OVER-THE-TOP (OTT) - Wesley Clover

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The good news is they have advantages over OTT play- ers to work from. They have the wireless infrastruc- ture, with its
NEWSLETTER | JULY 2014

OVER-THE-TOP (OTT)

A DRAMATIC MAKEOVER OF GLOBAL COMMUNICATIONS IN THIS ISSUE From the Chairman …………………………..…. Page 1 What is OTT, and Why is it Important? ….… Page 3 Impact for Telcos/Service Providers ………..… Page 4

The Enterprise and OTT …..……………… Page 10 Understanding Recent Acquisitions ……. Page 12 Interesting Trends and Developments .. Page 12 Wesley Clover Parks …………………….…….. Page 14 Introducing ‘L-SPARK’ …………………….…….. Page 14 The Loss of a Dear Colleague ……….. Page 14

FROM THE CHAIRMAN The ICT (Information and Communications Technologies) market is undergoing rapid, I might even say dramatic, changes. Many readers recognize this, many are likely living it. I feel strongly about the issue. Where there is change, there is opportunity! I am referring to the recent generation of service and application companies using Internet Over-the-Top (OTT) networking as a platform for new product and service offerings. Companies we all read or hear about, such as Skype, Viber, Rebtel, WhatsApp, WeChat and many others, have emerged to address the new and perceived communications needs of both consumer and enterprise users. Most of these companies are quite small, but they are making global market inroads that would have been beyond belief just a few years ago, and they are realizing market valuations that are similarly beyond belief. The offers from these young firms are compelling, be they communications tools and services, content services, storage services or others. Together, these new offerings are driving a commoditization of many of the established telecom and cable services. In the process, it might seem like these new apps are simply wiping significant revenues from the books of traditional players. The legacy voice businesses of these players have been in decline for some time. SMS texting services are under similar attack. Think also of the ecosystem around these carriers – the companies who supply supporting equipment and services. What of them?

A Sense of the Impact For some, this evolution could in fact pose a threat to their continued viability. Where’s Nortel? Where’s Marconi? Revenue sources are shifting. Market capitalization is at risk, and significant new investments are shifting to these upstart players. Consider what we have read this last year alone: WhatsApp – 55 people, no sales or profits, but a valuation of $19B U.S. Yes, that is a ‘B’! The company has 450M users … Viber – Revenues of only about $1.5M, but 200M users of voice

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and messaging services. A $900M U.S. valuation as a result! Skype – Video, voice, messaging and SMS for about 1B users. Acquired by Microsoft at a valuation of $8.5B U.S. WeChat – about 300M users for voice, video and messaging services. Valuation?

Add a few more industry data points and you get a better picture of why new strategies are critical for traditional providers and suppliers:  The Internet OTT communications market will be worth $53.7B and serve 2.1B smartphone users by 2017.1  Nearly 50% of global calls will be VoIP enabled by 2017, and up to 80% of the 1.07B users will be served by OTT players.2  In 2012, more messages were delivered via OTT apps than over SMS ; by 2016, that difference will be a factor of 4 to 1.3  Skype already delivers almost 34% of international voice and video traffic.4

Survival in a Shifting Market Internet OTT providers have created functionality and choice that have disrupted the markets and served as a “wake up” call for carriers and enterprises alike. Both are having to evolve to become arbiters and consumers of these value-added, cost-effective applications and services. For carriers, their voice and SMS revenues are eroding. They have already embraced fundamental strategy shifts (e.g., moving into content and media), but they need to continue this evolution to keep current customers, attract new ones and drive new revenue streams. The good news is they have advantages over OTT players to work from. They have the wireless infrastructure, with its network- and device-

agnostic services. This asset will require investment to sustain ever-increasing demands, but it has been and will continue to be a key revenue contributor. They also have the phone number, which can be extended to new devices (e.g., PCs, tablets, smartphones) and other networks (Wi-Fi) to harmonize services. Skype, Viber or WhatsApp can’t offer this easily. Carriers can use these advantages to meet immediate customer needs while leveraging standards-based technologies and protocols into new offerings. We are seeing good examples of this paying dividends, as you will read later in this Newsletter.

As a result, we have dedicated this copy of the Newsletter to OTT. We have contributions from a number of the Wesley Clover companies whose technologies are well positioned to help enterprises and carriers take advantage of what is clearly an industry revolution. We have also included opinions from a number of industry experts who were willing to share their valuable perspectives on the subject. I trust you will enjoy the read. Kind Regards, Terry Matthews.

We are also seeing Enterprise OTT services take hold. User applications now tie legacy voice service to newer messaging and video services. Linked to ITdeveloped apps, these services can be offered in minimal time. They can elevate both employee and customer user experiences significantly, as well as help cut costs and/or generate new ways to grow the business. IT departments are using premises and cloud-based OTT services to overcome the security standards, licensing, deployment and client management hurdles in the provisioning of new mobile devices for a BYOD environment.

Where to From Here? Significant changes create significant business opportunity. And as I often say, “grab those opportunities!” What an upheaval in the ICT sector. This is the type of environment in which I thrive! In my view, this is a time when getting business strategies right is critical. For those who get their act together and evolve, the upside could be extreme. For those who stagnate, or get it wrong, well …

1. MobileSquared. 2. TeleGeography, Juniper Networks, Gartner. 3. Jupiter Networks. 4. TeleGeography, Juniper Networks, Gartner.

