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Thursday, February 16, 2012

Press Release: Telcos versus OTTs: is it a phoney war?

[London, February 16th, 2012]
New study shows many telecom operators are also Internet players themselves

There are now more than 80 OTT-style Internet services run by telecom operators, according to a new study published by analyst firm Disruptive Analysis. The trend is accelerating, and represents a major opportunity for the industry over the next five years.

Dean Bubley
Dean Bubley
One of the loudest debates in today’s telecoms industry concerns the response of traditional network operators to so-called “over the top” (OTT) players. 

But a new report from Disruptive Analysis shows there is another option - Telcos can launch their own Internet-type services. Disruptive Analysis calls this a "Telco-OTT" approach.

“Telecom operators need to go on the attack,” said Dean Bubley, the report’s author and founder of Disruptive Analysis. “They must exploit the scale and ‘viral’ adoption of new services by billions of Internet and smartphone users, using similar tactics to the familiar web- or VoIP-type providers. It is no longer enough to rely on slow-moving standards or cumbersome collaborations. Telcos need to act alone, or with specialist technology partners”.

OTTs are companies such as Facebook, YouTube, Skype, WhatsApp and Netflix, which offer growing and profitable services “over the top” of raw Internet access from mobile or fixed telcos.

As Facebook’s recent $100bn IPO filing demonstrates, such companies are deriving huge value from applications that ultimately depend on operators’ broadband infrastructure. And this is happening just at the time when telcos are starting to see their traditional voice and messaging business flatten and start to decline (sometimes called “peak telephony”). The value in “services” seems to be shifting to the web.

Operators and their suppliers are trying to work out what to do. The usual suggestions include:
  • Charging customers extra to use such services, with data plans tiered by application type ("Personalise")
  • Throttling – or even blocking - applications at the network level ("Prioritise")
  • Attempt to extract money from "upstream" OTT players ("Monetise")
  • Competing through inter-telco collaboration on new standards like RCS / RCSe
But all of these options face challenges. Net Neutrality laws and various technology limitations stand in the way of application-based charging. Internet companies show little need or inclination towards paying for “quality”, especially on networks with poor coverage. Disruptive Analysis’ previous research has shown that RCSe’s success is highly unlikely.

However, according to a new report from Disruptive Analysis, many telcos already offer their own OTT-style services via generic Internet access. The study identifies more than 80 operator initiatives of this type, spanning four main service categories:
  • Content
  • Communications
  • Cloud
  • Connectivity
Disruptive Analysis believes that Telco-OTT enables operators to
  • Expand their user-base reach to a billion users or more, even in countries in which they have no network footprint.
  • Improving existing subscribers’ experience when they are “off-net”, for example helping them access their TV or voice services, from PCs or mobile devices connected via other networks.
  • Benefit from both new revenue streams and the higher equity valuations placed on Internet businesses.
Telco-OTT has its own opportunities and challenges. Few services are easy to monetise, and experiment (and sometimes failure) will be needed. But customers want open-Internet services – they like the choice and flexibility, and that trend is unstoppable. 

If telcos are to survive in the long-term, they need to embrace OTT, not fight it. If you can’t beat ‘em, join ‘em.

The report, “Telco-OTT Strategies & Case Studies” is available to buy from Disruptive Analysis. It explores the rationale for Telco-OTT, looking at the key categories, the advantages & the practicalities. Details are available at http://disruptive-analysis.com/telco-ott.htm or from sales@disruptive-analysis.com


About Disruptive Analysis 
Disruptive Analysis is a technology-focused business advisory firm. Founded by experienced analyst Dean Bubley in 2002, it provides critical commentary, research support and consulting support to mobile, wireless and telecom operators, vendors, users, investors and intermediaries. It focuses on mobile broadband, voice & messaging services, devices, carrier business models, mobile applications and wireless policy & regulation.

Disruptive Analysis' motto is "Don't Assume" and it actively looks for flaws in otherwise seemingly clear consensus. Sometimes these are negatives, such as over-optimistic expectations of new product uptake or a "hidden" limitation of an underlying technological. In other cases, a new addressable opportunity can be spotted well ahead of the market.

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