Veon is the latest MNO to fail in the attempt to become a digital player

Veon, whose largest subsidiary is in Russia, is to shut down its digital applications and content platform – the latest in a long line of operators to try, and fail, to take on the over-the-top giants. Very few mobile operators can point to any significant success in digital services, yet it is a commonly held belief that they will be unable to justify their 5G investments without extending their business models well beyond connectivity.

There are various ways forward, but all come with significant risk. One is to make the connectivity model work by adding layers of added value, enabled by 5G, such as high end security and device management services; while also reducing costs drastically through automation and virtualization.

Another is to go the consumer digital services route, but buy a readymade business to avoid the uphill climb to establish new offerings against those of the Internet players. Yet another is to focus on new revenue streams from enterprises, not consumers, bundling enhanced connectivity with network services and even cloud/edge capabilities.

None of these is easy. LTE was meant to increase the value of the cellular connection, but very few operators were able to increase connection charges compared to 3G. Verizon and others have tried to buy digital and content companies, with very mixed results. Most MNOs are still struggling to make a firm business case for 5G-enabled business services, especially if those might take them up against the cloud giants.

But all of the above look a little less daunting than doing what Veon, and others before it, have tried to do, which is to create an MNO-controlled alternative to the services of Skype, WhatsApp, Netflix and the other OTT majors. Will a new breed of operators, like India’s Reliance Jio or Japan’s Rakuten, have better fortune?

Veon said it was looking at discontinuing its app, which allowed customers in most of its 10 markets to access Veon services, as well as content and apps from partners, from their smartphones. The aim was to build a digital platform which would be common to all its customer bases, but support localized offerings. This would allow its operating companies to launch and replace new digital services rapidly and inexpensively by leveraging the common tools and interfaces, while also working with local partners.

Now it is dialling back on this strategy “in light of changing business priorities” and is “consulting with employee representatives on the likely impact of this proposal”. It claimed that it remained “fully committed to delivering world class digital services to our 210m customers in 10 countries”, citing local offerings such as Beeline TV in Russia and the Jazz Cash mobile money service in Pakistan, but it will no longer have a common platform with centralized, cross-group resources. LightReading understands that about 200 jobs will go as a result of the change.

The app, which Veon billed as a “global personal Internet platform”, was launched in July 2017, initially to try to stem the flow of messaging and voice business to WhatsApp, Skype and Viber. At launch, the operator promised “contextualized, personalized Internet experiences, enabling customers to access information and services, and engage with their world, in an entirely new way” – though in phase one, the main function was free chat. But there were ambitions to build a rich content platform around the app, and to include paid-for elements, leveraging the ease of purchasing of the carrier bill.

As with other examples of failed digital projects from telcos, from Telefónica to T-Mobile USA, Veon was being bold by MNO standards – it was reportedly spending about $100m a year on activities related to the digital platform – but not by the standards of the companies it sought to challenge.

It started in one of the hardest segments to break into, chat and messaging, and did not bring significant differentiation to its service. While the Silicon Valley players are starting to think about AI-driven chatbots and holograms as ways to enrich their future communications services, Veon was not introducing anything new.

Only about 8.3m of the operator’s 210m customers were using the app when Veon last provided an update on its progress, at the end of its 2017 fiscal year in March 2018. After that, the company stopped offering any updates on adoption, and CEO Jean-Yves Charlier – a big supporter of the digital strategy – left suddenly amid a string of poor results and setbacks, and was soon followed by Christopher Schlaeffer, who headed up a London office set up specifically to run the global digital strategy.

New CEO Ursula Burns is said to favor a return to the core business, letting individual operating companies launch digital services where there is clear market demand.

The layoffs, it is understood, will include about 100 jobs at group headquarters in Amsterdam, where the development team was based, plus the closure of the London office.

This has echoes of Telefónica Digital, a dedicated division set up in London in 2012 by the multinational operator, but shut down just two years later. Initially, Digital was given its own identity and autonomy to enable it to innovate without being slowed down by legacy business habits and objectives. It was responsible for developing new digital services, which could be independent of Telefónica networks, including over-the-top messaging, health apps, mobile money and others. Other areas of its remit were to nurture alliances with OTT partners, third party apps and content developers, and to incubate start-ups. And it provided a central point for device strategy and procurement, especially for non-traditional connected gadgets.

However, the telco had limited success in monetizing those efforts. Digital was set up with ambitious targets, such as generating €5bn in revenues by 2015, but failed to get close to that figure.

Among its failures was to build on the 2009 acquisition of VoIP service Jajah, made in 2009 for $207m as a centerpiece of the ‘Telco 2.0’ strategy. This was closed down at the end of 2013, though elements of its platform were retained to run other Telefónica apps.

