Charging extra for OTT: good luck with that

This article was authored by John C. Tanner, and was originally posted on telecomasia.net.

ITEM: The Korea Communications Commission has reportedly made it legal for SK Telecom, KT and LG U+ to charge their customers extra fees to use VoIP apps – or block their use entirely.

ITEM: TeliaSonera has been piloting a business model for its Yoigo subsidiary in Spain to charge customers 6 euros ($7.50) a month for 100MB of VoIP traffic (around five to ten hours of talk time), and announced plans last week to launch the model commercially in August, according to Telegeography.

The justification for both scenarios is a familiar one (and by “familiar” I mean “ancient”): VoIP apps and their built-in messaging capabilities are cannibalizing the traditional cash cow of voice and SMS, and operators can’t possibly survive unless they either block such apps or charge customers more money for using them.

Honestly, it’s as though I haven’t spent the last year attending telecoms conferences listening to operators talk about how data is the future, OTT is an opportunity and telcos must transform their mindsets and adopt new business models to survive. Because I’m not entirely sure where blocking or charging extra for OTT apps fits into that “telco transformation” paradigm.

Yes, I know – voice and SMS revenues are being cannibalized by VoIP and MIMS (mobile internet messaging service) offerings. This is true. The thing is, both voice and SMS are already commodity services, and punishing customers for using OTT versions is not going to change that.

At the very least they are not going to thank you for charging them extra for VoIP, OTT messaging or any other OTT apps they want to use. A UK survey released in May found that up to 60% of smartphone users would churn to another network if OTT apps, including VoIP, were blocked or restricted.

(FULL DISCLOSURE: The study was commissioned by VoIP player Rebtel, so caveat emptor.)

To be fair, whether charging extra for OTT voice and messaging results in customer ire could depend on how you go about doing it.

For example, TeliaSonera says its VoIP charges won’t apply to existing customers until their subscriptions run out, and it will continue offering data packages with VoIP bundled in.

I don’t know what the Korean cellcos have in mind for VoIP or to what extent they’ll take advantage of the KCC ruling, but bundling third-party OTT apps into a value added package is an easier pill to swallow than charging extra fees and blocking them for whoever refuses to pay.

Another option for cellcos is, of course, to launch their own VoIP and MIMS (mobile internet messaging service) offerings. However, that requires the expertise (and expense) to develop and run your own OTT service, not to mention convincing customers that your service is every bit as good as Skype, KakaoTalk, or Daum (or preferably better, as you’re asking them to pay for what they already use for free).

It will also require a certain level of cooperation between cellcos. As Ovum pointed out in a research note last month, Korean cellcos planning to develop their own MIMS services would benefit more by making them interconnected and interoperable services rather than standalone products. SMS is the obvious precedent – text messaging never really took off until operators enabled cross-network interoperability.

Technically it’s doable, and a valid option. But when you look at it in the context of the all-IP heterogeneous broadband future coming down the pipeline, it seems like a short-term band-aid solution and a last-ditch effort to keep the voice/SMS gravy train running.

If operators think that embracing OTT means charging more for it (which is risky) or blocking third-party apps to protect their own OTT offerings (which is just dumb), that at the very least it suggests that all the talk from operators at trade shows about operator transformation and leveraging network assets and APIs to add value to OTT services is just that – talk.

And cheap talk at that.

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