Over The Top (OTT) telecom services are a fantastic opportunity for consumers and the enterprise, but could pose a threat to vendors themselves. How is OTT impacting the telco market and what impact will it have in the future?
Times are changing. Gone are the days when, to contact a family member or friend, you would be forced to pick up the phone, while video content is no longer confined to a television set. The reality is that, for some time now, an array of service providers have been leveraging – perfectly legally – the existing resources of telecom providers, the result being Over The Top services. At an enterprise and consumer level, the delivery of a range of media – including audio, video and voice – over the Internet without the involvement of a telco operator has spelled success for a range of companies.
For OTT, 2015 has the potential to be a momentous year, with the streaming of on-demand content set to outstrip broadcast viewing figures, while Ericsson estimates that 80 percent of 16 to 45 year olds watch streamed content several times a week or more.
There is no doubting that OTT is a force to be reckoned with. “OTT is trendy – it is youthful, offers exclusivity – and in terms of targeting customers, it is aggressive,” says Rakesh Lakhani, Head of Mobile Broadband, Ericsson Middle East. “It also offers unique services and acts as a platform for emerging technologies. As customer needs are changing, OTT provides services that are adaptable to these needs.” Lakhani also believes the level of content precision is very attractive to consumers. “OTT offers a plethora of choice and easy access to content, and a value-add in terms of the curation of content that is becoming more and more relevant to the interest of consumers,” he says. “Consumers are now given a seamless multiscreen experience that feeds their burgeoning video appetite.”
The drastic changes to the market have not come about by chance. While the telecoms industry has faced challenges including regulatory reforms and shrinking legacy service revenues, the Internet’s ubiquity has given rise to OTT services. Bocar Ba, CEO, SAMENA Telecommunications, believes that the goal posts have dramatically shifted when it comes to giving customers what they want, and that the Internet’s complexity and usage is central to the future of OTT services. “The Internet, having revolutionised modern communication and socio-economic growth in a unique, distance-independent way, has emerged among the strongest and most complex economic models,” he says. “In this economic model, value creation takes place at the customer layer. That is because the World Wide Web offers a worldwide broadcasting capability, a system for information dissemination, a medium for collaboration, commerce, and enables billions of transactions every single day, the extent to which such services are used and valued by the customer, determines the Internet’s true value and rationale for existence.”
With this in mind, it is essential for telcos to consider where they stand when it comes to OTT. The evolution of the Internet business model certainly poses a threat to telcos in this sense. If sustained, it is sure to impact the telecommunications industry in the long term, and as such, change is needed to ensure telecoms operators can profit from the Internet that they provide, which in turn provides online communications services for users. The shift to the emphasis on data traffic – which is continually growing and eating into revenues from voice and messaging services – meanwhile, is another thing that the telecom industry must consider. This has led to a huge increase in traffic on fixed and mobile networks, with telco providers often blamed, as the core infrastructure provider, if services are not up to scratch.
However, while the rise of OTT services can pose a number of risks to telecom providers, if they take the appropriate strategic action, the transformation could stand to be hugely profitable; if they can view the transition as one of great opportunity, they could well come up trumps. In order for them to do this, they need to leverage their strengths, of which there are many, Lakhani says. “Telecommunications operators hold many key advantages over OTT service providers. These include an established reputation, proven reliability and skill, longevity, as well as full control over the network, which can be used to differentiate their offerings over those of OTT providers.”
Ba is also an advocate of creating new ecosystems that will spell success for telco industry partners. “Companies should seek to enable cross-industry interaction, collaboration, and participation, effectively creating an ecosystem that will sustain itself by generating more demands for ICT services,” he says. “By focusing on partners, operators can leverage existing relationships to bring value to existing customers as well as to both existing and new partners. Consequently, operators can help create a service-based ecosystem.” He also sees soft assets as being hugely advantageous in delivering change. “Every operator has intangible assets in the shape of industry and technology experiences, evolving expertise, lessons learned, customer data gathered, success and failure analyses, hands-on experience of its technical, engineering, HR, operations, and project-management professionals, to name a few,” he says. “Such assets need to be leveraged to allow the telecoms operator to play a role toward creating a knowledge ecosystem and intellectual capital, which can be transformed into financial capital.”
The role of cloud will play a key part in this evolving ecosystem. Telco providers who are already offering cloud services have an advantage in this respect, as the rise of digital services will be conducive to fresh platforms and solutions. Telco providers who can operate in the on-demand TV space, for instance, will have an advantage. Lakhani is conscious, however, of network challenges that could impact parts of the Middle East. “In many countries the broadband capability is not sufficient to replace a well-managed TV delivery ecosystem,” he says. “It will take time for technology to catch up with consumer demand, so operators now have a chance to enhance the delivery of OTT video traffic by providing capabilities in their own network.” He believes this is an opportune time to make change. “We believe the most successful operators will be those who react to the challenge set by OTT services by expanding their flexibility and implementing OTT within their offerings. In fact, these operators have an initial structural advantage that will allow them to create business models that are both agile and adaptable, to address evolving consumer behaviour.”