Monday, April 3, 2017

Will OTT services play spoilsport to aspirations of telcos?

Most of us have been using Over-The-Top (OTT) services without actually realizing it. Simply put, OTT is a service used via internet through the telecom networks. For instance, users avail Skype or WhatsApp to make cheaper calls and send messages through the 3G network. Additionally, content platforms such as Netflix, Saavn and Hulu have also gained prominence as OTT applications.

The communication industry has undergone significant transformation, in terms of different types of content subscribers consume. This trend will continue in the future with the emergence of OTT services. Such third party OTT communication services are preferred more than the traditional services offered by telcos. Traditionally, voice and messaging (SMS) have been the principal revenue streams of telecom operators. Consequently, telecom operators see OTT service providers posing a new challenge to their revenues.

OTT services have come a long way. Today, all internet connected devices are capable of installing OTT applications. What started off as a minimal calling application a decade ago has emerged as a multi-communication channel for mobile devices. Given the rapid evolution of OTT applications, backed by deep pockets and scalable innovation, pioneering developers are striving to integrate innovative features.
The promises made by tech giants over the years have started translating into reality. The evolution of futuristic OTT applications is shored up by emerging business models, platform & app diffusion, and consumer behavior.
The contemporary media is witnessing increasing digitization across the globe. With a rise in mobile devices coupled with increasing internet speed, users can exercise the option to consume digital content ‘anytime-anywhere’. Internet continues to be the disruptive force for bridging the gap between digital content and devices. Since the dawn of modern communication facilities, OTT have outpaced traditional telecommunication services. Additionally, app-based communication is shrinking the revenues of telecom operators.
With consumers having a penchant for OTT services, the key players of the telecommunication industry are facing twofold challenges. Firstly, telcos need to power a digital world with a fast, reliable and secure network. Secondly, telecommunication service providers are also required to meet the rising customer demands.
As the global economy is turning digital, it is vital for telcos to reinvent their business models to serve the digital age. However, the telecom operators are yet to adapt to the transformative forces of OTT, which are highly disruptive. IDC Saudi Arabia’s senior research analyst – telecoms & digital media, Tolga Yalcin, said the emergence of OTT has dented the messaging revenues of telcos. “We have seen the primary impact of OTT players on telcos' messaging revenues with the high level substitution of national and international SMS services with instant messaging (IM) applications like Whatsapp and iMessage. In 2015, SMS/MMS revenues decreased by 2% in Saudi Arabia and 5% in UAE and we expect this trend to continue at an accelerating rate.”

According to global research firm Ovum, the Middle Eastern subscription is set to grow dramatically compared to other regional markets over the next few years. The video-on-demand revenues will grow by over 25% annually by 2019, accounting for over 70% of OTT revenues in the region. It is difficult to quantify the market share captured by OTT, though its impact on traditional services such as voice and messaging is significant. It is pertinent to mention that OTT applications have also captured the youth segment that prefers social media over traditional communication methods.

The rapid adoption of smartphones has facilitated free calls and messaging, enabling users to communicate directly via internet. Such a disruptive movement by OTT services is eroding the major revenue streams (calls and messages) of telcos. But are telcos geared up to embrace the disruptive technologies? Disruptive OTT services may pose a threat to the telecommunication industry, but it is also throwing up promising opportunities. The opportunity lies in the convergence between telcos and information technology OTT applications. It also indicates the harmonious coexistence of both network providers and content platforms in the digital ecosystem.
Proactive telecom service providers are able to identify the demanding consumer behavior for on-demand OTT services. Such operators have started collaborating with the key players in the OTT industry. Airtel entered into a partnership with Facebook, while Reliance also collaborated with WhatsApp. Another way for telcos to respond to the Mobile Instant Messaging (MIM) transition of OTT is to create a global standard operator-owned messaging service. Such a step needs a hybrid approach of integrating multimedia features like audio-video content support, and group messaging functionality. Telcos in order to capture a share of MIM revenues, need to adopt a strategy of being an all-inclusive content platform.
As telcos try to tap the potential of digital services, it is imperative for them to identify their assets, differentiators, and adopt strategies for the digital ecosystem. To defend the status of being a network gatekeeper, telecom service providers must also focus on OTT services for interactive content. Capping data usage to access certain interactive content applications can help intensify OTT initiatives. For instance, StarHub of Singapore tied up with famous OTT application WeChat to offer unlimited access to its prepaid subscribers at a minimal cost.

Telcos can power a completely new breed of content platforms. However, a major challenge for telcos is to create a roadmap for disruption. Industry leaders are also perplexed about their organizational flexibility undermining their business models to get the most out of the disruptive technology such as OTT. The entrepreneurial vision, capex requirements and operational complexities of telecom providers are significant factors that should be taken into account, while venturing into digital communication services. For telcos to maintain steady growth, it is important to focus on select OTT services over the short-term and expand their complete suite of services over the long-term.

The digital communication platform remains an open space for telecom providers to innovate with the right business model, and position themselves as future brands. The telcos, who have overcome formidable barriers in the past, will surely have an ‘answer’ for disruptive OTT services and are poised to redefine digital communication setting new benchmarks.

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