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WHAT IS OTT, AND WHY IS IT IMPORTANT? From the ubiquitous Wikipedia, Over-the-Top content (OTT) refers to “the delivery of video, audio and other media over the Internet without a multiplesystem operator (MSO) being involved in the control or distribution of the content.” MSOs are further defined as operators of multiple cable or directbroadcast satellite TV systems. Comcast, Time Warner, Rogers, Shaw, Videopole, Cable One, BT, Virgin and many others are the usual names that come to mind for these services, but we know the lines are blurred as Telcos globally have, and continue to, diversify into content ownership and delivery. Wikipedia goes on to say that these providers “may be aware of the contents of the IP packets, but are not responsible for nor able to control the viewing abilities, copyrights, and/or redistribution of the content.” The ISP is responsible only for transporting the IP packets. This is in contrast to the copyright, piracy and other regulations applied to the purchase or rental of video or audio content from ISPs, including pay television, video-on-demand or IPTV video services, such as AT&T U-Verse. OTT content is “content that arrives from a third party”, e.g., parties such as Crackle, Hulu, Netflix, NowTV, MyTV, WhereverTV, WWE Network and a growing number of others today. Similarly, OTT instant messaging services, which work over the Internet instead of the wireless or cellular networks that SMS texts travel on, are provided by third parties as alternatives to services provided by mobile network operators.

In both content and messaging, third parties are evolving and owning the applications in a domain once reserved for traditional providers. Consumers gain access through any of today’s connected devices (smartphones, tablets, gaming consoles, set-top boxes), and the necessary apps are available from on-line stores. Accessible, fast, easy to use.

“Because these apps are so easy to make work,” he says, “they can become viral and build broad fan and user bases quickly. Legacy products may be deeper on features and functions, but the frictionless deployment and ease-of-adoption of most new applications enable rapid market penetration.”

Source: Gartner OTT Segmentation Grid

The companies behind these apps typically use different business models than the traditional suppliers, providing their products free-of-charge or at very low cost. In most cases, they are not encumbered by legacy product migration, old standards compliance, enterprise customer roll-out, and sales channel management. They also have a very different take on things like operating P&L performance, as they deliver shareholder value in new ways. They leverage the availability of the Internet, the portability of mobile devices, and the scalability of the Cloud, often putting no constraints on consumers in terms of getting access to the product.

“As a result”, says Don Smith, General Partner with Wesley Clover, “the majority of OTT success to date has been driven by companies other than the established Service Providers, creating applications that target consumers rather than enterprises.”

“Because these apps are so easy to make work, they can become viral …” - Don Smith, Wesley Clover

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As a result, per Mr. Smith’s point, some are able to build an incredible global following very rapidly. For example, WhatsApp was able to grow to more than 400 million users worldwide in just 4 years — a growth rate nearly 3 times that of Facebook, the company who bought them earlier this year! That success, coupled with fears about Facebook’s own privacy practices, is spurring copy-cats in China and elsewhere to spring up rapidly. And the phenomenon is definitely international. According to Öner Tekin, ICT Development Leader with Netas, a Wesley Clover partner and the largest Telecom and IT manufacturer, integrator and services company in Istanbul, Turkey, “OTT plays a key role in our market today. Interest in mobile communications has increased rapidly everywhere. Since traditional operators didn’t address these needs quickly, OTT companies now own this role.” “OTT offers easy mobile and web services for free, using only data networking. Customers can download an app when they want, try it out easily, and if they decide they don’t like it, just delete it from their client. There’s no more complexity to it than that.”

“It frees users from artificial walled gardens, and ensures they have access to best-of-breed tools ...” - Ben Morris, AirVM Ben Morris, Vice President, Sales with AirVM, a Wesley Clover affiliate company, says, “OTT offers choice and flexibility in services. It frees users from artificial walled gardens and ensures they have access to best-of-breed tools and services on-line.”

Mr. Morris continued, “For example, OTT enables a user in North America to have a local telephone number in the UK. Think how attractive that is to someone doing business overseas, who requires a cost-effective option for promoting their local presence when they’re located thousands of miles away.” Peter Wilenius, Vice President of Business Development for CANARIE Inc., Canada’s Advanced Research and Innovation Network, adds, “OTT represents the ability to leverage existing Telecom infrastructure to support the delivery of value-added new services.”

“It has created an opportunity to democratize the nature of a ’service provider’.” - Peter Wilenius, CANARIE He added, “It has created an opportunity to democratize the nature of a ‘service provider’. The availability of tremendous bandwidth and cloud infrastructure reduces barriers for entirely new providers of services. Those with a good idea and some smarts in application development and marketing can create a successful business based around the traditional service providers’ infrastructure.” Tony Busa, Director of Marketing for Benbria, another Wesley Clover affiliate, sums it up this way, “The real value I see in OTT is the innovation it brings to the edge of the network. Innovations such as enhanced voice service, video communication, presence applications, social chats, location sharing all provide real benefits for consumers and businesses today, from a cost, convenience, flexibility and ‘connectedness’ perspective.”

