Analysys Mason Application Based Pricing Dec2013 RDMY0 RMA04 ToC (1)

7/27/2019 Analysys Mason Application Based Pricing Dec2013 RDMY0 RMA04 ToC (1)

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Analysys Mason Limited 2013

Application-based pricing: opportunities, business models and case studies

Research Report

Application-based pricing: opportunities, business

models and case studies

December 2013

Ronan de Renesse, Glen Ragoonanan, Eva Weidinger and Anil Rao


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Contents

5. Executive summary

6. About this report

7. ABP needs to be mutually beneficial for customers, operators and OTT

players to be successful

8. Customers are the key party in the value chain: OTT players need

operators to reach them; operators need OTT players to gain more of

them

9. ABP deployments are rather fragmented and usually linked to marketing

campaigns, suggesting that operators are still experimenting

10. Vendors are not well integrated in the ABP value chain, which is

frustrating for both operators and vendors

11. Recommendations for operators, OTT players and vendors

12. Recommendations for operators and OTT players

13. Recommendations for vendors

14. Understanding the benefits of ABP

15. Smartphone owners use on average ten apps each month, but only 13%

of downloaded apps are paid for

16. The benefits of ABP are often unclear to consumers, who do not attach

a financial value to apps

17. Operator benefits: capturing smartphone customers

18. Operator benefits: converting feature-phone users to smartphone users

19. Operator benefits: increasing smartphone ARPU

20. OTT player benefits: using operator assets to better monetise mobile

usage

21. OTT player benefits: maximising service reach

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22. The ABP opportunity varies by region

23. ABP business models

24. Business models vary in terms of which party pays and how much they

pay, but ultimately customers must pay to sustain any model

25. Customers are the key party in the value chain: OTT players need

operators to reach them; operators need OTT players to gain more of

them

26. Deutsche Telekom and Spotify have a fixed-rate business model, in

which the operator pays the OTT player, and acts as a reseller

27. Telefnica Digitals partnership with Aurasma is a rare example of a

revenue-sharing business model in which an OTT player pays the

operator

28. Operators and OTT players can enter into short-term exclusive

agreements to bundle apps and services, but no money is exchanged

29. Operator case studies

30. Classification of case studies

31. OTT case study: Partnerships between Facebook and operators are

mutually beneficial

32. OTT case study: Google Free Zone grants preferential access to Google

services

33. OTT case study: Mobile partnerships couldhelp Wikimedia sites to

reach 1 billion people by 2015

34. Operator case study: Telkomsel Indonesia and Vodafone Qatar promote

take-up of data services with Facebook offers

35. Operator case study: Telenors partnership with Facebook drove its

mobile Internet revenue in Thailand

Slide no. Slide no.


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Contents

36. Operator case study: Globe Telecom Philippines offers various daily

tariffs in order to provide consumers with flexibility

37. Operator case study: Deutsche Telekom offers zero-rated access to

Spotify Premium

38. Operator case study: Operators in the UK differentiate 4G services with

OTT content and service bundles

39. Operator case study: Operators in the USA want to allow content

providers to subsidise data usage, but may encounter regulatory issues

40. Operator vendor engagement

41. Vendors are not well integrated in the ABP value chain, which is

frustrating for both operators and vendors

42. The overlap of leading policy management and RTC vendors shows the

increasing interdependency between these two solutions for ABP offers

43. Policy vendors are moving towards more convergent and integrated

3GPP policy control and charging (PCC) architecture

44. Vendors should take a strategic role in helping CSPs make the transition

from Policy 1.0 to Policy 2.0 use cases for revenue generation

45. CSPs and RTC vendors prefer the pay-as-you-grow licensing model for

policy management

46. Vendor profiles

47. Alcatel-Lucent

48. Amdocs

49. AsiaInfoLinkage

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50. Comverse

51. Ericsson

52. Hewlett-Packard

53. Huawei Technologies

54. Openet

55. Openwave Mobility

56. Orga Systems

57. Oracle (Tekelec)

58. Redknee (formerly NSN)

59. Volubill

60. Definitions

61. Policy management use cases: descriptions and drivers [1]



64. About the authors and Analysys Mason

65. About the authors [1]

66. About the authors [2]

67. About Analysys Mason68. Research from Analysys Mason

69. Consulting from Analysys Mason

Slide no. Slide no.


