Analysys Mason Application Based Pricing Dec2013 RDMY0 RMA04 ToC

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
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

2
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 could help 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.
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
3
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 Mason
68. Research from Analysys Mason
69. Consulting from Analysys Mason
Slide no. Slide no.
List of figures
Figure 1: Overview of the application-based pricing value chain
Figure 2: Application-based pricing by type, as observed in operator case
studies
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 2012
Figure 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 business
model
Figure 13: Telefnica Digital and Aurasmas revenue-sharing business
model
Figure 14: The no-one pays business model
4
Figure 15: Application-based pricing by type, as observed in operator
case studies
Figure 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
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 digital
content 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 for ABP in case studies.
The report also provides recommendations for operators, OTT players and vendors.
6
The ABP opportunity varies by region
Emerging markets have a higher share of prepaid mobile
customers than developed countries and are characterised
by 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 facilitate
promoting 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 use
on 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.
22
Operators in developed markets bundle OTT content and
services mainly for customer acquisition and retention and in
order 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 developing
countries that are experienced in targeting prepaid
customers.
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 to OTT 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.
24
About the authors [1]
Ronan de Renesse (Principal Analyst) is the lead analyst for Analysys Masons Mobile Content and Applications
and 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 has
also 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 Networking research 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 management
professional with an MSc from Coventry University.
65
About the authors [2]
Eva Weidinger (Research Analyst) contributes research for the Mobile Content and Applications and Mobile
Broadband 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 holds
a BEng in Computer Science from the University of Mysore, and an MBA from Lancaster University Management
School.
66
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Application-based pricing: opportunities, business models and case studies

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