Competing with free OTT services a tall order
Telcos need to tap innovative solutions that exist
Recent agreement between Mobilink and infrastructure provider Awal Telecom is a good omen. Indeed, Telcos know that they will have to live with the OTTs. PHOTO: WHATSAPP
ISLAMABAD:
As mobile broadband services get popular, the trend of using “free” OTT services, like WhatsApp, Viber, Messenger, Line, etc, is spreading like wildfire.
Originally it started with free overseas calls on Skype, but now even local ones are made using these apps. Only a couple of years ago, WhatsApp started as a messaging service, but today over 100 million calls are being made on the app each day. Sending images using WhatsApp has become so popular that “whatsapp” is already being used as a verb.
Unfair to the telcos?
Over The Top service providers (aka OTTs) are those who offer telecom (text, voice and video) services to consumers but have neither any licence to operate in the country, nor any communication infrastructure of their own. As against that, Telcos are the operators who have operating licences from the regulator, obtained at a heavy cost, plus invest billions in communications infrastructure.
In other words, Telcos provide connectivity and OTTs ride on top of it. In the process they rob the Telcos of their most valuable revenue source – voice calls. This became possible only with the advent of broadband internet, which is a service provided by the Telcos themselves. Thanks to this somewhat lopsided arrangement, OTTs are able to offer their services free. That does not mean that they do not earn anything. They earn either directly or indirectly through advertisements, through in-app purchases (of stickers and what not) and through the treasure trove of people-data on which they sit. Not only do the OTTs not invest in the infrastructure of the country (only exception is Google’s Project Link laying fibres in Africa), OTTs also do not have to care about the laws and regulations of the countries, because they reside outside these countries.
But who can have anything against something being provided free – except the Telcos. It is a bit unfair to them.
They invest in licences, in frequency spectrums, and in laying huge amounts of fibre cables, and telecom towers, and what not. But here come these OTTs who starve the telcos of their primary source of revenue. According to Juniper Research, west European Telcos have seen 30% to 50% fall in their voice revenues over the last five years. On the other hand, OTT direct/indirect revenues are expected to cross $10 billion by 2020 – a five times increase.
Using regulation
Telcos know that there is very little that they can do against those offering free services. So one finds them constantly doing two things; beseeching regulators to subject the OTTs to country regulations - so that the OTTs have the same millstones of regulations, and searching for new business models which allow them to monetise their networks.
According to Telecompaper, Italian regulator Agcom has just decided to heed the Telcos. Following a public consultation, Agcom is now set to introduce new regulations to create a more level playing field that will require the OTTs to compensate Telcos.
The situation is no less grave for the Telcos here. The more 3G/4G spreads, the more voice traffic shifts to OTTs, and the data revenue does not offset the loss of voice revenue. Regrettably this benefit of OTTs will not be available to remote villagers for some time. I wish Universal Service Fund could be utilised to expedite upgrade of old networks in rural areas to 3G/4G.
Pakistan’s new Telecom Policy 2015 devotes a chapter to “VoIP and other Over-the-Top (OTT) services”, directing Pakistan Telecommunication Authority to develop appropriate framework. Like most governments, the Pakistan government also wishes that OTTs are made to fulfil requirements of lawful interception, cooperation with law enforcement agencies, data retention, etc. In order to accomplish that, it is desired that OTTs somehow install their equipment in the country, and also enter into mutual agreements with licensed Telcos to share revenues.
However, too much regulation may not be the answer. Time and again we have seen that hindering technology does not work. Technology is like water – it finds its way around. Therefore, regulation can help only to a limited extent and new business models seem to hold the key.
What could telcos do?
Telcos have to look at opportunities to expand their revenue streams. They can leverage their vast fixed and wireless networks, millions of customers, and customer data - they too are sitting on treasure troves of consumer Big Data, which they can monetise by enhancing data analytics. Opportunities are also there in the fast upcoming domains of Mobile Financial Services (MFS) and Internet of Things (IoT). Telcos have to go for end-to-end full service provisioning, and not just providing simple connectivity. Telcos can also consider bundling content into monthly subscriptions.
At the same time, in order to be competitive, Telcos need to cut costs. One way could be by using Network Functions Virtualisation (NFV), which makes it possible to allow services that are now being carried out by dedicated hardware to be hosted on virtual machines. Because NFV makes it possible to add network capacity through software, there will be no need to overprovision networks, thus cutting both capital (Capex) and operating (Opex) expenses.
Another way of reducing Opex is by sharing infrastructure, which is being done in most countries, but not here. Recent agreement between Mobilink and infrastructure provider Awal Telecom is a good omen. Indeed, Telcos know that they will have to live with the OTTs. The solution lies in Telcos reducing costs and developing new pools of profits, helped by some ‘light’ regulation.