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List of figures

Figure 1: Overview of the application-based pricing value chain

Figure 2: Application-based pricing by type, as observed in operator casestudies

Figure 3: Number of apps downloaded, used and paid for per smartphone

respondent, selected European countries and USA, October 2012

Figure 4: Monthly spend on apps per smartphone user, selected European

countries and USA, October 2012

Figure 5: Smartphone users who purchase apps, by monthly spend,

selected European countries and USA, October 2012

Figure 6: Key factors other than price that would most attract respondents

to their next tariff/contract, by device type, selected European

countries and USA, October 2012Figure 7: Smartphone penetration rate by region, 20132018, selected

European countries and USA, October 2012

Figure 8: Smartphone respondents self-reported data usage as a share of

data allowance, selected European countries and USA, October

2012

Figure 9: Over-the-top fixed-to-mobile advertising revenue cannibalisation

Figure 10: Facebooks monthly active users and ARPU by region,

2Q 20102Q 2013

Figure 11: Overview of the application-based pricing value chain

Figure 12: Deutsche Telekom and Spotifys fixed-rate reseller businessmodel

Figure 13: Telefnica Digital and Aurasmas revenue-sharing business

model

Figure 14: The no-one pays business model

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Figure 15: Application-based pricing by type, as observed in operator

case studiesFigure 16: Facebook mobile products used in ABP

Figure 17: Operators that have supported Google Free Zone, August

2013

Figure 18: Operators that support free access to Wikipedia, October 2013

Figure 19: Examples of Telenor Groups application-based pricing

initiatives

Figure 20: Globe Telecoms mobile service packages

Figure 21: Deutsche Telekoms Spotify offers

Figure 22: OTT content and services bundled with 4G tariffs, UK

Figure 23: Policy management market shares by revenue, worldwide,

2012

Figure 24: Real-time charging market shares by revenue, worldwide,

2012

Figure 25: Top-six PCRF and RTC vendors by market share, 2012

Figure 26: Changing landscape of policy vendors for 2013 as a result of

mergers and acquisitions

Figure 27: The evolution of policy use cases

Figure 28: Application-based pricing description

Figure 29ac: Policy management use cases


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Application-based pricing: opportunities, business models and case studies 5

Executive summary

Recommendations for operators and vendors

Understanding the benefits of ABP

ABP business models

Operator case studies

Operator vendor engagement

Vendor profiles

Definitions

About the authors and Analysys Mason




About this report

Mobile tariffs have evolved significantly in the past few years as consumer demand has moved from voice minutes and SMS

messages to data bundles that enable access to mobile content and apps. As mobile data prices and per-user spending on digitalcontent decline, operators will need to consider innovative tariff structures to maintain ARPU and remain competitive.

Application-based pricing (ABP) is defined as the inclusion of third-party content and services (that is, applications) as part of the

tariff structure. In effect, it helps operators and over-the-top (OTT) players to further monetise consumer demand for popular

applications on mobile devices.

This report aims to analyse the opportunities that ABP creates for operators and vendors by:

assessing the benefits of launching ABP for operators and OTT service providers

examining best practices from around the world and matching them to different consumer profiles and contexts

investigating business models and partnerships between OTT service providers and operators

analysing operatorvendor engagement and qualifying vendors solutions forABP in case studies.

The report also provides recommendations for operators, OTT players and vendors.

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The ABP opportunity varies by region

Emerging markets have a higher share of prepaid mobile

customers than developed countries and are characterisedby low Internet and smartphone penetration. Operators and

third-party service and content providers have formed

partnerships that aim to promote take-up of paid-for data

services and content consumption in such environments.

These partnerships are beneficial to both parties.

Content and service providers, like Facebook or Google,

are well-established in developed countries but are still

competing for market share in countries with low Internet

penetration. Partnerships with operators facilitatepromoting their services to the next billion of users that

will connect to the Internet.

