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Teledata

Tele Data

Mobile Subscribers Yearwise comparision

The OTT Challenge: Operator strategies to reclaim their turf

December 02, 2016

In recent years, over-the-top (OTT) applications have taken the internet world by storm. Social networking juggernauts like Skype, WhatsApp, Hike and Facebook are helping users connect to each other at minimal cost – all that they need is access to a high speed internet pack. But while such apps are helping create a connected world, they are putting pressure on operator profitability and long-term sustainability. Since these apps typically ride on networks installed and maintained by telecom operators, without sharing any revenue with them, there is a looming threat of operators’ networks being reduced to dumb pipes.

What began as OTT messaging and cannibalisation of operators’ SMS revenues is now spilling over into the voice segment. Today, VoIP-based apps, which allow calls to be made over the internet, are gaining popularity with far-reaching consequences for markets like India that are still highly voice centric. As per industry estimates, a data call made over an OTT app gives an operator only a sixth of the revenue it earns from a regular voice call.

In a report released in May 2015, financial services company Credit Suisse stated that India would feature amongst the countries that are the “most exposed” to the growing competition from OTT players. In comparison, markets such as the US, Europe, Australia, China and Korea, where data constitutes a significant portion of operator revenues and voice comes bundled with data packs, will be less impacted. In India, while the data segment is registering strong uptake, voice still contributes close to 60 per cent of operator revenues. The report further stated that the cannibalisation of voice and SMS services by OTT apps could impact the voice revenues of Indian operators by as much as 50 per cent.

Telecom markets across the world have explored various strategies to counter the OTT threat (see box). In markets such as China and the Middle East, telecom regulators have stepped in to safeguard the rights of operators. In others, operators have blocked OTT apps on their networks. India seems to have made little progress in this direction. Regulation of OTT apps continues to be a grey area. Operators have been asking for OTT players to be brought under the licensing regime as they offer similar services, such as voice calls, without having made any investments in spectrum and without being obligated to pay any licence fee or charges.

The Telecom Regulatory Authority of India (TRAI) recognis this imbalance and released a consultation paper in this regard in March 2015. But the industry is yet to see any follow-up on the public consultation and awaits clarity on whether OTT services will be brought under the licensing regime. Instead, the regulator has prohibited differential pricing for data services, preventing operators from blocking such apps. It contends that discrimination of internet content could be detrimental to innovation and may result in restrictive access to small-scale and quality OTT services.

In such a scenario, increasing the tariffs for data seems to be the logical way forward. Since these apps consume operators’ data, increasing data prices could compensate them to some extent for declining voice revenues. However, such a move could threaten the very objective of “Broadband for All” in a country where data penetration continues to be dismal. Further, adopting a price hike strategy in a hypercompetitive market like India is highly unsustainable. In fact, competition has taken a new meaning in the Indian telecom market post the launch of Reliance Jio’s services. With the company giving free MBs of data till the year-end, the data business too would have to soon survive on wafer-thin margins.

Playing the OTT game

As IP messaging and voice apps give legacy SMS and voice services a run for their money, operators are looking at new ways to hold their own by either partnering with existing OTT players or building their own in-house apps. Globally, operators have tried both these options and have achieved varied degrees of success. Indian players too have, in the past, come out with data plans that allowed WhatsApp and Facebook usage at discounted rates. Most of these offers were aimed at pushing data adoption in the country. However, following TRAI’s ban on differential pricing, these have been withdrawn.

In recent years, operators have also started testing the waters in the in-house content and app development space. Bharti Airtel is a pioneer in this area and has launched various apps for songs, movies and gaming. However, it is the recent launch of Jio that has given a major fillip to this trend. The company has launched a slew of apps that are similar to popular apps like WhatsApp, Google Drive, Newshunt, iTunes and Apple Wallet in their features, but are more Indianised.

Building a bespoke OTT application in-house gives the operator complete control over it as well as the freedom to customise. Moreover, as compared to independent OTT players, operators have the advantage of an existing billing relationship, brand loyalty, extensive customer insight and a sizeable subscriber base. The success of their strategy, of course, lies in the quantum of data they offer to users. Jio has stolen a march on its rivals by offering unlimited data till the end of the year. This, coupled with its entire ecosystem of in-house mobile apps, has put the company ahead of the curve for the time being. Jio has more than nine apps on the Play Store and App Store including JioChat, JioNet, JioCinema, JioBeats, JioJoin, JioMagz and JioTV, and several of these were topping the rankings during the initial weeks of launch.

In September 2014, Airtel became the first operator to introduce in-house OTT services with the launch of Wynk Music, a carrier-agnostic mobile application. It later expanded its content portfolio with the launch of Wynk Movies and Wynk Games. Wynk Music offers an experts’ curated library of over 1.7 million songs in eight languages and competes with apps like Saavn and Gaana in the mobile music app space. The app received an overwhelming response with about two-thirds of users accessing it through rival operator (non-Airtel) networks. In fact, such carrier-agnostic apps can help operators build relationships with subscribers of other networks. However, whether this would lead to a subscriber churn remains to be seen.

Reliance Communications is also building its own mobile applications as it looks to offer new and enhanced services to retail and enterprise customers. In 2015, it came up with a unified collaboration-based app called SmartChat. The app enables instant messaging, text messaging, sending/receiving emails. The app comes with enterprise-grade security and has been developed using open source software.

Meanwhile, Vodafone India has packaged most of its offerings in a single app called Vodafone Play. The unified app offers access to music, TV shows and movies presented by Hooq and Hungama, as well as live TV in partnership with Ditto TV and videos. This is similar to Jio’s MyJio App and Airtel’s My Airtel App, which provides access to different content libraries. Vodafone’s customers can avail of free premium content until end-2016, unlike the My Airtel App, which has a paid subscription.

Banking on VoLTE

As long term evolution (LTE) gains ground in the country, it may help operators in upping their game against independent OTT players. The latter rely on VoIP, which puts a higher load on networks. VoIP uses 48 kbps against voice over LTE (VoLTE) which uses 12.6 kbps. Further, VoLTE uses a standard phone dialler whereas OTT-VoIP requires app-based calling. Also, battery consumption when using VoLTE is almost half that when using OTT-VoIP.

Industry experts believe that VoLTE is a key opportunity for Indian operators to at least partially reclaim the market they are losing to OTTs. To this end, Bharti Airtel and Vodafone India had awarded IP multimedia system solution contracts for VoLTE deployment to Nokia in January 2016. Earlier, in 2015, Nokia had received a contract from Jio to implement a pan-Indian VoLTE network. The technology will help operators provide voice services at a much cheaper rate to customers.

The way forward

While OTT players have been denting operator revenues and profitability, not all is lost for the latter. Notably, only about 20 per cent of the country’s 1 billion mobile users currently use smart devices (an essential for OTT apps), with the actual base being even smaller as not all smartphone owners have a mobile data plan. This presents a great opportunity for operators, who can be the first to introduce these users to the world of apps through their in-house applications, leveraging their customer loyalty.

Effective OTT counterstrategies are needed to prevent operator networks from being reduced to dumb pipes in the telecom value chain. While operators have taken steps in the right direction by launching their own apps, they will have to work on creating more content at compelling prices, and market these appropriately in order to wean users away from independent OTT players.

In sum, the right mix of self-owned apps and collaborations would go a long way in helping operators reclaim their turf.

 
 

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