THE IMPACT FOR TELCOS/SERVICE PROVIDERS On the surface, OTT can appear threatening to telecom and cable companies. Per the data in Terry’s opening remarks, OTT services are expected to continue growing rapidly, displacing services that came before them. And as we noted, the business models behind these services are quite disruptive. Ken Davison, S.V.P., Marketing and Sales for Magor, another Wesley Clover affiliate, puts it this way: “Because many OTT apps are offered for free, they destroy the commercial value of similar products

Significant Market Disruption

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across broad industries. Why would users pay for existing or competing products when they can get these cool new apps, often for little or no charge?!” He added, “This also has the effect of shifting mindshare away from the traditional providers, competing for the consumer relationships they have enjoyed for years.”

Further to this last point, traditionally, carriers have been able to develop strong customer relationships and profit margins by bundling applications together with the access required (e.g., business line bundles, wireless service plans). OTT leverages the one network – the IP Network, or the Internet – where access is decoupled. “Driving ever more traffic to the commoditized Internet will put more pressure on margins for the carriers,” says Jim Davies, CTO with Mitel. “Breaking the previous linkages between application and access removes their control, and increases competition.” Behind all this, the carriers are expected to invest significant capital upgrading and maintaining their networks to support the dramatically increased loads the broadly popular OTT services are creating, plus incur the considerable costs of optimizing things like video traffic.

“And if they fail, these same nontraditional players are stepping in to catch the fall-out ...” - Donovan Jones, CounterPath All hardly seems fair, does it? “And if they fail, these same non-traditional players are stepping in to catch the fall-out,” says Donovan Jones, CEO of Wesley Clover affiliate CounterPath. “Leveraging massively scalable server farms running high-CPU, highRAM COTS platforms, they are forcing a serious rethink of the purpose-built gear carriers have typically thrown at this problem.”

Decisions to Make Inevitably, Telcos and service providers must address OTT in a way that benefits both them and their customers. But how? They could take an aggressive approach, doing what they can to block OTT content or services from their networks entirely. While this could contain costs by eliminating or at least delaying the need for increased infrastructure investment to support those

services, and in theory, it could help preserve customer loyalty for their own services, the reverse is actually true. Those who have tried this approach have suffered loss of revenue and brand value thanks to media scrutiny and customer backlash. “Value is definitely shifting from physical infrastructure to services delivered” says Peter Wilenius with CANARIE. “Legacy voice and data/ISP services are no longer where the value is. It’s now all about what rides on top. Incumbents will need to create relationships with new players or invest in or acquire their own apps to drive this value.” These thoughts are echoed by Öner Tekin with Netas in Turkey. “The biggest risk I see for service providers is becoming just a dumby pipeline. It will only become harder to keep up if their portfolios include only voice, SMS and data. They need new services, value added services, delivered through mobile devices and web clients.”

“The biggest risk … is becoming just a dumby pipeline.” - Öner Tekin, Netas To achieve this, they could charge a premium for OTT services (e.g., offering VoIP services with premium data plans only). On the positive side, it could be argued this would:  discourage use of OTT services and make the incumbents’ own services more enticing.  generate new revenue and balance profit margins by charging objectively for customer data usage.  delay network saturation and slow down SMS and voice service substitution. Unfortunately, this is just as likely to cause customer dissatisfaction, as they will not like having to buy a more costly data package just to use the latest, viral, cost-saving VoIP and OTT messaging apps. They will smell protectionism and a money grab. OK, incumbents could be more ‘accommodating’, using a strategy that takes advantage of measures such as traffic management, throttling and optimization to moderate the impact of OTT services, especially those requiring high bandwidth. Once again, this would reduce strain on the network and delay the need for infrastructure upgrades. And it would provide revenue up-lift to ease losses from services being substituted by third parties. A big risk with this strategy, however, is regulators who, in a number of countries, have frowned on the

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use of traffic manipulation in this way. The popular concept of “Net Neutrality” and equal access/service for all was meant specifically to deter such moves. In the U.S., it looks like this battle is far from over. In January of this year, carriers including Comcast and Verizon succeeded in convincing a US appeals court to void the existing FCC net-neutrality regulations that ban “internet fast lanes” (accompanied by increased fees), putting the whole issue back under public and government review. While this would open the door for bandwidthhungry app providers (e.g., video and movie providers like Netflix) to pay more for added broadband to support their services, a real worry over ‘contrived congestion’ has been tabled. Interestingly, Netflix could be accused of hedging its bets on this one. It has already moved to sign deals with three large US Service Providers to ensure its customers get the speed they need to fully exploit their on-line video service. But they are also lobbying hard in favour of net neutrality, saying in an extensive report that the proposed new rules would create an Internet “characterized by legalized discrimination” and “gamesmanship.” They go further, calling out several carriers for already slowing their customers’ video streams. “Allowing ISPs (read: carriers) to monetize congestion will likely create more congestion, threatening the current model that has made the Internet so successful,” their submission states. Big OTT provider versus big Telcos - we will all be watching with interest as this one unfolds. New regulations may be brought forward over time, but to date, attempts at significant restrictions around OTT have only happened in places like China or Turkey (with You Tube and Twitter), and these much-publicized moves led to nasty resistance within those countries and critical scrutiny beyond.