Operators, by comparison, can explore new business

opportunities by providing Internet services to consumers

without a fixed Internet connection. Promoting the take-up

of data packages as social media networks and OTT

content and services are often key drivers.

These OTT service offerings tend to be developed for useon feature phones. They are accessible through mobile

browsers instead of apps, and frequently designed using

freemium models that are optimised for low data

consumption while enabling operators to upsell data

packages for use outside the subsidised content.

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Operators in developed markets bundle OTT content and

services mainly for customer acquisition and retention and inorder to drive data consumption.

OTT content and service bundles are also used to upsell 4G

tariffs. For example, all operators in the UK that have

launched LTE bundle OTT content.

Telefnica (O2) and EE bundle their own service offerings.

Vodafone provides OTT content in partnership with

third-party content providers Sky Sports and Spotify.

Most developed countries have a high share of postpaid

customers, but countries such as Italy are predominantly

prepaid markets. In the USA, prepaid is growing and we

expect the share of handset prepaid connections to rise to

28% by the end of 2018 in North America, up from 21.8% at

the end of 2012.

In order to address the prepaid customer base and

promote take-up of paid-for data packages, operators in

developed countries should look to operators in developingcountries that are experienced in targeting prepaid

customers.


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Business models vary in terms of which party pays and how much they

pay, but ultimately customers must pay to sustain any model

The ABP value chain features three parties (see Figure 11 on next slide).

Customers are the key players because they must ultimately pay for the apps and services to sustain the entire value chain.

OTT players are the drivers that develop new innovative apps that customers adopt and make part of their digital life.

Operators are enablers that connect customers with communications services and OTT apps and content over their network

infrastructure anytime, anywhere, and on multiple devices.

The success of this value chain depends on win-win relationships between adjacent parties to ensure each partys requirements

and objectives are satisfied (see Figure 11).

Established ABP offers are based on exclusivity agreements dictated by the operator toOTT players. As a result, the two main

business model levers are:

which party pays: the operator, the OTT player or neither

whether the payment is on a fixed-rate or revenue-sharing basis.

The following slides detail three typical business models, which are based on examples of exclusivity agreements.

Fixed rate: the operator pays the OTT player a fixed rate , as per the Deutsche Telekom and Spotify agreement.

Revenue-sharing: the OTT pays the operator a share of revenue, as per Telefnica Digital and Aurasmas partnership.

No-one pays, as per agreements between Facebook and dtac Thailand (part of Telenor), as well as SingTel and WhatsApp.

The customer is more influential in the no-one pays business model than in the other two. As such, there are more mutual benefits

for all parties in the value chain, but the operator carries a higher risk than the OTT player and customers.

The customer ultimately pays to sustain all models.

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About the authors [1]

Ronan de Renesse(Principal Analyst) is the lead analyst for Analysys Masons Mobile Content and Applicationsand Mobile Broadband and Devices programmes. His primary areas of specialisation include rich media

applications and services on mobile, application store forecasting, mobile broadband, tablets and smartphone

adoption. Ronan has been analysing the telecoms and media industry since 2003. Prior to joining Analysys Mason,

Ronan was a Senior Analyst and the Head of Mobile at IHS Screen Digest, where he had overall responsibility for

the Mobile Media Intelligence service and all related activities. For the past five years, Ronan has led the conception

and development of various mobile media and technology forecasts, including those for mobile video, mobile music,

mobile games, mobile applications, mobile broadband and smartphones. Before becoming an industry analyst,

Ronan was an academic researcher at the Centre for Telecommunications Research at King's College London.

He had numerous articles published in international technology journals and also gave various presentations at

high-profile conferences. Ronan holds a PhD in Telecommunications from Kings College London. Ronan hasalso participated on the GSMA Global Mobile Awards judging panel.

