Ad market offers operators opportunity for counter-attack

Friday 26 June 2015 | 11:58 CET | Market Commentary

The telecom sector is under pressure; revenues are falling due to the weak economy, regulation and competition. Traditional services are becoming commodities, especially telephony and SMS. The pressure should lead to new approaches, but it's uncertain whether this is taking place. There are plenty of initiatives, but the advertising market springs out as one of the most notable. In part this is the source of the sector's misery, as the over-the-top sector's reliance on advertising income is driving the commoditisation of telecoms. Operators embracing the ad market could turn the situation around. 


We look first at operator's current plans aimed at increasing revenues (on the cost side, they are pursuing strategies such as consolidation, rationalisation and offloading to Wi-Fi). To increase usage, mobile operators are doing everything possible to facilitate and stimulate data consumption, such as bigger screens (phablets), faster networks (4G), new services (discovery) and up-selling (to non-data users).

The next step is 'smart' pricing, a common method in the telecoms sector. Whether it's speed- or usage-based subscriptions, peak and off-peak rates, a split between fixed and usage costs, it all amounts to the same: 'splintering' the service in order to differentiate. At the same time it makes prices somewhat incomparable, contributing to the growth of the sector. The latest push for more transparency is as such not good news. On the fixed market new players like Jonaz and Netrebel, which only offer the maximum possible speed, are disrupting the market. Vodafone is also introducing an internet-only service. In the mobile sector, operators are opting for data caps, but it seems only a matter of time before all limits are scrapped. This will lead eventually to access (broadband, mobile data) also becoming a commodity.

The third element of revenues is offering 'value-added services', whether in-house (like cloud storage) or from partners (for example, Spotify or Netflix) or non-telecom services (insurance, energy etc).


Advertising is a unique category of its own. It is the most important revenue source of the OTT sector, where cross-subsidising (ad revenues from for example Google Search or Facebook) allows services such as chat, VoIP and social networking to be offered free. This is a major problem for telecom operators, which are continually looking for counter-measures. "They're using my pipes for free", has been the moan for some years, but the sector will have to resign itself to this. More recently, some have threatened to block ads, but this appears an unrealistic strategy - think of 'native' (such as pre-rolls on YouTube) or 'in-app' advertising. How would a provider's own ads or those of competitors be filtered?

More interesting is how some operators are using advertising as a weapon:

  • Weve, part of O2 UK/3 UK, serves ads based on user data. Most are discount offers.
  • O2 UK also plans to deliver personalised advertising on the London underground.
  • A platform at US mobile operators allows retailers to advertise and sell directly to subscribers.
  • Verizon's takeover of AOL is all about personalised advertising. Verizon will launch soon a mobile video service and AOL's technology will be used for the advertising.
  • RingPlus, a MVNO on Sprint's network in the US, plans to offer advertising in the form of ringback tones. This will finance a free subscription with a limited amount of minutes, SMS and MB.
  • FreedomPop is preparing its expansion to Europe, using its freemium model of a basic mobile allowance free, alongside extra paid services.
  • AT&T offers the service Data Perks: free data in exchange for watching ads or downloading an app - a type of 'sponsored' data. 

By entering the advertising market on their own, the operators are brining the competition to the OTT sector - a real, offensive strategy. How big is the potential advertising opportunity? This is likely to be very interesting given the growth in data traffic, which is concentrated in mobile video segment. Online video services, such as KPN's upcoming Play OTT service, offer a business model designed to exploit this new opportunity. 

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