Open network APIs are arguably the most publicized alternative business model to the traditional voice, SMS and data operator offering. Network APIs are enablers for a variety of business models, including operator branded application stores, two sided business models, web mashups and developer communities. However, as Tier One operators continue to announce API initiatives, there is confusion in the market regarding their revenue potential and whether operators should deviate from the traditional voice or bit pipe paradigm to become smart pipes and third party service enablers.

The largest revenue potential is offered by the two sided business model, where operators charge subscribers for access and third party service providers for APIs. Pioneers in this segment include Telenor and Orange. In 2008, Informa estimates that Telenor recorded revenues of US$126 million from its Content Provider Access (CPA) initiative, which represented 6% of its mobile revenues in Norway. CPA revenues result from API access charges and revenue share agreements with content providers in Norway. These revenues equate to an effective ARPU of US$43 per year or $3.6 per month.

Orange has an extensive API offering and is targeting enterprise customers among others. For example, Orange APIs have enabled Pharmagest, a large pharmaceutical company to offer messaging services to pharmacies throughout France. The Contact Everyone API allows messaging between pharmacies and their customers. Other applications include a taxi service and various social networking utilities that use SMS, location and other APIs. The Contact Everyone API requires a €500 activation fee, a €50 monthly subscription fee and volume charges of €0.10 per SMS sent in France and UK. Informa estimates that Orange generates significantly less revenues than Telenor due to its business orientation. Lower API access charges and commitment to individual developers mean that Orange is investing on its future and the long tail of commercial applications rather to partner with a select few content providers. Informa expects that revenues from Orange Partner are used for infrastructure and to plan events for developers while Orange expects its Partner business segment to generate incremental revenues but not adhere to strict and aggressive revenue targets.

The second business model is exposing APIs to attract individual developers, who are presented with a route to market for their applications and access to billing, messaging and location APIs. Telefonica’s O2 and Orange have created app stores that utilize APIs to deliver rich downloadable applications that can be delivered through the operator portal, potentially reaching millions of subscribers. Developers are now starting to embrace operator initiatives, as the latter are starting to become developer friendly – contrary to earlier schemes that required developers to familiarize with complicated telecoms-grade protocols.

Further business models include web mashups, where web developers can combine web services with telecoms functionality to embed voice, SMS or location to existing applications, including enabling communications for social networks. Operators agree that although monetizing mashups may not be a driver, the additional traffic generated by mashups may incrementally add to existing revenues.

Telenor’s success illustrates attainable profits if a mobile operator is committed to APIs in the long term. However, replicating Telenor’s success currently would be difficult as several operators have chosen alternative routes to partner with content providers. As with Orange, the majority of mobile operators that have recently entered the API business will find out that long term benefits will be more lucrative rather than short term revenues but in the short term, they must commit in effort and infrastructure expenditure.


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