We noted an unusual news story this month, which raises the spectre of telecoms consumers being targeted as a source of government revenue. According to this report, the Nigerian government is looking at imposing a communication service tax on consumers of voice, data, SMS, MMS and payTV services, to compensate for falling oil revenues.
It’s a novel approach to increasing revenue, and highlights the value of telecoms services users – that they can be viewed as cash cows. So why don’t telecoms operators, who are constantly searching for ways to increase ARPU, follow the example above and simply raise their prices on existing services and make the consumer pay more for the same?
Well, operators are not governments, and the telecoms market is intensely competitive in any country. Being noticeably more expensive than your rivals normally leads to customer loss, not revenue growth.
In a world of “free Wi-Fi for all”, simply increasing prices is not a viable solution. The way to increase ARPU is to increase the number, quality, diversity and desirability of the services being offered; delivering services that either customers are prepared to pay to receive, or that third-party content / digital services providers – so-called OTTs – are prepared to fund in order to widen their own customer base.
Of course, bombarding customers with random offers is a practice that generally switches people off, in any sector – the request for permission to ‘share your details’ with our ‘carefully selected partners’ is one we often decline in an attempt to prevent our details being sold on.
Operators, however, are armed with customer knowledge and insight into behaviour that leaves them perfectly positioned to much more accurately target their offers. These can be to existing customers, to new ones or to those considering renewing. How about adding our partner’s music service as part of your subscription, or would you prefer access to premium sports channels? These are all services that operators can offer, promote and deliver to their customers, taking advantage not only of the pipe they provide that connects a world of services to the devices we all carry with us everywhere, but also of their direct relationship with end customers.
Many operators do, of course, have strategic collaborations with powerful OTT players such as Netflix, Spotify and Facebook, aimed at creating differentiation and some revenue. Research by the Northstream consultancy estimates that this approach has the potential to generate some €160 million in gross profits from Western European operators from 2014-2017.
Yet extend the collaboration to an open platform approach, where many more OTT players can partner with the operator to launch new products and offers quickly and cost-effectively, and these operators could generate an additional €2 billion in gross profits over the same period.
Collaboration platforms enable faster integration at lower cost, so operators can increase the number of partners they work with and be more flexible in creating ‘mini offers’ which appeal to a wider range of customer segments.
Operators are certainly realising that collaboration can lead to increasing revenues by widening the potential customer base for partners. Just before the Mobile World Congress in Barcelona last month, nine mobile operators – including Reliance, BT, Orange, Deutsche Telecom and TIM – announced an alliance to make it easier for partners to connect with their networks. The alliance holds out the promise of reaching a combined market of one more than 1bn customers in some 80 countries worldwide.
Increasing revenue by imposing taxes or tariff increases might be ways of raising more money from consumers, but using technology to make it easier and faster to deliver value-added services to more consumers is surely a wiser approach.