By Adrian Baschnonga, Lead Analyst, Global Telecommunications, EY
The OTT phenomenon continues to drive debate in the telecommunications industry and beyond, with regulatory perspectives, operator strategies and ecosystem dynamics in a state of ongoing flux.
Current operator strategies underline their ambivalent relationships with OTTs in the broadest terms.
On the one hand, tie-ups with OTT providers are seen as important ways of strengthening existing customer relationships and adding value to bundle packages.
On the other hand, many operators still fear the potential for disruptive innovation represented by fast-growing app providers, particularly those that offer services similar to traditional telecoms services.
The crushing impact of mobile instant messaging on SMS volumes has been well documented, and this year has seen an uptick in operator calls for an even-handed regulatory approach where both telcos and OTTs are subject to the same rules and obligations.
In Europe, the merits of a level playing field are being mulled over by the European Commission as part of its drive towards creating a digital single market, while global platforms are also under scrutiny from European regulators regarding their market power in online search and commerce.
At the same time, the world of OTT is evolving rapidly, with chat app providers adding new capabilities to their offerings, from voice calling to payments functionality.
In terms of partnerships between operators and OTTs, deals based around social media and messaging services have historically been at the heart of such tie-ups, but there is now a growing focus on digital content, with a focus on music and video streaming.
In contrast to the world of mobile instant messaging, European operators are proving more eager to align themselves with popular OTTs on digital content, reflecting reduced fears regarding cannibalization and greater confidence in the ability to enhance the customer experience, which in turn can help cement loyalty to their TV offerings.
For OTTs themselves, access to an operator’s pay-TV audience means exposure to a higher-value audience, and one that already has an appetite to pay for valued content.
Yet despite the more obvious win-win elements in operator-OTT partnerships centred on content, challenges remain.
Mobile subscriptions that bundle access to premium video and music content have seen users complain of service activation issues, for example, highlighting the problems involved in harmonizing provisioning systems.
For operators to sidestep headaches here, more attention needs to be paid to widening the set of APIs provided to partners.
This is vital given that activation rates on many mobile content bundles tends to be low, while the content deals involved are often costly to operators in their own right.
Many content-based partnerships between operators and OTTs are works-in-progress, with operators also tasked with refining joint offers in line with the faster world of OTT product development.
However, plenty of scope is remains for operators to provide their own OTT-like services.
There is already plenty of evidence of this in the world of messaging and call apps, and some operators are now taking the OTT concept forward in the world of TV, with apps that blend live and on-demand content.
Such developments signal a more positive operator outlook on the world of OTTs, with recognition growing among telcos that they can act as disruptors in their own right.
Nevertheless, many players still favour a reactive, tactical approach in their approach to the OTT ecosystem.
Looking ahead, long-terms strategies that marry the best in OTT user experience with new technological advances such as VoLTE and LTE broadcast will provide the greatest upside for the operator community.
For example, the reworking of voice transmission as an IP service paves the way for a new breed of services that can provide a high-quality and seamless user experience – and one which is differentiated from rival OTT offerings.
Meanwhile, LTE broadcast – which allows the same content to be streamed to multiple users – enables the cost-effective provision of video across mobile networks.
This in turn offers operators new routes to monetizing content both directly and through advertising-led business models.
In this light, it is clear that new technological capabilities need to be factored into service roadmaps as operators refine their communications and content offerings in a world of OTTs.
Striking the right balance between partnering with popular OTTs and developing in-house services that blend an OTT-like experience with higher quality of service will define the success of operator strategies in years to come.