The writer is former CEO of the Universal Service Fund and is providing ICT consultancy services in several countries of Africa and Asia
Published in The Express Tribune, July 4th, 2016.
As mobile broadband services get popular, the trend of using “free” OTT services, like WhatsApp, Viber, Messenger, Line, etc, is spreading like wildfire.
Originally it started with free overseas calls on Skype, but now even local ones are made using these apps. Only a couple of years ago, WhatsApp started as a messaging service, but today over 100 million calls are being made on the app each day. Sending images using WhatsApp has become so popular that “whatsapp” is already being used as a verb.
Unfair to the telcos?
Over The Top service providers (aka OTTs) are those who offer telecom (text, voice and video) services to consumers but have neither any licence to operate in the country, nor any communication infrastructure of their own. As against that, Telcos are the operators who have operating licences from the regulator, obtained at a heavy cost, plus invest billions in communications infrastructure.
In other words, Telcos provide connectivity and OTTs ride on top of it. In the process they rob the Telcos of their most valuable revenue source – voice calls. This became possible only with the advent of broadband internet, which is a service provided by the Telcos themselves. Thanks to this somewhat lopsided arrangement, OTTs are able to offer their services free. That does not mean that they do not earn anything. They earn either directly or indirectly through advertisements, through in-app purchases (of stickers and what not) and through the treasure trove of people-data on which they sit. Not only do the OTTs not invest in the infrastructure of the country (only exception is Google’s Project Link laying fibres in Africa), OTTs also do not have to care about the laws and regulations of the countries, because they reside outside these countries.
But who can have anything against something being provided free – except the Telcos. It is a bit unfair to them.
They invest in licences, in frequency spectrums, and in laying huge amounts of fibre cables, and telecom towers, and what not. But here come these OTTs who starve the telcos of their primary source of revenue. According to Juniper Research, west European Telcos have seen 30% to 50% fall in their voice revenues over the last five years. On the other hand, OTT direct/indirect revenues are expected to cross $10 billion by 2020 – a five times increase.
Using regulation
Telcos know that there is very little that they can do against those offering free services. So one finds them constantly doing two things; beseeching regulators to subject the OTTs to country regulations - so that the OTTs have the same millstones of regulations, and searching for new business models which allow them to monetise their networks.
According to Telecompaper, Italian regulator Agcom has just decided to heed the Telcos. Following a public consultation, Agcom is now set to introduce new regulations to create a more level playing field that will require the OTTs to compensate Telcos.
The situation is no less grave for the Telcos here. The more 3G/4G spreads, the more voice traffic shifts to OTTs, and the data revenue does not offset the loss of voice revenue. Regrettably this benefit of OTTs will not be available to remote villagers for some time. I wish Universal Service Fund could be utilised to expedite upgrade of old networks in rural areas to 3G/4G.
Pakistan’s new Telecom Policy 2015 devotes a chapter to “VoIP and other Over-the-Top (OTT) services”, directing Pakistan Telecommunication Authority to develop appropriate framework. Like most governments, the Pakistan government also wishes that OTTs are made to fulfil requirements of lawful interception, cooperation with law enforcement agencies, data retention, etc. In order to accomplish that, it is desired that OTTs somehow install their equipment in the country, and also enter into mutual agreements with licensed Telcos to share revenues.
However, too much regulation may not be the answer. Time and again we have seen that hindering technology does not work. Technology is like water – it finds its way around. Therefore, regulation can help only to a limited extent and new business models seem to hold the key.
What could telcos do?
Telcos have to look at opportunities to expand their revenue streams. They can leverage their vast fixed and wireless networks, millions of customers, and customer data - they too are sitting on treasure troves of consumer Big Data, which they can monetise by enhancing data analytics. Opportunities are also there in the fast upcoming domains of Mobile Financial Services (MFS) and Internet of Things (IoT). Telcos have to go for end-to-end full service provisioning, and not just providing simple connectivity. Telcos can also consider bundling content into monthly subscriptions.
At the same time, in order to be competitive, Telcos need to cut costs. One way could be by using Network Functions Virtualisation (NFV), which makes it possible to allow services that are now being carried out by dedicated hardware to be hosted on virtual machines. Because NFV makes it possible to add network capacity through software, there will be no need to overprovision networks, thus cutting both capital (Capex) and operating (Opex) expenses.
Another way of reducing Opex is by sharing infrastructure, which is being done in most countries, but not here. Recent agreement between Mobilink and infrastructure provider Awal Telecom is a good omen. Indeed, Telcos know that they will have to live with the OTTs. The solution lies in Telcos reducing costs and developing new pools of profits, helped by some ‘light’ regulation.
The writer is former CEO of the Universal Service Fund and is providing ICT consultancy services in several countries of Africa and Asia
Published in The Express Tribune, July 4th, 2016.