Categories: Telecom

How do OTT Services Impact Telecom Service Providers?

One of the primary industries that have experienced continuous changes in the business and technologies used in the past 50 years is telecom. This sector has come a long way when we talk about its journey from early voice telephony. The modern-day Telecom Service Providers (TSPs) strive to offer seamless and high-quality data, voice and multimedia services in a multi-device environment.

So, why are we here reading this blog and What’s it all about…

The thing is, though the TSPs had been quick to react to previous game-changing advancements including the internet explosion and mobile devices in the 90s, they seem to have been stalled by the newest challenge to their revenues, Over the top service providers. One can’t deny that there’s a continuous and growing impact of OTT services on telcos’ voice and messaging revenue.

Facts About Impact of OTT on Telco Revenues

Currently, numerous industries are researching the impact of OTT on telecom operators. But there are only a few that have showcased the shift in technology trends & customer preferences.

  • In the report “The Future of Voice”, Spirit DSP studied the impact of OTT VoIP apps on voice calling revenue. As per the report, there has been a decline from $970.4 bn in 2012 to $799.6 bn in 2020 in the global TSP voice revenues. This occurred at a CAGR of 2.4%.
  • As per Informa’s World Cellular Revenue Forecast 2018, global annual SMS revenues have fallen from $120 bn to $96 bn in 2018. The reason behind this was an increase in the adoption of OTT messaging apps.
  • A report by “Consumer OTT VoIP Outlook: 2013 to 2018” by Ovum has highlighted that the OTT VoIP market is growing at a rate of 20%.

What’s the impact of OTT Players on Data Traffic?

We should remember that the impact of Over the top platforms isn’t limited to telcos’ voice and messaging services. Their usage has also led to an exponential increase in the data traffic triggering various congestion problems in the telecom networks.

TSPs are perceiving competition from the Over the top video services; the reason is that OTT players without making any heavy investment utilize the available IP networks. The primary point of concern for TSPs is that the OTT services will take away the value proposition of their VoIP offerings and network operators will be relegated to a dumb pipe.

The impact of Over the top players on telecom networks isn’t just in theory, but one can see it in the financial statements of operators. In a recent study, it can be observed that China mobile (one of the world’s largest operators) has shown a huge decline in its profit. The profits fell by 9.4% due to the increased usage of OTT platforms. Even the messaging traffic declined from 192.7 to 153 billion messages.

Thus, it’s clear that Over the top is seriously impacting the telecom industry, that’s also the reason behind the erosion of billions of dollars from TSPs. If OTT services aren’t dealt with carefully, then there is a high probability of OTT services ending as a dumb pipe. That’s why it’s suggested to the telecom operators to deeply analyse the OTT services and fill the gaps in their services. This needs transformation in the business model of the telecom operators and they should focus more on designing strategies that can help in recognizing changing consumer needs.

So, what’s the solution…

Here are a few ways that experts have laid down to benefit from the presence of OTT in the telecom industry:

Bundling with OTT: TSPs can bundle their services with OTT offerings in such a way that the lure of financial saving using OTT platforms becomes less attractive. For example, now TSPs are trying to earn the base revenue from the consumers by offering them a fixed free number of SMS and then charging data as per the actual usage.

Partnering with OTT: The fact is that operators can’t beat the OTT platforms, thus joining them is a good option. Various TSPs are already in for this strategy and are leveraging by partnering with the OTT players. An example of this can be observed in various cases; it all started when Reliance Industries Limited (RIL) partnered with ALTBalaji under a content-sharing deal in 2018. ALTBalaji had to make all its original shows available on Jio Cinema and Jio TV, allowing the entire Jio audience (160 million then, 280 million now) to enjoy their content. This has become a trend now and other operators are following the path of Jio.

Developing their services: A good option for telecom operators is to introduce their own OTT service. This way they can enjoy complete control over the service and even let them interact with other such initiatives within the telecom fraternity. Though this isn’t the fastest route to market, it allows to own the customer relationship and reach a much wider customer base.    

Conclusion

The TSPs need to accept that their traditional sources of income for them are becoming obsolete. Also, there’s no denying the fact that business models like WhatsApp, Netflix, and Skype are gaining dominance. Their usage is leading to higher data usage and providing new revenue opportunities thereby offsetting the loss due to the decline in messaging and voice revenues to some extent. Both parties can win if they work hand in hand and grab the revenue opportunities that arise.  

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Pallavi Yadav

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