Should wireless operators be concerned about Over-the-top (OTT) services?

Skype, Facetime, Google Voice, Facebook Messenger, Rebtel. WhatsApp, iMessage, BlackBerry Messenger. While the former set of services is generally used for voice or video calling and the latter for messaging, the common factor among all these services is that they have been designed to bypass the cellular network. Instead they rely on a home or local Wi-Fi connection. Let us also be clear that they work well on the wireless operator’s network too, but it is preferable to utilize the Wi-Fi network for bandwidth heavy services like Skype and Facetime. Over the top or OTT services are the ones which transport and deliver content in the form of IP packets directly to the user device. As long as the calls are made or the messages are exchanged using these OTT applications between two devices connected to the Internet, the customers do not pay anything on a per call or per message basis. Of course, a broadband Internet connection or a smartphone data plan is required. Thus the concept that the OTT services are free is a partial myth. But general assumption is that the user already has one of these connections and as a result can take advantage of over the top content.

Eventually, OTT could become a source of anxiety for the wireless operator since it implies that customers would no longer pay for voice minutes or messaging. However, at present any such concerns are overblown. In a recent telecom conference at the University of Colorado Boulder, I had a small interaction with AT&T’s CEO, Randall Stephenson. While emphasizing that AT&T will soon deploy Voice over LTE, he said that OTT services were not causing any unease in the company and there is no threat to the revenue stream. He was also of the opinion that there is not much that the company can do about it since that is the way technology is progressing. This is understandable. The best a wireless service provider can do is to steer the customers towards a smartphone with data plan. It can not exercise much control over the content. Unless the device itself does not support or blocks certain apps, the operator will support them, especially if the competitors are doing the same. Also the bigger operators in US like Verizon Wireless and AT&T now offer unlimited voice and messaging plans bundled along with a specific amount of monthly data usage. As a result, operators have a steady but mostly saturated stream of revenue coming from voice and text messaging. And although voice revenues still exceed the data revenue, the future is definitely data. From an operator’s perspective, unlimited data plans are only good to attract new customers since it is well-known that these plans cause a huge strain on the wireless network. As long as the telcos can charge the consumer on tiered data basis, their revenue is secure. Over the top services can also serve as a source of income through data roaming. With global boundaries shrinking, more people are traveling every year. Looking to connect with their friends and family while on the road, they will rely on the high speed data networks if WiFi is not available. In such a scenario, irrespective of whether the phone’s voice roaming plan or an OTT app is used, the customer will be paying the service provider. On the other hand, operators who make most of their revenue from pre-paid or pay as you go services could be adversely affected by the proliferation of over the top apps. Wireless service providers in India fall in that category. But over the top services are mainly limited to messaging in such regions. Video calling is still done using a laptop or PC. When users start making bulk of their calls using Skype or Facetime on their phones, the operators whose business model is based on pre-paid could see a decline in revenue. Again, this is not an immediate concern, since pre-paid customers are usually not very data-hogging.

Telcos have responded to the OTT situation in different ways. Protectionism and blocking services is a near-sighted and consumer unfriendly move, so must be avoided. A better solution for the telcos is to offer attractive pricing in order to directly compete with such services. Some operators are jumping on to the OTT bandwagon themselves, although the jury is still out on the effectiveness of this strategy. A couple of years ago, Sprint joined hands with Google voice and consequently Sprint customers had the opportunity to enjoy all benefits of Google voice. Telefonica’s Tu Me is a smartphone app which offers free calls, messaging and location based services through WiFi or the cellular network. T-Mobile’s Bobsled and Clever Connect are the carriers’ attempt to fend off the OTT challenge. However, all such services or apps launched by operators have met with only limited success. Rich Communication Services (RCS) is another proposed solution. RCS is being marketed by the GSM Association as ‘Joyn’ and will be built into the phones. It will allow voice calling, video calling, instant messaging etc. along with simultaneous capability to transfer files and share videos across multiple networks and devices with anyone in the device contact list. Unfortunately, RCS has not generated much interest so far. The reason for absence of a widely effective response to the OTT conundrum is obvious. Currently the service providers are not intimidated by over the top applications. Telcos have realized that there is benefit in partnering with OTT services rather than competing with them. The business models are being adapted to capitalize on the OTT phenomenon to generate incremental revenue so that operators do not become just dumb pipes and utilities in the future. This revenue may come at the cost of voice and messaging revenue, but it is futuristic and exhibits long term vision. The service provider also must acknowledge that from a users’ perspective, the mechanism of carrying the content does not matter. The quality and the overall experience take the top priority followed by the price of getting the content delivered.

From a long term mindset, OTT cannot always be ignored. The countries which are witnessing a faster penetration of smartphones will have a majority of subscribers on data plans within the next few years. Those circumstances would be different. It is then that the operators should get worried about over the top issue since growth from their native voice, message and data services would become stagnant. But who knows, may be there will be another ‘big’ thing in our wireless telecom industry 5-10 years from now, which would compensate well for any declining bottom lines because of OTT. Twenty years ago, not many foresaw the boom in mobile phone voice business. A decade ago, who would have thought that we would be so addicted to mobile Internet that gazing into our smartphones or tablets would become a daily time consuming habit? So let us wait and watch. As for now, OTT is a secondary concern and not a primary threat.