… these much publicized moves led to nasty resistance within those countries and critical scrutiny beyond. Another strategy Telcos and service providers could respond to OTT with is the creation of their own competing services, developed in-house, obtained through partnerships and private labelling, or added through acquisition. The benefits would be continued ownership of the customer relationships, generation of incremental

revenue streams and a platform from which to expand into new markets. The challenges, on the other hand, include the fact that many providers lack the development resources and skills to design and deploy such applications. Also, as we have established, the ROI on these apps is often unclear for the Telco, because the market models are very different, and that can make the business case difficult.

“End users won’t wait 6 — 9 months or pay very much for a service.” - Öner Tekin, Netas As Tekin puts it, “Unfortunately, integrating valueadded services with the operator is slow and costly. End users won’t wait 6 — 9 months or pay very much for a service. Price performance and time-tomarket are key in the face of today’s competition.” Lastly, there’s the collaborative strategy, where Telcos and service providers partner with OTT players in mutually-beneficial working relationships. Telcos leverage their core competencies (network and network control, distribution channel and marketing, existing customer relationships, customer support) to add value to the partners' services. The result is a sharing of customers and revenues. “The benefits of this model”, says Davison, “are the acquisition of new customers attracted by the OTT brand, and the generation of new revenue. The risks? The OTT brand is the consumer-facing brand. Customers may identify with and develop a loyalty to that OTT player anyway.”

“Customers may identify with and develop a loyalty to that OTT player anyway.” - Ken Davison, Magor But, as much as many carriers have focused on “eating each other’s lunch”, so to speak (i.e., cable companies launching voice services, Telcos acquiring TV services), they now share the OTT challenge. Those earlier shifts in strategy have hopefully provided experience in partnering and diversification which should enable them to move forward again.

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The Mobile Revolution Continues We can’t discuss OTT without tabling a key enabler, and that is the unending adoption of smartphones. OTT growth is intimately linked to the dramatic penetration of these devices — devices that barely existed just 10 years ago. It is a little like the proverbial chicken and egg scenario, as smartphones and OTT leverage each other’s value equally. Smartphones are the easiest, most immediate way to reach OTT services today, literally delivering them to the palm of your hand. That makes them musthave devices, and undeniably drives the rush toward mobility.

Not surprisingly, the trend is being led by young households — the same people behind the OTT wave. In 2011, about 2/3 of households ran by people aged 15 to 29 relied on cellphones only, compared with 28% for the broader population.

Just Text Me Clearly, smartphone adoption is a catalyst behind this industry transformation. The proliferation of mobile messaging services is also playing a key role. And the largest new players are only getting larger. Apple's proprietary iMessage service long-since surpassed the 2 billion messages-per-day mark, and we have already mentioned WhatsApp and its growing user base. Smaller mobile messaging services geared toward younger audiences, like MessageMe and Snapchat, also enjoy significant popularity. The next steps for these OTT players is to effectively monetize their products, be it by embracing advertising or through paid premium services and subscriptions. It is worth noting the primary software for all those smartphones comes from Apple and Google, who also have the largest App Stores and aim to be present in every aspect of our lives. Given that OTT services are delivered to us as Apps from an App store, both Apple and Google will likely profit from the move to monetize OTT services.

According to a Census Bureau report last fall, about one-third of U.S. households have now abandoned landline telephones. Less than 71% of households had landlines in 2011, down considerably from more than 96% in 1998, the first year of the survey. Conversely, cellphone ownership reached 89% in 2011, up from about 36% 15 years ago.

This is affecting Telcos and cable companies alike. Not only are they now competing with each other in the field of content delivery, but newer players like Netflix, YouTube and many others are now a shared threat. As an example, Amazon Prime is a recentlyintroduced, full-service TV streaming network. No longer just a book store …

Revolution or Evolution Couple this ongoing proliferation of mobile devices and new Messaging offers with the incredible volumes of content now available from Apple, Amazon, Google, Microsoft, Netflix, YouTube and many others, and it is understandable why carriers are challenged to support huge new bandwidth demands, particularly for video streaming, while not participating in the monetizing of third party OTT services either directly or indirectly. “But remember,” points out Ben Morris with AirVM, “the core business of any Telco remains connectivity. As long as they keep delivering that key value very well, they can focus on their OTT strategy. But they can’t take their eye off that ball. They still face real risk in terms of continuing to provide evergreater bandwidth at cost-effective rates.”

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So how are they actually doing? The reality is, while Telcos continue to make considerable investments in their infrastructure to maintain service quality and attract/retain customers, the increased usage by those same customers is leading to new bundling opportunities and revenue streams (take Comcast, for example).

