OTT-Telco Matchmaking The future of content & service landscape

by : Ahmed Abdullah-Al-Tamjeed

If telco’s want to be a part in the content and service ecosystem, they have to give up the omnivorous attitude. OTT players are genuinely adding value to their users and they can live without Telco’s. It is a reality now! Collaboration between OTT Providers and Telco’s could open up a completely new arena of content & service business for today’s content-hungry customers. OTT-Telco marriage is thus a match made in heaven!

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TELCO’S ALREADY HAVE HAD THE BLOW…

Telco’s have already started losing business for their long-drawn predatory attitude. In early days, telco’s had the monopoly of both voice and SMS communications. Also, they ruled the landscape of content and service business (in the form of VAS) through direct personal reach tools like SMS, OBD and USSD. Now, the growing internet penetration has hit telco’s the biggest blow. Let alone the VAS business, third-party Internet voice applications like Skype, WhatsApp, Viber and others have caused a multibillion-dollar toll on the global telecommunications industry. It is also predicted that the telecommunications industry will lose a combined $386 billion between 2012 and 2018, from customers using OTT voice applications such as the market-leading Skype. To put this into perspective, within the same period, consumer use of OTT VoIP will grow at a compounded annual rate of 20 percent to reach 1.7 trillion minutes.[1]

 

 

AND LOSING THE CONTENT & SERVICE BUSINESS RAPIDLY

The show of content & service business of telco’s is equally (if not more!) bleak. OTT players are offering billions of contents and services in the world, and many of them are doing significantly good business and have strong user bases. Internet has paved the way for a utopia where ‘producers’ and ‘consumers’ are no longer constrained by channel or protocol limitations. Developers produce Apps and consumers can use them bypassing the traditional channels or business models of the telco’s. Telco’s like Idea Cellular and Bharti Airtel have seen reductions in non-data VAS [2], and analysts have forecasted that the majority of content that consumers will consume within the next 5 years will come from games, education and user-generated content such as shared videos that users will access through apps.

 

 

Future of content & service business for telco’s offers an even bleaker scene. Apart from giant OTT’s like Youtube, Netflix, Hulu etc., relatively smaller and localized OTT’s are also posing threat for the Telco’s. These localized and and, at times, niche OTT’s are bringing in customized content & services that have a strong appeal to its TG’s. For example, apps that come in local languages for downloading movie contents are in greatest demand in the rural India and a 47% of Indians consuming content & services over internet have done so in their local languages [3]. This is just one example of how one demographic factor – language – can give rise to potential niches for customized apps. If you consider other demographic factors, the rise of localized and customized apps with large target universes will not seem something fanciful. Our understanding and insights says telco’s may have to get back to its core business of mobile telephony infrastructure and mobile data channel business…content and service business will no longer remain Telco’s cup of tea. In fact, telco’s are meant to be Communications Service Providers (CSP’s). Content and service is the domain of content and service providers.

 

 

BECAUSE “SPECIALIZATION” MATTERS
And why not! People trust banks for financial services; news channels/portals/ for news; music labels and entertainment channels for entertainment. Telecom’s idea of having a single branded service portal as well as clubbing all sources of contents is never going to produce a case of serious business in the face of growing OTT landscape where customization and specialization are what OTT players bring in. Such clubbing, in fact, is creating more clutter rather generating loyal subscribers for the telco’s. Bundled with micro charging, the huge OBD and SMS Blast is making it more difficult for subscribers to opt out, resulting in churn out from the network itself. If telco’s want to be a part in the content and service ecosystem, they have to give up the omnivorous attitude. OTT players are genuinely adding value to their users and they can live without telco’s. It is a reality now!

 

 

OTT’s ARE ALSO LOOKING FOR ITS “BETTER HALF”
However, the growth of OTT Providers is also not going to be a piece of cake! Monetization is going to be the biggest bottleneck for niche and localized OTT players, particularly in the Asia and the African markets. Ad revenue and credit cards are the existing monetization channels for these OTT’s. Credit card penetration to the consumers of content and services of these markets is very low and ads for niche OTT’s will never help them go beyond the critical mass. As the OTT industry continues to evolve and mature, sound monetization strategy is key in determining which companies are successful and which ones fail. BUT, these consumers are long-exposed and habituated in micro-charging from their mobile wallets. As the monetization channels, telco’s come as the perfect answer to OTT Players’ challenge. Moreover, as the OTT’s come in the form of apps – almost all housed in smartphones, OBD’s and SMS blasts are excellent tools for OTT promotions. Telco’s can bring in the best value of the promotion budgets of OTT players. On the consumer research frontier, telco’s are treasure troves for the OTT’s. Telco’s know the insights of customer consumption patterns, tastes and preferences of content & services, trending interest, spending patterns and OTT’s can ride on these insights to produce content & services that consumers are awaiting.

 

 

And, the shift is, in fact, already taking place and industry experts are also speaking in the same line. Reliance Communications (RCom) [4] and Aircel [5] are some of the leading Telco’s that are aggressively entering into pacts with OTT players such as Whatsapp and Nimbuzz. Huawei sees the [6] of Telco-OTT collaboration to be analogous to PC hardware and software vendors, in order to grow both business sectors. Airtel CEO marks the relation of telco and OTT sectors “Siamese twins,” as “they work together, are linked to each other, and are attached to each other. We have to collaborate.” [7]

 

 

Yes, collaboration between OTT Providers and Telco’s could open up a completely new arena of content & service business for today’s content-hungry customers. OTT-Telco marriage is thus a match made in heaven!

 

 

Mr.Tamjeed is a Portfolio Manager at ssd-tech Ltd. He can be reached at tamjeed@ssd-tech.com

 

 

[1] http://fortune.com/2014/06/23/telecom-companies-count-386-billion-in-lost-revenue-to-skype-whatsapp-others/
[2] http://articles.economictimes.indiatimes.com/2014-07-26/news/52057637_1_vas-companies-telecom-industry-mohammad-chowdhury
[3] http://blogs.wsj.com/briefly/2015/08/04/how-non-english-speakers-are-taking-over-the-internet-at-a-glance/
[4] http://gadgets.ndtv.com/telecom/news/rcom-starts-offering-unlimited-whatsapp-for-rs-16-per-month-280430
[5] http://articles.economictimes.indiatimes.com/2013-03-27/news/38070604_1_ceo-vikas-saxena-nimbuzz-neha-dharia
[6] http://telecoms.com/190542/operators-and-otts-must-collaborate-says-huawei-cto/
[7] http://www.mobileworldlive.com/mobile-operators-ott-players-need-airtel-exec
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