Impact of OTT Services on Telco Revenues

OTT applications do not directly contribute to telecommunication operators’ revenue, although they actively use their infrastructure to provide their services. However, the services require data subscription so funds are generated this way.

Many telecom operators are worried by the threat OTT services provide to their own services. Countless OTT applications are designed as alternative formats of existing ‘classic’ communications such as SMS. Subsequently, although there is income coming from the data packages, operators are losing revenue from the decrease in the uptake of their own core services.

In order to manage this impact on voice and message revenue, network providers must adapt to survive.

Impact of OTT Services on Data

The obvious impact of OTT applications for a service provider (as mentioned above) is their alternative offerings that will deter existing and potential customers from standard services. Perhaps more worryingly for network providers, there is also another problem that perhaps has even more of an impact: network data congestion.

As more and more people use OTT services, the data traffic increases, putting an overall strain on the network.

To tackle this problem, service providers have to invest in various technologies in order to maximise and enhance their existing infrastructure, such as small cells and spectrum acquisition.

Why are consumers turning to OTT services?

There are a number of key reasons why consumers are opting for OTT services over traditional methods offered by service providers:

Cost

Many OTT (Over-The-Top) applications provide services similar to those of telecom providers but at much lower costs, and sometimes even for free. Taking messaging apps like WhatsApp for example, they offer consumers a platform to send messages without eating into subscribed text message allowances or using any pre-purchased credit.

Convenience

With easy and convenient access to a plethora of advanced communication applications, technologies and tools, consumers are interacting and sharing more content than ever before.

OTT services have played a big role in the current trend of social sharing, content distribution and instant messaging and now that it is such an intrinsic part of our daily lives. Many people value the convenience of these apps so much that without them they may not use the network at all.

Features

Many OTT applications have features that aren’t provided by core network services. If we take WhatsApp as our example again and compare its features with standard operator SMS included on modern networks, we can see the clear division in consumer needs being delivered.

SMS provides a text format message.

In comparison, WhatsApp provides text format messages, group chat, gif/stickers, photos, videos, audio, location, contact information and ‘walkie-talkie’ services.

What can telecom service providers do?

A large element of dealing with the emergence of OTT services has become reactionary for network providers. But, are there more long-term ways to deal with the issues that are arising for service providers? Can they take back control or will they need to bow to consumer demand?

Several options can be considered:

Partnership

A popular option for network providers is to partner with the OTT provider to mutually benefit from the exposure each platform provides. This strategy enables the operator to keep the traffic and regain a share of the revenues. This tactic can ensure customer retention and adoption; however, it doesn’t give the network provider any control over the OTT application’s QoS (Quality of Service) which could backfire and potentially damage their reputation and customer relationships.

Development of their own services

Network providers can also develop their own OTT services to compete. This would allow full control of the service.

An operator could develop its own in-house team to develop the services or acquire an existing company to provide a faster route to market.

The price is high to take this on and without the required skills in place, it can take a long time to develop the services.

Blocking OTT Services

Possibly the most extreme response to the rise of OTT applications would be blocking them altogether.

It is a short-term strategy that would certainly damage the OTT services revenue through the network service provider’s platform, potentially buying time to develop their own competing service. However, with the wide range of operators out there, it could just result in competing partnerships forming, not to mention taking away revenue through data subscriptions.

Invest to protect

By continuing to build out their networks and adopt new technologies (small cells, spectrum allocation etc), telecom service providers can provide the most competitive platform to deliver OTT services. By investing in their infrastructure and keeping as many of their legacy communications systems operational, they will protect the existing revenues and potentially drive further growth.

Conclusion

Ultimately, OTT services are being driven by consumer demand and consumers are the key to this equation.

The adaptability of network service providers will ultimately determine their longevity in the market.