OTT and Telcos : A Road Ahead

How many of us send sms today? It seems to be a yesteryear mode of communication between people through mobile phone, gradually and slowly they have been almost completely replaced by applications like whats app, facebook, nimbuzz , hike, skype  etc. and causing revenue loss to telcos of about $32 billion in 2013 which is estimated by analyst group Ovum to go up to $82 billion in 2020. By using these applications people can send messages to each other at virtually no cost using data connection hence completely bypassing the billing system of telecom players and leading to hefty revenue loss to telcos but providing tremendous value to the end users. These applications are provided by OTT(Over The Top) players whose 62% board  members profile are focused on sales, marketing and strategy while just 12% on financial matters while in telcos, 58% board members have legal, financial  or technical background. Hence OTT’s are better innovators and aggressive in terms of marketing strategies and sales and thus have better customer engagement.

Now what are the possible options for telcos to salvage this revenue loss? One being that they can block these OTT players to use their data network , but this step would bring customer criticism as OTT’s are providing high benefits to end users and telcos would lose these customers to the telcos who haven’t blocked OTT’s leading to more revenue loss. More feasible options for telcos would be to look for alternative ways to increase revenue like by hiking data roaming charges or increasing charges of  data usage plans as OTT applications require data network to transmit messages .Another alternative can be to look for having partnerships with OTT players  for providing unlimited access to their data network in return of some fees .According to allot’s mobile trends report 26% operators already have this revenue sharing model in place. If we consider India companies like RCom, Aircel, Airtel, Tata Docomo have already collaborated with players like Whats app, nimbuzz and facebook. Many more operators are to follow the same suit while many telcos are mulling whether they should collaborate or compete with the OTT players as they believe these partnerships wont last long due to difference in opinions between telcos and OTT’s .Those who have decided to compete like Airtel who has recently launched HIKE for Indian customers has imitated service model adopted by OTT’s and has shown promise by increasing their subscribers base to 5 million in just 4 months after its launch making it one of the fastest growing apps globally.

Looking at the success of some players like Airtel who have decided to compete by imitating service model others is also to adopt this model while many global players have decided to launch services on Rich Communicate Suite including Vodafone in Germany and Spain and TM mobile in Germany. RCS focuses on extending the communication options in mobile network beyond voice services and sms/mms services. They promise to provide peer-peer communication across parties .This is a move away from client-server paradigm used by OTT’s. This frees up both the users and developers alike in building future communication services, not being tied to single platform. The unique offering of RCS service model is that it provides guaranteed quality of service since it is offered over the managed IP network of the operators and hence is carrier grade. The model is however in early stages and would take time to develop in India.

Overall, OTT’s have thrown some serious challenges to telcos who are looking to get out of this trouble posed by OTT’s by imitating their models or by looking to provide better services in comparison to them. But looking at the past trends and because of the fact that OTT’s are better innovators they seem more likely in outwitting telcos who  seem to be short of ideas .Hence, best step which telcos can take is to have better partnership models with OTT’s who have a long road ahead of them.

Anuj Jain

Class of 2015