We have witnessed the steady rise of OTT services over the past few years. With these OTT “providers” and the growing proliferation of smartphones, the way we engage has also changed. Applications such as WhatsApp, Skype, and the like have now become an organic part of the users’ vocabulary by filling in some niches that existing in the core offerings of CSPs.
Rather uniquely, these applications use the connectivity provided by the MVNOs but are eating into their revenues by providing fixed and mobile voice and messaging services. Given the leaning of the consumer towards OTT, research estimates that OTT services such as Skype and WhatsApp could hurt MVNO revenues by as much as 50% going forward. Mobile operator voice revenue is also expected to drop to $208 billion by 2024 from $381 billion in 2019.
The OTT impact
The proliferation of OTT applications works well for the end consumer but is clearly worrying for telecom providers. There are also countless OTT services that are designed in alternative formats that enable an exit from other classic communication formats such as SMS. While service providers have some income coming in from the data packages, the operators are losing revenue owing to the decreased uptake of their core services.
The OTT app-based performers are creating a great deal of stickiness as they are expanding their reach across multiple areas and attracting users to spend more time communicating, shopping, and consuming content. Given this, they are targeting the entire pie of the smart device and feature phone users.
That apart, the telcos and MVNOs pay a host of additional charges to the government and regulatory bodies. This includes elements such as spectrum usage, licensing fees, and other service taxes. The OTT players deliver the same gamut of services – messaging, video, and voice completely free of cost since they do not fall under the tax or licensing umbrella. As a major security concern, these OTT players are also largely free of government regulatory oversight and monitoring.
The rise of OTT providers and the uptake of their services by consumers also have an impact on network data congestion. The increased use of OTT services increases the data congestion putting an overall strain on the network. While telcos have to invest to enhance their existing infrastructure, they continue to lose revenue as consumers gravitate towards OTT from standard services.
This challenge becomes more complex as OTT players eat into the revenue and use the services of the telcos without being called upon to make any investments in their networks. Increasing connectivity and internet penetration and availability of cheaper devices and content-based ecosystems become catalysts for the growth of OTT.
MVNOs and the OTT threat
OTTs have formed a genuine threat by becoming de-facto MVNOs. In fact, they are jeopardizing their current business model. They are harming the MVNOs business even more as they service their customer’s consumers utilizing the MVNOs networks without any lease agreement or policies to regulate them.
A growing body of research is now pointing out that 43% of western Europe and 33% of the central Asia region consider OTTs a threat. A key factor influencing the steady rise of OTT and the cause of increasing pressure on MVNOS has been an easy regulatory framework that OTTs operate in.
Regulators have so far been technologically neutral towards OTT providers. Given the way OTT is cannibalizing traditional telecom services, it makes sense to bring OTTs under a similar regulatory, compliance, and governance framework as MVNOs.
This becomes all the more essential as OTT providers such as Facebook, WhatsApp, and Instagram outgrow major MVNOs such as Vodafone, Deutsche Telecom, and Verizon, and in regards to the number of subscriptions. These MVNOs have 2.11 billion subscribers compared to 2.45 billion for OTT users. While it can be alleged that this is not a fair comparison since these MVNOs have a limited footprint and these OTT providers have a global footprint, it is the MVNOs who spend billions on infrastructure costs and other operational and regulatory costs.
MVNOs until now have been working hard on protecting their revenues from grey routing and spam traffic. They have had to invest greatly to ensure secure and reliable connections and prevent unauthorized connections. They have to work towards ensuring network and data security and ensure compliance and governance to stay on the right side of the regulatory framework. OTT providers, while doing none of these are reaping more benefits than the MVNOs.
The rising proliferation of these OTT providers is a clear indication for the regulatory bodies to reassess their approach towards these providers. Just like how MVNOs operate within certain boundaries to ensure compliance and security, so must OTT providers. Doing so will level the playing field for MVNOs and give them a fair chance to remain competitive in a tough market while protecting the consumer and addressing the genuine security concerns of government bodies.