Telcos’ digital services could earn little yet still be valuable

Alarmed that innovative third-party services will render them merely dumb pipes, mobile carriers around the world are racing to build or invest in their own digital products like apps and online services.

But, whilst those services may help defend their privileged network gatekeeper status, it seems they will bring little to operators’ actual commercial success.

“Revenues from those new streams will be small in the short term and the medium term, too,” Informa Telecoms & Media principal telco analyst Thomas Wehmeier told a Tuesday event.

Wehmeier forecasts such services accounted for just 0.7 percent of global carrier revenue ($7.7 billion) this year.

Speaking at Informa’s Industry Outlook conference, he shared a forecast he obtained from Telefonica, which said its new Telefonica Digital services unit will contribute eight to 10 percent of 2015 company revenue – up from four percent in 2011.

“It’s important for operators not to lose sight of the basics of growing their core business,” Wehmeier said.

Launched this summer, Telefonica Digital has launched a cross-network mobile messaging app called Tume and is planning a network-centric communications services app called Tugo, due to be launched in the UK first later this year. The carrier is also offering big-data, cloud services and phone users’ location data to retailers.

“We were asked (by Telefonica) how to create new revenue streams to protect our business and move in to completely new areas as well,” Telefonica Digital CEO Stephen Shurrock told Informa Telecoms & Media’s conference.

Later, he told paidContent: “We (Telefonica and Telefonica Digital) need each other. We need them to distribute our product, but they need us to innovate.”

Compared with dedicated app and service makers, carriers don’t have a great track record at building attractive consumer services. But Informa Telecoms & Media’s Wehmeier said that’s not necessarily a bad thing.

“Typically what we’ve seen from most telcos is a bunch of me-too services – important in the internal context but less so in terms of innovation compared with the rest of the market,” he said.

“But the word ‘innovation’ comes from the latin word ‘innovare’, which actually means to change something…” As long as the carriers can change themselves, they are heading in the right direction, Wehmeier said.