Have OTTs killed the Telco star?

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Communication Service Providers (CSPs) and Over-The-Top (OTT) players have been in a friend or foe relationship. On one hand, OTTs are triggering higher consumption of CSPs’ mobile and fixed services. On the other, CSPs have suffered a decrease in the uptake of their own core offers. It’s no longer all about minutes and connectivity per se – it’s about digital services and experiences too.

Despite a growing worldwide mobile penetration [1], the average number of text messages exchange has shrunk towards the proliferation of OTT messaging apps and VoIP services, which use the internet to provide their services and deliver content. There is a number of reasons behind consumers’ preference for OTT services over the traditional ones offered by CSPs – namely cost, convenience and value-added features. These are snatching the SMS and Voice revenue that CSPs used to enjoy and are transforming two other quadrants:

• Online traffic jam: The clear impact of OTT applications for CSPs (as mentioned above) are their alternative offerings that are dissuading existing and potential customers from using standard services. Perhaps trickier for CSPs, there is an additional scenario that 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 challenge, CSPs must maximise and enhance their existing infrastructure, or even consider virtualising it.
• Digital is the new normal: Digital is increasingly replacing traditional forms of consumer entertainment. In fact, the content sector is undergoing a significant transformation driven by shifting consumer behaviour, new players and changing content production and distribution models. Content delivery over the Internet is the new channel for video, music and gaming and its consumption (both in average time spent and frequency terms) is growing in most markets around the world, being mobile is a key driver. Simply put, whether cord cutting or cord shaving, OTTs have disrupted TV as we used to know it.

Together we stand

CSPs want to get back on the front row. To benefit from an unprecedented level of content consumption, a growing number of CSPs are entering the content space or strengthening their existing content offerings, through vertical integration, partnerships with OTT video service providers and/or creating content themselves. However, investing in broadcasting comes with a cost, usually calculated in billions.

The way out seems to be firming cross-industry alliances with OTT companies under a revenue share agreement to mutually benefit from the exposure each platform provides, enabling the creation of new revenue streams and capturing subscribers. CSPs privilege from the access to a huge amount of data on users’ consumption behaviour (on which predictive and prescriptive analytics might work), valuable for OTTs to customise their offerings.

CSPs have seen a decrease in revenue growth in their core mobile and fixed markets and are therefore looking for opportunities in adjacent markets. Meanwhile, they are looking to reduce subscriber churn in their core businesses, upselling to existing subscribers and attracting higher ARPU customers.

Additionally, CSPs may invest to protect. That is, by continuing to build out their networks and adopt new technologies, CSPs can provide the most competitive platform to deliver OTT services, inclusively by reaping the opportunities brought by 5G. And by investing in their infrastructure, keeping their legacy communications systems operational (yet cost-efficient) and relying on a more agile cloud architecture, they will protect the existing revenues and potentially drive further growth. At the end of the day, CSPs not only provide their own digital products and services but also the essential connectivity infrastructure that allows other sectors to function and grow in the digital economy.

All in all

OTT services are being driven by consumer demand and consumers rule in this equation. The adaptability of CSPs to this “thinking digital” paradigm will be key in their coexistence with OTTs, evolving to a more flexible business model.

While the odds to reclaim a privileged place regarding B2C customers may not be the best for CSPs, the good news is that they can capture new opportunities in the B2B segment by leveraging their infrastructure advantage and positioning themselves as the backbone of digital ecosystems, especially around IoT, security and Industry 4.0. 

Find out more about how CSPs can reap the B2B opportunity.