“… 14 consecutive quarters of yearover-year ARPU growth ...” - Joe Natale, Telus Also, instead of declining, a key metric called Average Revenue Per User, or ARPU, has actually been increasing in the face of this upheaval. For example, Joe Natale, President and CEO of Telus, stated on their Q1 2014 earnings call, "Our industry-leading churn and 14 consecutive quarters of year-over-year ARPU growth support continued leadership in lifetime revenue per subscriber, up again this quarter to more than $4,400, the highest first-quarter result in seven years and 20% better than our peers." In terms of some of those peers, Verizon in the U.S. reported an 11% year-over-year increase in ARPU as part of their 5th consecutive quarter of double-digit operating income and earnings growth in their Q1/14 earnings call. The bigger picture is even more telling, as shown in the following chart from Bell Canada:

While wireline voice revenues do show an expected decline, overall revenue has grown significantly over the last 5 years. Of note, wireless revenue has grown both as a percentage and in terms of total contribution, from approximately $4.5B to $5.75B. “A growth of almost 30%, all while OTT services were displacing SMS messaging, for example,” says Don Smith with Wesley Clover. The effects of an evolution to content and delivery services are also evident. Media services contributed more than $2.3B in new revenue last year. TV and video streaming grew to 11% of revenues. And Bell is not unique. Recent AT&T data shows TV and video at 9% of revenues. And if they are able to complete their announced acquisition of DirecTV, “content” will become 41% of overall revenues. All these facts raise the question of how threatened the service providers actually feel about OTT, and whether they are not quite happy with the benefits of creating new offerings and service bundles on top of their fat new bandwidth pipes.

OTT plus Smartphones — Beating a Path to an All-IP Network Another positive for the Telcos could also be on the horizon. The trends established above have opened the path this year for the FCC to explore for the first time dropping the circuit-switched landline network in the U.S., in favour of an all-IP Network — the same network technology the OTT players use. This move is being driven by large U.S. Telcos, and far from giving up a competitive advantage, it would actually provide them key economic benefits. Their legacy technologies are ever-more costly to upgrade and maintain, and usage is declining, as shown. The future is mobile and IP, and the sooner investments in current landline networks can be stopped, the better.

Abandoning circuit-switched technology for IP packet switching means no more purpose-built hardware … Abandoning circuit-switched technology for IP packet switching means no more purpose-built hardware. All-IP-based phone services operate on more competitive server farms and off-the-shelf hardware, as the third-party OTT providers exploit. Telcos will be able to save money and leverage bun-

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dles of bandwidth and services. Opportunities for OTT offerings, particularly from the Telcos themselves, will increase.

Quality Service will Remain Key Inevitably, there will be a transition period, and a mix of technologies. Legacy networks, Mesh Networks, mobile traffic being handed off to Wi-Fi networks or small cells/femtocells — they will coexist for a time. And through it all, the need to maintain service quality will remain paramount. Hunter Macdonald is President and CEO of Tutela Technologies, a Wesley Clover affiliate firm focused on exactly that — carrier network quality monitoring, but with the unique benefit of ‘crowd-sourcing’ and presenting back the user-experience.

“Wi-Fi, 2G, 3G, 4G/LTE, even competitors’ networks — we don’t care.” - Hunter Macdonald, Tutela Technologies “OTT network monitoring solutions benefit the service providers because they are network agnostic” says Hunter. “Beyond the value of reflecting the user’s perspective on quality, Tutela’s software can be used to monitor any network technology. Wi-Fi, 2G, 3G, 4G/LTE, even competitors’ networks — we don’t care. This is unique, and especially appealing today for service providers who do not want to, or are unable to, introduce additional complexity to their network back-ends.”

This service gives customers a new ’single number’ for use with their PC, tablet and smartphone, providing traditional voice and texting features and also enabling new services like converged inbox or video communication. The service creates clear differentiation for users as well as the carrier. Visit www.counterpath.com to take a closer look. While on their site, notice also the press release announcing their recent patent for enabling service providers to “offer OTT communications with trusted mobile-based user authentication, simplifying mobile services over non-mobile devices”. This development makes it easier for people to use softphone client applications on any device, any platform and over any network, by eliminating the need for other non-mobile-centric authentication technologies. In moves similar to the Rogers One Number, intended to win market share from OTT providers as well as differentiate themselves from other Telcos, the large Spanish broadband and telecom provider Telefónica successfully introduced their TuGo OTT service. And in France, the Libon app was recently launched by Orange. Early results suggest this new service has reduced Apple FaceTime app usage by 22%, Skype use by 10% and Tango Telecom app use by 56%! It is truly a global arms race. In a current report by Infonetics Research, “Japan-based Line has now topped Skype as the market leader in the very dynamic over-the-top mobile VoIP (mVoIP) market, capturing roughly 25% of worldwide active users in 2013.” The report suggests, “Line has been able to successfully think outside the traditional voice box, offering paid services through application add-ons like games and stickers that not only create a revenue stream, but also increase usage of core services.”

Similarly, Martello Technologies (another Wesley Clover affiliate) provides network fault and performance management software as a service (SaaS). OTT, helping better monitor and manage Unified Communications (UC) and prevent downtime by detecting issues before they can cause a problem. These are just two examples of OTT apps that have been designed to help service providers manage their risks and continue to compete effectively in this brave new world.

Further Signs of Success We are also seeing examples emerge of Telco success with their own OTT applications. A strong one comes from Canada, where CounterPath partnered with the largest Canadian mobile operator, Rogers, to launch their One Number OTT service.

The OTT mVoIP and VoLTE markets are some of the latest to emerge, and provide an interesting snapshot into the dynamics of the overall industry:  In 2013, there were already 1.5 billion mVoIP subscribers worldwide, most via OTT apps.

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The use of mVoIP is skyrocketing in China, South Korea, Japan, India and Indonesia in particular.  There were 12 million VoLTE subscribers worldwide in 2013, mostly in South Korea.  By the end of 2014, Infonetics expects an additional 30 commercial VoLTE networks to launch and VoLTE subscribers to increase to 51 million.  Despite a 12% 2013–2018 CAGR for mVoIP service revenue, most providers in this space are making limited money per user — an unsustainable model for many independent companies. 

