How can Mobile Operators Challenge the Digital OTT Giants? Go for the Undecided Consumer!

An A.T. Kearney consumer study shows that the use of smartphones across Europe does not substantially differ from the U.S. It is no news that consumers are using their smartphone a lot and are increasingly spending money with it. We did find important differences though in consumer behavior which should be a call for action for European mobile operators to accelerate the launch of valuable mobile services.

Last year A.T. Kearney interviewed 60 C-suite executives at telcos across Europe as part of our study The Future of Telecom Operators in Europe. The logical next step was to ask consumers their preferences to see where they align—and where they don’t—with the key strategic directions the CXOs outlined to us in our one-on-one conversations. (Click here for a summary of the European results of our telecom consumer study.)

Two differences stand out when comparing U.S. results with the Benelux specifically.

First, consumers in the U.S. are much more willing than their European counterparts to pay for network quality to telco’s such as Vodafone, KPN, and Proximus. In fact, network quality is the main buying criterion for the U.S. consumer, while In Europe and specifically in The Netherlands, price is by far the dominating buying criterion. Other factors are of less relevance, e.g. handsets are hardly a differentiator anymore when considering operators. This is a remarkable shift compared to the situation a few years ago, when the handset portfolio pushed contract renewal and churn.

What does this mean for European mobile operators? If perceived network quality across operators is sufficiently high and therefore indifferent, consumer preferences may favor challengers with simple and inexpensive mobile offerings. Not exactly the news operators want to hear.

Second, Benelux consumers are less likely than Americans to see operators as companies offering digital services. Approximately 50% of Benelux consumers perceive mobile operators as mere ‘Data Utilities’ that should only offer access at the cheapest price available. When Benelux consumers want applications on their smartphones and tablets, they turn to Silicon Valley, whether it be Google, Apple, Facebook / WhatsApp, or Netflix. This perception of telcos as mere access providers poses a vital threat to operators, as consumers are willing to pay a ‘Data Uility’ 40% less than what they will pay an operator that helps them navigate the digital world.

The vast majority of telco’s aspire capturing a share in the market of digital offerings. In the 2014 version of our study, A.T. Kearney interviewed 60 telco CxO’s across Europe and over 80% indicated the ambition to develop their companies into ‘Digital Navigators’; essentially the operator that sells customers not only access, but also content and services and thus getting a share of these, currently OTT dominated, revenues.

Both differences reveal a clear challenge for European operators: where consumers are reluctant to pay telco’s for quality, they seem very comfortable to pay predominantly US-based ‘Over The Top’ (OTT) providers for apps and services.

There is a bright spot, though. The study also finds that about one-third of consumers still haven’t decided who they favor for their digital offerings. And where they say local telecom operators can provide value and win from U.S.-based OTT providers is in video-on-demand (VoD) with local content, pay TV, support with discovering relevant apps, and offerings related to the quickly maturing Internet of Things (IoT).

In sum, European mobile telecom operators need to try even harder to provide valuable mobile services, because the alternative of becoming a mere ‘Data Utility’ will result in lower margins—and unleash a cost-cutting race to become a lean-and-mean access provider. Better for operators will be to act fast, while they still have time to convince undecided consumers to use their services instead of those from the U.S.

Remko de Bruijn leads the Communication, Media and High-Tech activities for A.T. Kearney in the Netherlands and Belgium. He advises clients around the world on cost-reduction strategies (especially in procurement), operations & e2e process improvement, b2b sales excellence, and organizational design and transformation.