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Ovum recently published the latest versions of its fixed and mobile innovation radars (“Fixed Services Innovation Radar: 2H11″ and “Mobile Services Innovation Radar: 2H11″). The radars tracked a total of 638 service launches by fixed and mobile telcos in the second half of 2011. It is clear from these service launches that telcos’ expectations are more realistic than in previous versions of the radars. This is most evident in the increased number of launches that are designed to help telcos defend their existing revenues rather than pursue new revenue streams. The radars also showed that when a telco does seek new revenues, it is more likely to develop a service and go to market with a partner. At a time when there is a strong focus on how over-the-top (OTT) players are threatening the telco’s grip on the market, the radars show a remarkable level of collaboration between the two rival parties.

The role of partnerships is evident

The 2H11 innovation radars demonstrated the importance of partners in telco innovation. The radars showed that 45% of all the services launched involved a “named” partner, and this figure would likely have been higher if more telcos disclosed their partners. Partnerships were most prominent for new mobile money, education, healthcare, and utility services. On the opposite side of the scale, personalization, location-based, and advertising services involved the fewest partnerships.

The service launches most likely to involve partners were in areas where telcos are going beyond the traditional boundaries of the telecoms industry. For example, while mobile money services are attractive to most telcos, the unfamiliar operational models and risk structures associated with financial services mean that many telcos are reluctant or unable to go it alone. Other instances predominantly involved telcos enabling the connected world of the future. Examples of this approach included M2M solutions or services designed for the healthcare and education sectors, where telcos partner with existing players or governmental bodies to bring services to market.

There were few partnerships in markets where the telco’s role has already been diminished by the emergence of smartphones and OTT services. In these markets, telcos are more likely to take a protectionist approach by exploiting any remaining opportunities alone as the market rewards are typically too small to be shared.

Collaboration with OTT players is now the norm

Currently, there is a perception in the market that telcos and OTT players are engaged in a battle to the death. However, the reality is that these two stakeholders are engaging with each other across multiple touch points within the industry. While in some cases they are adversaries, on many occasions they have formed a symbiotic relationship. When it comes to partnerships, an increasing number of telco service launches now involve an OTT player or use an OTT platform.

The obvious examples are mobile apps, which accounted for approximately 15% of new service launches in 2H11. For telcos, which supposedly have wide-reaching footprints and the most reliable billing platforms, having to rely on the platforms of Apple, Google, RIM, and Facebook is a telling reminder of the strength of the OTT players.

There are a number of examples of telcos supporting operator billing for apps, embracing social networking platforms for marketing and customer care purposes, expanding their IPTV/smart TV portfolios, or bundling OTT products with their own offerings (e.g. Microsoft software or free access to Facebook or Skype). Many collaborations, particularly among fixed telcos and cable operators, are focused on bringing new revenue-generating services to telcos’ business customers. For example, Belgacom has entered into a strategic partnership with Awingu in Belgium to offer enterprise cloud services, while KT has formed a partnership with Microsoft in South Korea to offer Microsoft 365 to its business customers. Partners and partner platforms are vital in enabling telcos to generate revenues from new services, even if those revenues have to be shared with potential competitors.

Innovation can be a good defensive strategy

While it is always good to see new service launches that have the potential to earn new revenues for telcos, the innovation radars contained a number of examples of service launches that are clearly defensive in nature. Despite collaborating with OTT players for new service launches, many telcos are positioning themselves to defend their existing revenues against the threats posed by OTT players. This was most pronounced in the 85 launches in the communications category, and shows what telcos must do to stem the decline in service revenues.

As we discussed in the report “The Casualties of Social Messaging”, telcos lost $14bn to social messaging services in 2011. As a result, it is not surprising that many telcos launched their own communications apps for VoIP and messaging in 2H11. While some telcos claim that they will make money from these apps, it is far more likely that they will cannibalize telcos’ existing revenues. While this is not good news for telcos’ finances in the short term, retaining some control over supplemental communications services is critical to retaining a good, long-term customer relationship. This holds true even it garners no new revenues, and even when it threatens telcos’ existing revenues.

Collaborating with telcos can provide OTT players with direct exposure to an audience that they otherwise might not have been able to reach. However, partnerships with OTT players can be a potent defensive strategy for telcos as it can complicate the communications app market, and prevent the numerous independent OTT offerings from reaching a critical mass.