Over the Top (OTT) apps were seen as revenue eaters for the telecom operators. They still continue to; however, it is because of these OTTs that operators have been a surge in the data consumption. As pointed out in the Nokia Mbit report for 2018, 65% of the data consumed was in the video form, which primarily was consumption of content by these OTTs.
Looking at the trends, operators have perhaps by now understood that OTTs are not competitors but opening up new opportunities for them albeit making the traditional streams of revenue irrelevant. At the same time, operators have also realised that they need to evolve as OTTs themselves, which could fuel the traffic consumption over the infrastructure they have laid after investing billions of dollars.
As a result, in FY 2017-18, we saw several operators launching their own apps or forging alliances with the likes of Amazon Prime and Netfilx to offer content to users either free or at reduced pricing.
The telecom operators are in their 3rd era of existence. 1st era saw them earning on just provisioning the basic telecom services, which in other terms meant, earning for the infrastructure building. The 2nd era was of converging and offering more telecom services like triple or quad play services. Here the focus on how the Gross ARPU could be increased by offering different services to the same consumer. Now the 3rd era is demanding operators to create use cases, for which users would pay them. Users are no longer impressed by the infrastructure laid or the number of services offered. What impresses them is what utility does the operator has on the plate to offer? This is where OTTs or apps have a role to play. Operators, though might continue to own and lay infrastructure, offer many services, etc., shall have to now look and orient themselves as OTT players. They will have to come up with more and more apps solving problems of users who will be happy to pay for them.
The biggest challenge in this changing orientation is that while the operators would develop apps for its consumers, it cannot force them to use their apps only. A user will still have the choice to select and going by the pattern how app ecosystem grew, the users typically stick with one platform over a period of time. For instance, in PIM (presence and instant messaging) space, WhatsApp has become the default choice. Now, even if an operator comes up with its own application with the same use case, it will be challenging for the operator to bring its consumers on to it, not to talk of the consumers from other networks.
The other challenge is of monetisation. How do operators monetise from apps? There are very few convincing apps where a user would subscribe and pay a monthly fee. At the same time, the ad insertion badly affects the user experience. This leads to a paradox where operators are not sure how to monetise, essentially when they are tightly regulated about the data analytics and other use cases, while as the pureplay OTT player isn’t governed by any such regulatory framework, except for following some of the global conventions.
OTT is the future of telecom operators provided they realise the fact that they are also one among them. Of course, they have the entire value chain with them where they own the infrastructure as well. But, this would not mean that they can money there. If this is the philosophy an operator would go with, they are going to see healthy balance sheets.
Currently, the entertainment segment is what drives the OTTs, talking purely from operator perspective. There are other popular use cases like service aggregators and travel apps where they are also making good fortunes and many start-ups in this space are getting millions of dollars in various rounds of investment. However, such services cannot be the territories that operators could venture into. As the App-led telcos further evolve, there would be several more use cases where the operators shall have to act like OTTs and offer the services/use cases to the consumers via an app only.
As monetisation of legacy services of voice and data provisioning becomes challenging, it is only OTTs that can bring in revenue for the operators. This also means those small streams of revenue that usually would be seen so far in ‘Others’ or ‘VAS’ for operators, would now take the centre stage. It is expected that the substantial revenue for operators in 2-3 years from now globally, and 3-5 years for India, would be from these OTT apps, which are nothing but use case driven solutioning from operators.