There is a big migration underway from traditional voice to data. This does not mean that voice goes away in favor of only non-voice services. What this really means is that traditional circuit-switched (bearer) is going away, and eventually with it, traditional voice calling plans.
With this evolution of bearer services becoming marginalized, the payload itself becomes the value and the simple carriage of data becomes a marginalized commodity.
With this development, Value-added Service (VAS) applications become much more important to the network operators. Carriers can either sit idly by while this happens or take proactive action. We recommend the latter !!
The Over the Top (OTT) Threat
One literal definition of Over-the-Top (OTT) is a scenario in which a telecommunications service provider delivers one or more of its services across all IP networks, predominantly the public internet although sometimes telecom-run cloud services delivered via a corporation’s existing IP-VPN from another provider. OTT is a natural evolution manifest in response to the fact that users will have multiple devices (smartphones, laptops or other connected devices such as TVs, games consoles) which almost inevitably will have various different access providers, especially with the growth of public-access WiFi.
From a market perspective, OTT to the carriers initially represented a nuisance and not much of a concern to them. OTT solutions very rapidly went from nuisance to serious threat as core carrier services go under the gun of low-overhead competitors.
Verizon’s Move is at Once Brilliant and Sad
Mind Commerce has been rather outspoken about the need for carriers to offer Value-added Services (VAS) as an absolute necessity to grow revenue, preserve margins, and even remain relevant (e.g. not become the proverbial “dumb pipe”, “bit carrier”, etc.). See here for more on these articles.
By way of example, in our latest report, Telecom Network API Marketplace: Strategy, Ecosystem, Players and Forecasts 2015 – 2020, we discuss how the carriers are missing an opportunity by not leveraging their own data (via a Telecom API) to deploy their own VAS apps to both retail and enterprise customers. Instead the Telecom APIs are used mainly for internal purposes and also sold on a B2B basis to various third parties including various OTT players.
The global application development community is becoming increasingly aware of Telecom Application Programming Interface (API) as a means of accessing data for a variety of communications-enabled applications. Telecom Network APIs capitalize on existing network infrastructure and platforms to facilitate many new business opportunities for global Communication Service Providers (CSP) to offer Business-to-Business (B2B) services in a Data as a Service (DaaS) basis.
For many years, a very vocal minority has advocated that the carriers engage in their own VAS apps. However, it is also well known that carriers are very good at operating networks, but not very good at developing their own apps and services. This is the reason why they have historically partners with others and watched start-ups closely to see what will succeed in the marketplace.
It has always been a challenge for any Communication Service Provider (CSP) to stay ahead. One of the key things to understand about VAS is that by their very nature their value is fleeting. VAS apps must be constant reinvented, reintegrated, updated, etc.
It is truly brilliant and sad at the same time that Verizon is planning to acquire AOL. On one side they are solving the VAS problem as AOL will continually produce new content and commerce for the combined company. Verizon will surely also recognize synergies with respect to communications-enabling apps, content, and commerce. This is especially true the extent to which they will leverage their own data and APIs.
It is also sad for some of us purist who held hope that the carriers would be able to develop their own VAS apps integrated with communications, content and commerce. The move by Verizon may be the signal to other carriers that at least one very important CSP has capitulated. Wireless itself will perhaps forever more be nothing than a means of access (apps, content, and commerce) and not a business into itself.
A Brilliant Move by Verizon
If you buy into the need for CSPs to integrate via acquisition (rather than ongoing partnerships) as Verizon is evidently thinking, it is a brilliant move by Verizon. Who else would provide what AOL has to offer at this valuation? By way of example AOL currently stands at $3.97B compared to Yahoo! at $42B
A 10X difference is huge. AOL is much more easily acquired as Verizon stated it will be a combination of cash and short term debt financing (at today’s dirt cheap interest rates).
What will other CSPs do?
This is the big question as there are not other AOLs to be had by CSPs.
- Will AT&T respond with a big partnership with Yahoo! and/or others??
- What about Sprint and T-Mobile USA?
- What about CSPs globally? What does this signal to them?
Mind Commerce Research and Advisory
We are tracking these developments and offering critical research and advisory services to our customers. This includes reports such as the as well as consultation in areas such as the potential formation of a Telecom API Consortium.
Contact us to learn more and/or inquire about becoming a customer.