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Telcos vs. OTT: addition, not subtraction

Telco Vs OTT

CSPs continue to struggle against OTT services, who are growing rapidly on the back of telco infrastructure. Are they an existential threat, or is there common ground to be had?

Since the early days of Skype, WhatsApp and Netflix, telcos have had to get accustomed to so-called “OTT” service providers using their networks and commoditising their services. They may not have liked it, but this has become the reality for most incumbent telcos across the world.

In fact, many of the most popular OTT applications are simply alternative formats of services already provided by CSPs, but offering customers on-demand access at much lower costs, and without the lengthy contracts.

Despite relying on the infrastructure and connectivity provided by CSPs to connect with their customers, these services are biting the hand that feeds, eating up vast chunks of telecom bandwidth. Instant messaging services have greatly diminished the income from voice and texts, while video streaming has dealt a blow to cable and satellite TV subscriptions.

A consequence of the growth in OTT services is the enormous increase in data traffic, putting greater strain on the networks overall. In turn, these networks must be continuously upgraded in order to maintain the quality of the end-user experience.

While video conferencing apps and streaming platforms have benefitted greatly from enforced social distancing, at the same time, telcos report a state of “managed decline” as many customers have found themselves confined to their homes, effectively sinking revenues from roaming data.

Meanwhile, OTT revenues are increasing as traditional TV continues to haemorrhage subscribers and the revenue they bring in – though cable and satellite revenues will remain over double that of their streaming rivals into 2022, by 2024, the spend on OTT services in the US is set to overtake that of its forebearer.

And this trend is unlikely to change, with remote work and on-demand services accelerating the changes in consumer habits that were driving this shift in the balance. With the pandemic still raging on in some corners of the world, and the long-term economic impact of mass disruption still yet to truly hit, CSPs must consider how they can adapt to new circumstances rather than trying to bring back business-as-usual.

Should they resign themselves to obsolescence? Not when they own the infrastructure that powers OTT services. CSPs are more than equipped to reassert their importance within the data services hierarchy – it’s only a question of how best to do it.

To regain their competitive edge, there are various strategies that telcos should consider adopting to protect their revenues, including:
 

Subscription bundling

For telcos, OTT can be a case of “addition, not subtraction”, taking advantage of established offerings by bundling them with their traditional packages, much as they are already doing with customer CCAPS bundles.

Back in 2013, when the debate over OTT services was heating up, Spotify’s head of telco partnerships said that the two didn’t have to be enemies. Now, more and more CSPs are partnering with existing OTT players to offer one or more subscription deals with their phone and TV plans.

Despite the market for pay-TV services declining overall in the developed world, the market is expected to grow across the APAC region, reaching 630 million customers by 2026, with endless possibilities for further OTT bundles to go along with.

These services may be rolled up in a premium monthly plan, or charged to the telecoms bill as an optional add-on – one less transaction for customers to worry about.

CSPs can go one step further by becoming content aggregators, a panacea for subscription fatigue offering customers access to multiple competing OTT services from a single device or platform. For example, BT’s TV service is transforming into a content aggregating platform, allowing customers to access content from Netflix, Amazon, and even pay-TV rival Sky.
 

Offer in-house digital services

Telcos need new ways with which they can develop more engaged relationships with their subscribers – a far easier task to accomplish with an endless serving of lavish, bingeable series than just a generous text message allowance.

In fact, Telefónica has seen the growth in its OTT services offset the decline in its pay TV revenues, while AT&T has been aggressively expanding its HBO Max service into a fully-fledged streaming competitor, growing in the first quarter of 2021 at a rate faster than Netflix.

A different approach can be seen from BT, who recently announced that it was looking to divest a stake in BT Sport in order to focus on its core telecoms services; remaining in the market for premium sports while focusing on its 5G and fibre broadband network – and freeing up some vital funds to do so.

Meanwhile, Verizon has decided to sell its Verizon Media wing, which includes former dot-com heavyweights AOL and Yahoo. The move came after years of loss-making attempts at diversifying its service offerings, including the bungled purchase of social blogging site Tumblr, and the ill-fated Yahoo Screen streaming platform.
 

Improving existing infrastructure

The future of CSPs lies in 5G, as data overtakes voice and messaging to become the engine of growth for the telco industry. To remain competitive and protect their revenues while driving further growth, investment in infrastructure is of paramount importance.

By doing so, CSPs can offer greater bandwidth and lower latency services to consumers by investing in their aging networks and boosting their capabilities, such as offering enhanced video and voice chat at a time when demand has never been higher; Zoom has seen a surge in popularity, with its usage leaping from 10 million to over 200 million in the early months of 2020, and users seem happy to pay a premium for high-quality output.
Given the delays to rollouts, though, 5G is not expected to generate much in the way of increased revenues in 2021, with its fortunes for the year dependent on the recovery of the rest of the economy.
 
OTT services are themselves going to face increased competition over the coming years – as the recent successes of Zoom, Disney+ and Clubhouse have proven, a disruptor can quickly threaten incumbents, especially in an unpredictable post-pandemic marketplace.

The telecom industry, however, must not forget the unique position that it holds in the market, as the primary provider of the infrastructure on which the digital economy relies and thrives.

About the author

Adam Hughes

Cerillion

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