Opportunity

In 2020, for the USA and EU5 combined, OTT communication service revenues will have increased to 15
billion EUR from 7 billion EUR in 2012. Yet they will still only account for 6% of total communication service
revenues, with telcos accounting for the remaining 94%. The total market will decline, mainly due to the
telcos devaluation of the market, rather than the OTTs taking their revenues.

Drawing on IDATEs extensive work on the latest trends in communication services, this latest study,Future of
Communication 2020: Telco & OTT communication - market forecasts delves deeper into our analysis and
forecasts the paths which the market is expected to take between now and 2020.

The six key trends shaping the market

In this study, IDATE outlines the 6 key trends happening in the communication services market which will shape the
market through to 2020.

1. The aggregation of communication types : IDATE notes that most communication service providers are
aggregating and providing several communication types to the market. For example, Facebook is primarily a social
network (which is a communication tool in itself), but also offers voice, messaging and file sharing services too. In the
case of operators, they of course traditionally offer voice and messaging as their core product, but are now looking to
diversify into file sharing too, either through cloud products or the GSMA-led RCSe (Rich Communication Suite
enhanced) initiative, marketed as joyn.

2. Beyond traditional communication for telcos : The telcos are now looking to offer more than simply voice and
messaging, in order to remain competitive in the market and to remain more than a dumb pipe. IDATE sees three
main ways in which telcos are striving to achieve this : providing their own OTT communication service (such as
Telefonica with their TU Me app and Orange with their Libon app); partnering with OTT communication service
providers (such as Verizon and H3G UK with Skype and H3G HK with WhatsApp); and joining the GSMA-led joyn
initiative, launched by the three principle operators in Spain (Orange, Telefonica and Vodafone), which aims to offer
enhanced communication services across all mobile phones in the same simple way as traditional voice and SMS
today.

3. Voice and messaging becoming a telco commodity : The need for telcos to offer more than the traditional voice
and messaging service is largely due to the commoditisation of such services. These services are today taken for
granted, and virtually all telcos offer them in abundance; that is to say for a certain fee, users get massive amounts of
minutes and messages that in reality are hard to use all up, and there are also many cases of unlimited offerings.
This means that the value of such services is decreasing. Another trend for telcos is bundling, from double to
quadruple play. Whilst such marketing strategies are intended to increase user appeal and also reduce churn, the fee
itself is normally reduced and hence further devalues the standard voice and messaging services.

4. Mobile data and WiFi makes strong case for OTTs : For OTT communication services to work on mobile, there
needs to be Internet connectivity on the mobile. Especially with the exploding popularity of smartphones, this Internet
connection is increasingly provided by both mobile data plans and WiFi. Unlike voice and messaging, unlimited
mobile data packages are relatively rare with at the very least throttling usually involved. Especially in the case of
messaging there are only small amounts of data involved and thus this poses no problem. Video communication, on
the other hand, is often banned by operators, but is possible through WiFi; and in many situations where one wants to
use video communication, the user is stationary anyway (such as calling loved ones far away).

5. The rise of video communication : IDATE also notes the increased interest in the market for video
communication. The concept is hardly new since operators have in the past tried to market the service, but with
limited success. In particular, one of the demerits of operator video-calling propositions was the high cost for users,
but now OTTs have come in with a free proposition using WiFi, including the likes of Apple and Facebook. Further,
the concept of WebRTC, which allows video calling directly from the browser to any other browser could potentially
boost video calling; there is no need for users to download software as WebRTC is an API for developers.

6. Genuinely free OTT offers in exchange of user data : One of the obvious advantages of OTT services is that it
often comes for free, or in some cases, a very low fee. As an overall trend in the Internet market, the advertising
model is becoming standard and the advertising market is set to grow with better tools and analytics, especially for
mobile. The communication market is no exception, and is set to profit from advertising. However, generally
speaking, users see advertising as a nuisance, and there is also a market for low-cost services with no
advertisements, as demonstrated by the highly successful WhatsApp application.