That said, for Telcos to have success, they need to think as Line did, packaging offerings outside the traditional voice-service envelope. And because their own services are shifting to an OTT environment as well, they have the opportunity to reduce their own cost bases as part of that evolution.

“No one is giving up their phone for WhatsApp ...” - Owen Matthews, Alacrity Foundation Importantly, “No one is giving up their phone for WhatsApp,” comments Owen Matthews, Chairman of the Alacrity Foundation, a Wesley Clover entrepreneurial partnership. “They may stop using SMS, but the phone company will still be getting $100.00 per month from them.

WhatsApp will be lucky to get $5.00 a year! Skype is lucky to get 3% of their users to pay anything. It’s not all doom-and-gloom.”

In Summary In summary, some carriers have introduced their own OTT apps. Others are gravitating toward partnerships with OTT providers, and many are leaning toward charging for data instead of SMS and voice packages. These are positive signs. And they must continue. As Tekin notes, “For a long time, Apple refused to support a number of popular services on their iPhones and tablets. This caused their end-users to do a ‘jailbreak’ to get at those features. Even Apple realized they had to change some of those strategies, and you know the customer loyalty they have gained today.” “If Telcos do not address the needs of their end customers quickly enough, those customers will get what they want from OTT players. End-users have alternatives today, and they will use them.” “Telcos and service providers do have to walk a bit of a fine line”, adds Mr. Smith, “in that it is hard to maintain a good customer relationship, let alone a revenue stream, when someone else offers an easily accessible capability for free! It’s likely better to make their money in other ways, and not be seen to be inhibiting the progress of OTT. And so far, those ‘other ways’ suggest to me that they don't seem to be suffering too much from OTT!”

THE ENTERPRISE AND OTT — THE CHANGING FACE OF OFFICE COMMUNICATIONS Enterprise OTT is about valueadded services and apps that are changing the expectations, even the demands, of users within an enterprise environment. In other words, it is what workers are coming to expect from the companies that employ them. Employees are increasingly sophisticated end users. They now view their smartphone or Tablet as a multi-purpose device built for work and play, regardless of the device type, phone number or physical location. They want all apps and services to provide ‘consumer’ features — ease of

installation and use ; untethered voice, video, messaging, content access ; little need for back-end support. “Users have benefited from OTT in their personal lives for some time now,” comments Öner Tekin. “They enjoy messaging or chatting via social media, sharing pictures and videos, using free calling services. They don’t see why that must change at work.” Ben Morris adds, “Enterprise communications is changing, driven by what people deem to be the easiest and most effective

ways to exchange ideas and information and actions. Today, for many employees, this includes not just phone and email, but also text messaging and embedded video clients.” While Skype comes quickly to mind with this last point, Magor has taken the concept of advanced enterprise communications and collaboration to another level, combining video, voice and messaging services and offering the ability to integrate Skype users into hybrid environments that include those inevitable external parties.

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As a result of all these new business drivers, “CIOs and enterprise IT teams are in the cross hairs,” says CounterPath’s Jones. “They are having to rethink policies around standards and security and compatibility and face the new realities of BYOD (Bring Your Own Device) and MDM (Mobile Device Management).”

“It amounts to the ‘consumerization’ of IT ...”

Particularly as enterprises embrace flexible work forces, workfrom-home staff, remote employees, teleworkers. No big iron in a wiring closet means all the enterprise features are available with full mobility. Even two-way radio is going OTT in terms of its messaging functions, situation alarms and 4-digit PBX dialing. Check out another one of our affiliates, Teldio, and their focus on Motorola radio technologies for more information (www.teldio.com). One more point before we move on from our stressed IT friends: OTT will also have the spill-over effect of further changing the role of IT within the enterprise.

- Donovan Jones, CounterPath SaaS/cloud-based applications from companies including Google, Amazon and many others are becoming the new kings. Even though many of these services operate in a “silo-ed” fashion (no interconnectivity), they have become comfortable to, if not expected by, users based on their success in the consumer domain.

Traditionally, IT was the gatekeeper of all enterprise applications due to the broad ‘solution approach’ that was usually taken. Because they ultimately ‘owned’ the solution, IT helped select, implement and support all the software, devices, servers, networks, storage, etc. required to address the users’ needs.

“It amounts to the ‘consumerization’ of IT — and many enterprises are struggling to adapt as fast as their employee expectations are evolving,” added Jones. IT teams are now under pressure to offer those same services to employees, for example, tied to a corporate PBX.

With OTT, the same value can be delivered with a lot less complexity, infrastructure and cost, meaning the key decision maker in the process can change. As Davies points out, “The success of SalesForce.com had as much to do with being able to change the decision maker for a CRM purchase to the VP of Sales instead of IT, as it did with any great new functionality or price point.”

Fortunately, enterprise OTT players recognize this. They design their Cloud-based services so that there is never a need to adjust or change the corporate infrastructure (e.g., data center, LAN/WAN, Firewall, directory, etc.). Mitel is a great example. As Jim Davies puts it, “OTT changes the economics for an enterprise, enabling practical solution delivery for ‘communities’ of their users instead of requiring a horizontal solution to underwrite costs. Taking the traditional PBX into the Cloud as we now do provides far more flexibility around enterprise voice, video and chat features.”