Failures from Jajah to Veon show that carriers need to forget about magicking the app out of the hat which is so good that users come rushing away from Skype. With a few exceptions, such as some of SK Telecom’s digital activities in Korea or NTT Docomo’s in Japan, MNOs’ own apps have failed to flourish beyond their own networks (or even within them), and so have not been able to achieve the global scale of an offering like Spotify, let alone Facebook/WhatsApp. The landscape is littered with corpses or walking dead, such as Telefónica Tu Me, Orange Libon or T-Mobile Bobsled, which gained none of the scale of Skype.

To make up for that, carriers need to focus on areas of the consumer experience which they control and the OTT specialists do not – or do less effectively – such as the phone number and address book, and the billing arrangement.

That is what the GSMA’s Rich Communication Services (RCS) initiative was supposed to achieve by adding these added-value services to MNO platforms and differentiate them from Skype and the others. But this has failed to attract much support, even with the support of Google, which includes RCS in Android (and, of course, has its own reasons to challenge WhatsApp and Skype, since they are owned by two of its greatest rivals).

The early hopes for RCS – that it would support rich messaging experiences which customers would be happy to pay for, despite the rise of free services like WhatsApp – have unsurprisingly been dashed. While the GSMA and the few RCS deployers spent years working on services and interoperability tests, the OTT alternatives changed the face of mobile communications, and left Google out in the cold too.

Google has been working with RCS since it acquired Jibe Mobile in 2015 and in 2016 it released a universal profile which would allow different implementations to work together. Its unexpected interest was probably the only thing that saved RCS from being completely moribund, given that only a small handful of operators had supported it, and only Spain and South Korea had multi-operator roaming (and the South Koreans shut down their services in 2016 because of poor adoption).

Last year, the search giant decided to focus its mobile messaging efforts – which are dwarfed by those of Microsoft, Apple and Facebook – entirely on RCS, suspending work on its own app, Allo, which was launched in 2016. This will position it as the operators’ friend, rather than their nemesis (like WhatsApp), since it will cooperate with them while pushing RCS – but it will offer free Android messaging, so it will play its part in wiping out the revenues that still remain for MNOs with paid-for text services. It said last April that it would make its implementation of RCS, called Chat, the default messaging service on Android, with features designed to set it apart, such as read receipts, full resolution images and video, and group texts. However, it will not support end-to-end encryption.

This will be an operator-based service rather than a Google service, and messages will be part of the user’s data plan, not a separate SMS plan. This, the search company argues, will give MNOs a route away from SMS, which will nevertheless keep customers attached to their brand. Google says the Universal Profile, the GSMA spec which it supported and effectively launched in the market two years ago, is now supported by 55 operators round the world, and by Microsoft.

However, no operator has given figures on usage of RCS, and unless users can really be wooed away from WhatsApp, it doesn’t really matter how many MNOs are supporting the GSMA/Google alternative.

But many MNOs still believe they must become digital services providers if they are to grow revenues and margins, and preserve their relationship with the consumer rather than becoming an invisible pipe for OTT brands. An emerging breed of new MNO is trying to build a business from scratch around content, apps and digital services, though these players are, as yet, too new in the market to judge whether they will be more successful than their more traditional rivals.

Reliance Jio, Rakuten and Free Mobile are among these disruptive operators, which avoid the label ‘network operator’ and claim instead to be digital providers. Rakuten has the advantage of being an ecommerce provider first and foremost, with other activities such as credit cards. It has acquired spectrum in order to extend its mobile services from a small MVNO offering to a full platform but is adopting a novel approach. It is relying on co-investment partnerships with industry organizations such as utilities to lower its costs, while building on its existing digital services to bring mobile versions to market quickly. Unlike most MNOs, it understands how to monetize applications for shopping, payments, healthcare and others, and how to build an online brand. It has even forged a partnership with Japan’s second MNO, KDDI, which will allow the latter to use its mobile payments service, in return for giving Rakuten access to its 4G network to extend its coverage while it builds out its own infrastructure.

Meanwhile, in India, Reliance Jio, has not just been a price cutter, it is also building a full portfolio of digital services, investing in content as well as smart home, connected car and mobile money offerings.

For instance, RJio is working with Eros International Media to produce and consolidate content from across the country and says it will invest up to INR10bn ($150m) to produce and acquire Indian films and original digital content across all the country’s major languages. RJio has also signed a deal to integrate Saavn, an over-the-top music platform, with its own JioMusic service. And it has a 50% stake in Viacom 18, the parent company of Colors Channel, a popular TV channel, as well as a 25% stake in Balaji Films.

These newcomers have some advantages – as challengers, they have had to come to market with a brand new approach; they are well-funded by parent companies with experience outside telecoms; and their operating costs are low, giving them more leeway to invest in content and apps. However, all that is still dwarfed by the scale and expertise of the OTT giants, and even the fabled advances of 5G on the consumer experience front – virtual reality, tactile Internet and so on – may yet be monetized most effectively by the web and media leaders, rather than by the 5G operators, repeating the painful patterns of the 3G and 4G eras.