube video.

Today only very few operators have grasped the notion of application-based charging and mostly in a rudimentary manner. But this is an emerging trend and one which we believe will eventually permeate all markets and encompass all types of data usage. The benefits of application-based charging for both the consumer and mobile operators are undeniable. Consumers can choose how they pay for their data depending on their lifestyle and operators will finally be paid the actual cost of providing and managing these data services.