Let’s look at some other vertical enterprise examples. Customer service centers are not inbound call centers anymore. OTT services enable you to see your customers experience problems, and work with them to hash them out on the web.

“… the cross-platform compatibility issues are dealt with in advance.” - Peter Wilenius, CANARIE

“I was impressed in the uptake of Office 365 for iPad,” says Peter Wilenius. “Something like 12 million subscriptions in the first week. Why would enterprise customers go this route? It’s a Cloudpowered business app that streamlines the process of supporting existing staff, adding new ones, etc. And in this case, all the cross-platform compatibility issues are dealt with in advance.” For Benbria, Enterprise OTT represents the opportunity to better connect businesses with existing and potential customers in the key user experience moment.

“The customer and the enterprise both benefit ...” - Tony Busa, Benbria “Benbria leverages OTT for mobile customer engagement,” says Tony Busa. “Consumers connect with vendors in real-time through their mobile phones or tablets. Not to make a purchase, but to interact about the product or service they might or did purchase. The customer and the enterprise both benefit.”

A study by Google revealed that 84% of smartphone users today use their mobile device and apprelated services for shopping. Other studies show this same high level of consumer mobile/ social usage when dining at a restaurant or staying at a hotel. Successful businesses recognize the connection between customer engagement and top-line success, and they want to capitalize on this cultural shift to connect with these mobile consumers. OTT enables that. “Mobile engagement gives retailers the opportunity to connect shoppers with associates, establish a real-time dialogue and address any questions or concerns

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before they leave the store,” says Busa. “Similarly, it gives front-line hotel staff the ability to enhance the guest experience, improve satisfaction and foster positive online reviews by acting on guests’ requests on the spot.”

They can alert staff to any issues and enable them to make changes to improve the experience. All these examples of OTT apps that are designed to improve customer relationships and drive enterprise revenue.”

“Restaurants too can offer diners a low-risk, non-confrontational means of sharing feedback as their dining experience unfolds.

In summary, OTT provides enterprises with more choice of services. They are no longer limited to those offered by an incumbent

service provider. They have the ability to leverage cloud services that create significant benefit in terms of scale, agility and economics (including pay-per-use). These services reduce investments in internal infrastructure, operating costs, support staff, and more. We think we can assume they are here to stay.

UNDERSTANDING RECENT ACQUISITIONS AND THEIR VALUATIONS Why are companies like WhatsApp, Viber and others commanding so much money in the investment and mergers markets? Well, we called out most of the key points above, but to summarize, it comes down to the fact that OTT users are creating the largest communication networks (not infrastructure in this sense, but ‘communities’) the world has ever seen. “Take a look at how quickly companies like Netflix, SalesForce, Dropbox or WhatsApp, for example, have been able to build massive customer bases,” says Peter Wilenius with CANARIE. “We are talking

“… the potential … to create long-term value through customer ‘stickiness’.” - Peter Wilenius, CANARIE millions of users, in relatively short time frames and with pretty small teams. It’s difficult to assess how sustainable all these guys are, but I believe the valuations speak to how the markets view the potential of their platforms to create long-term value through customer ‘stickiness’.”

“Most of these valuations are hyped to an incredible degree.” - Jim Davies, Mitel Jim Davies with Mitel has a similar, if not slightly more cynical, take. “Most of these valuations are hyped to an incredible degree. The only justification I can see for paying such dramatic premiums is the fear of missing out on a transition that is just so large. I expect there will be a great deal of consolidation between now and when the markets settle.” The teams at Wesley Clover pay great attention to the OTT evolution and participate in the areas of most interest and opportunity. We have many companies that are playing either directly in, or at least on the edges of, this OTT market. We are not in it for the quick kill, like some, but we are confident our strategies and our model are sound. As Owen Matthews with the Alacrity Foundation puts it, “We are and will continue to position our technologies against emerging opportunities in this valuable space.”

INTERESTING TRENDS AND DEVELOPMENTS While we can’t say with certainty where this OTT stuff will all end up, Ben Morris with AirVM suggests the following likely scenario. “I believe the trend to adopt consumer-type applications (e.g., Skype) within the enterprise will only continue, further blurring the lines between business and consumer tools. In time, it’s possible there will be no real distinction between these two segments at all.”

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Öner Tekin with Netas adds, “At one point, service providers will be able to offer high-quality Enterprise OTT applications of their own. These will be accessible from any device, anywhere, and will be carrier-independent. Small- and large-scale organizations will embrace them for their functionality and their cost savings.” He continues, “Mobile payment systems, messaging, streaming services are all improving rapidly. Service providers are looking at how to compete by providing some of these at low cost or even free, including cloud data or TV services.”

“Small- and large-scale organizations will embrace them for their functionality and their cost savings.”

