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OTT ser­vices have cut into prof­its


For years, Over-the-top (OTT) ser­vices have been pitched as one of the big­gest chal­lenges faced by the tele­coms in­dus­try. How can car­ri­ers, with their huge net­works and mas­sive op­er­at­ing ex­pen­di­ture, com­pete with the likes of What­sapp or Skype, who need only a few data cen­tres and some soft­ware to run? As peo­ple have switched away from tra­di­tional voice calls and mes­sag­ing ser­vices to voice over IP (VOIP) and dig­i­tal mes­sag­ing plat­forms car­ri­ers’ prof­its have slumped.

GFK an­a­lyst Im­ran Choud­hary said: “As smart­phones brought with them the app rev­o­lu­tion, data has be­come more im­por­tant as a key com­po­nent within the new op­er­at­ing model for car­ri­ers. How­ever, as con­sumers use more data through OTT ser­vices, there has been a greater strain placed on car­ri­ers to im­prove net­work in­fra­struc­ture to be able to fa­cil­i­tate such high data use.”

Choud­hary points to re­search that data-driven rev­enue now makes up a quar­ter of in­come for some Euro­pean car­ri­ers, up from 12% a few years ago.

“With the back­drop of a con­sol­i­dat­ing Euro­pean car­rier mar­ket and a tightly com­pet­i­tive land­scape in the US, car­ri­ers need to meet the long-stand­ing con­sumer ex­pec­ta­tions of lower data prices year-onyear, while de­liv­er­ing mar­gin and profit to in­vestors at the same time. Given this, and the fact that in­fra­struc­ture im­prove­ments to fa­cil­i­tate grow­ing data de­mand re­quire a high level if cap­i­tal ex­pen­di­ture, many car­ri­ers are look­ing at ways to en­sure they cap­ture and mon­e­tise the next wave of in­creas­ing con­sumer be­hav­iour.”

How­ever, with new power comes great op­por­tu­nity, at least ac­cord­ing to CCS In­sight an­a­lyst Paolo Pesca­tore, who claims car­ri­ers have al­ready lost the bat­tle for mes­sag­ing and will soon lose voice calls, so must look at other OTT part­ner­ships and ser­vices to make ad­di­tional rev­enue.

“They have lost the game in mes­sag­ing, and video is now the new voice,” he ex­plained. “There is so much fo­cus on mes­sag­ing and voice be­cause that is the bread and but­ter of the telco busi­ness to­day, but what has been ig­nored is video. There is a sig­nif­i­cant op­por­tu­nity there for the tel­cos to em­brace the OTT video providers – the likes of Net­flix and so on.

“With al­most 90 mil­lion sub­scribers glob­ally, and hav­ing launched in 200 coun­tries, cus­tomers have clearly ex­pe­ri­enced a healthy ap­petite for its ser­vices. In OTT video, Net­flix can be a fren­emy for the car­ri­ers. It needs the tel­cos more than ever right now, given its limited re­sources to ex­pand its brand.

“In the US there are over 100 OTT providers, and they lack a tra­di­tional billing re­la­tion­ship with their cus­tomers. Tra­di­tion­ally, the model for pay TV has been through a ca­ble op­er­a­tor. How­ever, now they want to go di­rect. Who is best equiped to do so than tel­cos, given their ex­ten­sive net­work as­sets? Tel­cos don’t want to spend an enor­mous amount of money se­cur­ing con­tent when they have to in­vest in their net­work.”

Ex­am­ples of part­ner­ships be­tween car­ri­ers and OTT video providers in­clude Net­flix’s agree­ment with BT. An­swer­ing a ques­tion from Ca­pac­ity at a re­cent con­fer­ence, BT chief ex­ec­u­tive Gavin Pat­ter­son ex­plained how the UK in­cum­bent’s re­la­tion­ship with the likes of Net­flix and Google worked to ben­e­fit both par­ties: “Tel­cos and ser­vice providers have to cre­ate the right en­vi­ron­ment where the best of the in­ter­net can be brought to our cus­tomers. More­over, we have to adapt our busi­ness model if we are not at the fore­front of that in­no­va­tion.

“So, for ex­am­ple, we have a com­mer­cial re­la­tion­ship with Net­flix. We cache them deep in our net­work, which ob­vi­ously im­proves the cus­tomer ex­pe­ri­ence, but also re­duces the peer­ing costs. We also in­te­grate them into our EPG on our TV plat­form, so we can work to­gether to drive adop­tion of fi­bre, and that is just one ex­am­ple. We have a sim­i­lar re­la­tion­ship with Google.”

In­deed, this is the so­lu­tion ven­dors are favour­ing as one of the next key evo­lu­tions of net­work in­fra­struc­ture. Take Huawei, for ex­am­ple, which at this year’s Ul­tra­broad­band Fo­rum in Frank­furt told Ca­pac­ity that video would be the key driver of Gi­ga­band – the next gen­er­a­tion of con­nec­tiv­ity.

Eric Xu, deputy chair­man of the board, ro­tat­ing CEO, Huawei, said: “When we deep-dive into global telecom op­er­a­tors’ suc­cess­ful de­ploy­ments in the video in­dus­try, we dis­cover that all of them have a well-de­vel­oped video strat­egy, which is de­signed to drive the growth of broad­band ser­vices.

This will also in­crease the num­ber of broad­band cus­tomers and the Av­er­age Rev­enue Per User (ARPU), in­stead of merely po­si­tion­ing video ser­vices as a value-added ser­vice.”

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