TECNOTREE BLOG

By subscription only: The future of traditional telecoms services? September 2015

Among the sweeping changes taking place within the telecommunications industry, the popularity of subscription based business models seems to consistently resonate as one of the top concerns for all involved. With new players entering the field on a weekly basis, the business model of Communication Service Providers (CSPs) will never be the same again.

 

Despite a number of variations introduced over the years, telecommunication services have traditionally been charged on a pay-per use basis. This has meant that operators have put in place sophisticated methods of metering the traffic – whether that’s minutes of voice, bytes of data or some combination of these, plus location, etc. This increasing level of sophistication is today applied to traffic in real-time, enabling  very fine control of how services are consumed and charged for.

 

The new entrants swarming to the party, on the other hand, most often do not have the financial means or even motivation to deploy such sophisticated controls. Hence, as we all know, the vast majority of so-called OTT services rely on a subscription-based model for generating revenue. This often manifests itself as a two-tiered model with a free, ad-funded, basic service, and a premium offering with no ads that in many instances includes extra toppings for the consumers which are ready to spend money on a monthly basis.

 

For a long time it has been easy to dismiss freemium business models as just a quick method of bringing together a number of customers to companies that have been designed as a quick flip. But as the model matures and companies start to get to grips with what really drives their conversion rates, subscription based business models are beginning to look viable for even the traditional stronghold of metered access: telecommunication services.

 

The consumer attraction is easy to understand. Simplicity and transparency make the monthly subscription model a crowd favourite. Certainly over the historically difficult to decipher metered plans of CSPs. And as more and more companies enter the game with variations of the subscription model, its march to glory seems unstoppable.

 

But can it really be so simple? If you read the fine print, you will find that in addition to the sometimes rather glaring compromises on privacy, subscription contracts often contain a number of other limitations as well. Especially when the service involves utilising a limited resource such as storage space or bandwidth, where you are likely to find the usual fair use conditions in the T&Cs. So in the end, you have to meter access anyway.

 

And herein lies both the opportunity and the challenge. The current popularity of subscriptions makes it easy to experiment on different variations of the theme as consumers are receptive to the idea at large. However, there is a fine line  between simplicity and granularity  - the service providers have to walk in order to find the right model for each service. They are not all created equal.

Just comparing the popular music streaming services with more communication oriented offerings reveals material differences in the way the subscriptions are structured. In the former category, the likes of Spotify with a 25% conversion rate, and Deezer, who are possibly doing even better in converting users to premium, seem to be able to create a decent conversion rate to their premium offering, while the likes of Skype with a conversion rate of less than 10% are struggling to move customers beyond the basic free service in any significant numbers. Not to mention that many of the competing communication services such as WhatsApp and Snapchat do not have a premium offering at all.

 

This difference is certainly in part to do with the products offered, but nevertheless it offers an interesting insight into the possible future of telecommunication services. And while consumer services are where the action is today, they may well prove to be merely the tip of the iceberg as far as the possibilities of subscriptions are concerned. It is in the much hyped area of the Internet of Things (IoT) where the real action is going to be.

Timo Ahomäki, CTO, Tecnotree 

This article was originally published in TelecomsTech

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