- Öner Tekin, Netas In the unified communications space, two things come to mind for Jim Davies with Mitel:  WebRTC, which will enable voice and video communication from within a web browser without the requirement for a plug-in. “This will make soft communication clients far more practical to deploy,” says Davies. “More importantly, it will allow context to be included to drive richer communication experiences. For example, ‘click-to-talk’ features will marry-in the web page context so the person being contacted will know what website page the call was made from (e.g., currently looking at your page for alpine backpacks).”  LTE and the Internet of Things (IoT). “It is possible that LTE and IoT will successfully decouple mobile access from mobile applications. For example, by running all voice traffic over LTE (VoLTE). Today’s ubiquitous Cloud technologies were the result of asking the question, ‘Why are you running your own datacenter, in this case, when there are companies who are focused on nothing but doing that?’. We can and should virtualize all that stuff. In a similar way, LTE and IoT may enable the question, ‘Why are you running your own WAN/LAN, when you can let AT&T Mobile, perhaps, be your network?’ Time will tell …” All over the globe, we are seeing an industry in flux. For example, in the UK, British Telecom now offers free entertainment products with their broadband service. A carrier competing with the likes of Rupert Murdoch and his news conglomerate …

“Personally, I think OTT could create opportunities for a revitalization of the Canadian ICT industry.” - Peter Wilenius, CANARIE

From a nationalistic perspective, Peter Wilenius with CANARIE comments, “Personally, I think OTT could create opportunities for a revitalization of the Canadian ICT industry. We have always been able to develop great products, but unfortunately there are examples where we have not been that good at building global businesses. In OTT, there is a new opportunity to leverage the technology infrastructure that is already in place to create more high-growth businesses and reassert some of Canada’s elevated position.”

“We already see a lot of interest from the university CIO and research communities, who recognize an opportunity for a new generation of services that enable global collaboration with their peers, or provide better services to their stakeholders (i.e., their students). All while they face budget compression and the need to do more with less. For example, the Net+ initiative has already been spearheaded by our US counterpart (Internet 2). They’re creating a bundle of OTT services for their members in the research and education community in the US, and are looking to globalize it through relationships with other NRENs around the world.” We have to agree with Peter’s first comments. OTT has changed the way businesses and consumers all over the world communicate. As smartphone and application use only continue to increase, so do the opportunities to provide enhanced new services and products to further enable this global trend. Wesley Clover is committed to doing its part, as we continue to evolve in the world of ICT. 12TH ANNUAL LUMIÈRE CHARITY GALA THURSDAY, SEPTEMBER 25TH, 2014 ALL WITH A SPLASH OF RED. IN SUPPORT OF

OTTAWA CANCER FOUNDATION WWW.BROOKSTREET.COM/LUMIERE

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WESLEY CLOVER PARKS IS LAUNCHED As an initiative under the Wesley Clover charitable Foundation, this spring saw the launch of Wesley Clover Parks – an Ottawa community hub for outdoor education and recreation.

Leasing an existing city equestrian facility, the multi-year vision is to continue the focus on equestrianism, expand those activities and grow beyond to serve a much larger community, with activities ranging from outdoor sports and education, to arts, culture and sustainable agriculture. Visit www.wesleycloverparks.com for more ...

INTRODUCING “L-SPARK” This summer, together with key government, education and industry partners, Wesley Clover is introducing a unique new ‘incubator and accelerator’ program to better-enable entrepreneurs focused on innovative new enterprise software products to found, fund and grow their new businesses. Watch for more details as we announce them ...

Wesley Clover News is published by Wesley Clover International Corporation. For more information on this publication, please send an email to [email protected]. We recognize the following individuals for their valuable contributions to this issue of Wesley Clover News: Don Smith, Wesley Clover International Öner Tekin, Netas (www.netas.com.tr/en) Ben Morris, AirVM (www.arivm,com) Peter Wilenius, CANARIE (www.canarie.ca) Tony Busa, Benbria (www.benbria.com)

THE PASSING OF A DEAR COLLEAGUE

Ken Davison, Magor (www.magorcorp.com) Jim Davies, Mitel (www.mitel.com)

It is with regret that we end this issue with a tribute to Simon Gwatkin. Simon helped start Wesley Clover News and managed the publication since the beginning. He was a long-time, senior member of the Wesley Clover team, and he lost his battle with illness in April of this year. Simon continued to perform duties until his final month. What a great team member, and what a loss! He was a bright and creative executive, invariably cheerful with all.

Donovan Jones, CounterPath (www.counterpath.com) Hunter Macdonald, Tutela (www.tutelatechnologies.com) Owen Matthews, Alacrity (www.alacrityfoundation.com)

Managing Editors: Steve Langford, Terry Matthews Corporate: Wesley Clover International Corporation | 390 March Road, Suite 110, Kanata, ON, K2K 0G7, Canada | +1.613.271.6305 United States: Wesley Clover International Corporation | 3800 Concorde Parkway, Suite 1500, Chantilly, VA, 20151, U.S.A. | +1.703.318.4355

Simon is missed by his family, his friends, and those he worked with, including the many professionals in marketing, analysis and partner roles around the world whose paths he crossed. He fought hard and passed too early, surrounded by those who loved him.

Europe: Wesley Clover International Corporation | The Manor House, Newport, South Wales, NP18 1HQ, United Kingdom | +44.0.1633.410383 www.wesleyclover.com Copyright © 2014, Wesley Clover International. This document is provided for information purposes only. The information it contains is believed to be accurate as of the date of publication and is subject to change without notice. Wesley Clover assumes no responsibility for errors or omissions. All trademarks are the property of their respective owners.

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