Content is One Way to Move Up the Stack

Reliance Jio’s use of content to drive interest in its 4G service is going to cause other mobile service providers to respond, analysts now say.

“We expect Jio to be competitive in the race for IPL digital rights, and incumbent telcos may need to revisit their OTT (over-the-top) strategy as Jio is the only telco whose OTT offerings (JioTV and JioCinema) already feature among the top 10 video streaming apps in terms of monthly active usage during the January-to June 2017 period,” said Rajiv Sharma, HSBC director and telecoms analyst.

That emphasis on content illustrates one key facet of access provider strategy in the internet era, namely that “dumb pipe” really is the foundation of the new business, as all applications--including those competing with access provider apps-- can be created independently, by third parties, without the access provider’s permission.

By packaging third party content with its access service, Reliance Jio not only differentiates its access service, but directly stimulates demand for the access and its own branded handsets.

But even that is not the key benefit. To the extent that value lies at the application layer, Jio becomes a supplier of that value (content), with direct participation in application revenues generated by that additional value.

That will be the pattern for enterprise and business segments of the business as well. Unless an access provider is content to eke out a living selling “pipe” (internet access and enterprise data networks with declining revenue-per-bit characteristics), it must create an additional role as a “service provider.”

We sometimes forget that voice and messaging once were services 100-percent controlled by the access provider, down to the details of what devices could be attached and used on the network. All that ends in the internet era.

Carrier voice, messaging and content subscriptions remain “services” created, sold and owned by the access provider. Internet access, though, is the first mass market “dumb pipe” offering where the value is created entirely by third parties (value is created by use of all apps accessible on the internet, the internet access itself truly is a dumb pipe).

That will become increasingly clear as the era of pervasive computing emerges, enabled by 5G and “internet of things” networks. Most of the revenue and most of the value will be created by the IoT platforms, devices and apps, not the access. That will be a key problem for most access providers, as creating new application revenues seem still to be quite difficult for most access providers.

To participate in the upside, access providers will have to seek roles beyond mere supply of connections for IoT devices. Even NTT, long a leader in creating new application-based revenue streams, still earns the overwhelming share of total revenues from access services (if you will pardon the lumping of mobile and fixed subscriptions in the “access” category).

According to  Ovum, access providers will grow their revenues from managed global services to enterprise customers to at least US$297 billion by 2020.

The biggest contribution will come from new strategic ICT service revenues at nearly US$173 billion, which will increase at a compound annual growth rate of 9.9 percent over the period 2015 to 2020, Ovum says.

Strategic ICT services include business IT and IP applications, compute and hosting, enterprise mobility, managed networks, professional services, and unified communications.
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