Glen Ragoonanan(Senior Analyst) is the lead analyst for Analysys Masons Infrastructure Solutions, Service

Delivery Platforms and Software-Controlled Networkingresearch programmes. He joined Analysys Mason in 2008

and has worked as a consultant on projects on next-generation IT and telecoms networks, systems and

technologies for incumbents, new entrants, private companies, regulators and public-sector clients. His primary

areas of specialisation include operations and business support systems (OSS/BSS) solution architecture and

integration for business process re-engineering, business process optimisation, business continuity planning,

procurement and outsourcing operations and strategies. Before joining Analysys Mason, Glen worked for Fujitsu,

designing, delivering and managing integrated solutions. Glen is a Chartered Engineer and project managementprofessional with an MSc from Coventry University.

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About the authors [2]

Eva Weidinger(Research Analyst) contributes research for the Mobile Content and Applications and MobileBroadband and Devices programmes. Before becoming a Research Analyst at Analysys Mason, Eva worked as a

research analyst contractor with Kaiser Associates. She holds a Masters degree in Global Politics from London

School of Economics and Political Science, and a Bachelors degree in Media Technology.

Anil Rao(Analyst) is a member of Analysys Masons Telecoms Software research team, focusing on the Service

Assurance, Infrastructure Solutions and Service Delivery Platforms programmes. He has more than 10 years

experience in the telecoms industry, working in systems integration and service delivery with major Tier 1 mobile

and fixed-line operators, and independent software vendors. Anil joined Analysys Mason in early 2012. He holdsa BEng in Computer Science from the University of Mysore, and an MBA from Lancaster University Management

School.

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About Analysys Mason

Knowing whats going on is one thing. Understanding how to take advantage of events is quite another. Our ability to understand the

complex workings of telecoms, media and technology (TMT) industries and draw practical conclusions, based on the specialistknowledge of our people, is what sets Analysys Mason apart. We deliver our key services via two channels: consulting and research.

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Consulting

Our focus is exclusively on TMT.

We support multi-billion dollar investments, advise clients on

regulatory matters, provide spectrum valuation and auction support,

and advise on operational performance, business planning and strategy.

We have developed rigorous methodologies that deliver tangibleresults for clients around the world.

For more information, please visit www.analysysmason.com/consulting .

Research

We analyse, track and forecast the different services accessed by

consumers and enterprises, as well as the software, infrastructure

and technology delivering those services.

Research clients benefit from regular and timely intelligence inaddition to direct access to our team of expert analysts.

Our dedicated Custom Research team undertakes specialised and

bespoke projects for clients.

For more information, please visit www.analysysmason.com/research .


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Research from Analysys Mason

We provide dedicated coverage of developments in the telecoms, media and technology (TMT) sectors,

through a range of research programmes that focus on different services and regions of the world.

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Alongside our standardised suite of research programmes, our Custom Researchteam undertakes specialised, bespoke research

projects for clients. The dedicated team offers tailored investigations and answers complex questions on markets, competitors and

services with customised industry intelligence and insights.

To find out more, please visit www.analysysmason.com/research.

Network Technologies

Practices

Consumer Services

Enterprise and M2M

Telecoms SoftwareStrategies

Data programmesApplication programmes

MEA APAC

Regional Markets

Europe

Telecoms SoftwareMarkets


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Consulting from Analysys Mason

For more than 25 years, our consultants have

been bringing the benefits of applied intelligence

to enable clients around the world to make

the most of their opportunities.

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Our clients in the telecoms, media and technology (TMT)

sectors operate in dynamic markets where change is

constant. We help shape their understanding of the future

so they can thrive in these demanding conditions. To do

that, we have developed rigorous methodologies that

deliver real results for clients around the world.

Our focus is exclusively on TMT. We advise clients on

regulatory matters, help shape spectrum policy and develop

spectrum strategy, support multi-billion dollar investments,

advise on operational performance and develop new

business strategies. Such projects result in a depth of

knowledge and a range of expertise that sets us apart.

We help clients solve their most pressing problems,

enabling them to go farther, faster and achieve their

commercial objectives.

To find out more, please visit

www.analysysmason.com/consulting .


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Analysys Mason Application Based Pricing Dec2013 RDMY0 RMA04 ToC (1)

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