The invasion of telecom operators’ revenue sources has begun. The invaders are Internet firms like Google, Facebook and application service providers like WhatsApp and Viber, collectively known as Over The Top (OTT) players. They are called so because of the way they have invaded into the traditional telecom operators’ territory.

The OTT players ride on top of communications network and reach the consumers directly using the infrastructure laid out by the traditional telecom operators. Take for example the plethora of instant messaging platforms that have sprung up over the last two years. Rising popularity of instant messaging platforms such as WhatsApp is beginning to eat into operator's revenues from SMS services. Skype is another example of an OTT player which has cannibalised into the voice business of telecom companies. The success of these players has begun to worry telecom companies, who have traditionally had control over the entire services ecosystem.

In the old world, telecom companies had full control over their subscribers. If any value added service provider or application developer wanted to offer their services to a mobile user then they had no option but to get into a revenue share arrangement with the telecom operator. In the new world, driven by smartphones and Internet, telecom companies are finding that application providers can reach the consumer directly. For example, an Airtel subscriber can access YouTube videos even though YouTube has done no revenue share agreement with Airtel.

Telecom companies are not comfortable with this world where anyone with an interesting application can reach the consumer directly and make money. Their main grouse is that while they invest billions of dollars in setting up networks and buying spectrum in connecting the consumers, the OTT players are riding on this network without any investment and yet walk away with the larger share of the revenue.

“It’s a strange business model at present where telecom operators invest huge amounts of money to upgrade data networks and players like YouTube, who gets the revenue, don’t pay anything,” says Vodafone India’s Managing Director and Chief Executive Officer Marten Pieters.

According to Bharti Airtel Internet companies such as Google, Yahoo! and Facebook should start sharing revenues with telecom companies. The company said that the telecom regulator should impose interconnection charges for data services just like it is applied for voice calls.

“Today, Google, Yahoo! and others are enjoying at the cost of network operator. We are the ones investing in setting up data pipes and they make the money. There is interconnection for voice then why not for data,” says Jagbir Singh, Director, Network Services Group, Bharti Airtel.

Telecom companies’ worries are not unfounded. According to a report by ATKearney released in September 2012, YouTube now accounts for 24 per cent of global mobile traffic, Facebook Chat consumes 22 per cent of all instant message-related mobile bandwidth, WhatsApp carries 5 per cent of global messaging traffic, and Netflix boasts nearly 30 million streaming subscribers globally. “The OTT invasion is occurring on four distinct battlegrounds- mobile voice, messaging, media and cloud. Telecommunication operators that have a variety of strategic weapons in their arsenal stand the best chance of gaining a foothold,” says the report.

Globally, telecom companies have been putting pressure on regulators to find a resolution to this issue. On the other hand content providers such as Google have been endorsing network neutrality on grounds that the Internet is free, hence should not be controlled by regulation. Supporters of this view argue that telecom companies’ data networks are being consumed because of services offered by the likes of YouTube.

But telecom companies say that they are finding it difficult to keep investing on network upgradation to meet rising data demands. Says Anupam Vasudev, Chief marketing Officer, Aircel, “Revenue we make from data is much smaller than what they (OTT players) make from content. If you just become an access pipe you become a commodity…you have to become content plus access pipe. We need to find a way to leverage the OTT market. If you do revenue share with OTT players then our ability to develop infrastructure will be better.”

For Airtel, traffic from Web sites such as Facebook, Twitter and Google account for nearly 40 per cent of its overall data traffic and, therefore, wants to get some part of the revenue.

“They are completely bypassing the telecom operator. There should be a fair revenue share,” says Airtel’s Singh. Meanwhile, to cope up with rising use of data services, Airtel is deploying a multi-pronged strategy. This includes setting up a network comprising of wi-fi hot spots to offload traffic indoors and an Internet Protocol-based backhaul.

Market analysts say that telecom companies are taking a short term view by demanding revenue share from the over the top players. A Chief Marketing Officer (CMO) Council report reveals that some 44 per cent of telco marketers who participated in the CMO Council's "Profitability From Subscriber Acuity" study during the second to fourth quarters of 2012 are actively exploring OTT partnerships and revenue-sharing opportunities. In addition, 31 per cent are identifying potential revenue streams from new products or services that can be offered to OTT players, including subscriber analytics and behavioural insights. Liz Miller, Vice President of Programs for the CMO Council said, " Considering that research has put the potential revenue loss from OTT starting at $13.8 billion in 2011 alone, it is not surprising that telco marketers see OTT as an opportunity to exploit."

According to the ATKearney report telecom operators, with their consumer insights and inherent ability to deliver breakthrough customer experiences, are uniquely positioned to win this war. “An understanding of the factors driving OTT voice, messaging, media, and cloud is key to choosing the appropriate business weapons, positioning your troops, and determining whether your competitive posture is offensive or defensive,” says analysts at ATKearney.

>thomas.thomas@thehindu.co.in

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