Telcos and “OTT players” - why “them & us” attitudes need to change
Over the last four years, the largest cliché in the telecoms industry has become the divisive, false and unhelpful battle lines drawn between “telcos” (traditional telecom operators) and so-called "over-the top" (OTT) Internet firms. Epitomised by companies such as Google, Microsoft/Skype and Facebook, Internet-based application and service companies have been cast as the upstart invaders, creating financial and network-congestion havoc over “our pipes.”
Countless articles and conferences have focused on “what to do about OTT?” – examining whether such services can be blocked or somehow “monetised” (ie charged extra/taxed). Numerous analyst reports have attempted to quantify the revenues “lost” via OTT-led competition, while vendors have used the OTT bogeyman as a leading character in their policy-management and charging stories. There has been much wishful thinking that OTT players might pay extra fees for prioritised delivery – or even just a toll fee for asymmetrical traffic flows at peering points.
Some carriers have indeed attempted differential pricing – for example charging higher fees for broadband on which OTT VoIP is grudgingly “permitted,” or tiering access to include subsets of web services rather than the “whole Internet.” Typically, such efforts have tended to attract criticism from both consumers and regulators alike, while also proving technically difficult (or even impossible) to enact effectively.
More recently, international regulatory efforts have targeted the supposed telco/OTT distinction – especially leading up to the ITU’s imminent WCIT conference in Dubai, which is due to develop a new set of International Telecoms Regulations (ITRs). A full discussion of one such submission is here.
Disruptive Analysis believes that this polarised view is both factually wrong and damaging to the industry. It is driving futile resistance to the inevitable, while delaying or distracting management from addressing the new opportunities and service paradigms. While it might be politically expedient – or just a gut instinct – to set up a “them and us” strawman, it actually blinds the telecom industry to the new reality, and reduces participants’ credibility to external observers as much as their use of the term “dumb pipe.” (Anybody who understands communications well knows that networks are neither dumb, nor pipes).
The biggest myth of all is that this situation is somehow new. Yet for many years, telecom operators have happily sold leased lines or similar data services to businesses at high margins, for them to create private networks and run whatever applications over them they choose. We don’t refer to SAP or Oracle or vertical IT solutions as “OTT players” – nor even companies that run their own voice networks using PBXs. Indeed, basic telephony services are as dumb a product as the industry creates – operators don’t “monetise,” prioritise or distinguish between different conversations, no matter how much “value” flows over the top of the PSTN.
Indeed, while there has been a large amount of focus on this new source of OTT communications “supply,” there has been much less attention paid to the nature of demand – how and why consumers have started abandoning SMS, for example. Too much attention has been placed on pricing differentials – especially where new alternatives are free – and too little has been placed on functionality and utility. In actual fact, many OTT services are not just cheaper, but also better than the traditional telecom services that they displace – for example, because they work much better for “multi-device” customers who often use third-party networks such as WiFi.
Other telco businesses have also exploited public Internet connections in exactly the same way as “pure play” OTT brethren. Many operators have web portals, online video businesses, softphones for corporate or consumer users, open-to-all cloud applications and so forth. Many have long offered corporate users remote-access VPN services, allowing secure access to business applications, over public Internet connections of all types. All of these services use the public Internet in exactly the same way as Google or Skype – albeit with slightly less success in most cases.
It is notable that there tends to be much less judgement applied to the term “OTT” in the content and TV space, compared to telephony and messaging. Companies like YouTube and Hulu are widely viewed as complementary to broadcast TV, and there is a huge effort by many telcos and cable operators to “on-board” such OTT services via their set-top boxes and other platforms. In turn, many of the IPTV players (including telcos) are developing their own “TV anywhere” apps to run on smartphones and tablets.
This is perhaps less surprising – naturally, the biggest resistance will be in areas where Internet firms start to bleed value away from historic legacy revenue domains such as voice telephony or SMS. It is easier to blame the newcomers – who have a different cost structure and business model – rather than the unrealistic constraints of decades-old products and pricing. That Internet companies have worked out how to send 140 characters of text for less than 10c each, after four decades of Moore’s Law and two decades of the Internet, should hardly be a shock. What is a shock is how little evolution there has been in services such as SMS and phone calls during that time. Few technology sectors have been able to stand still that long – in many ways, operators should have been counting their blessings that the cashflow has remained robust for so long, with so little supporting innovation.
Ironically, things are getting even more blurred as Internet companies build their own infrastructure (eg Google’s fibre network in Kansas City), set up MVNO partnerships with cellular carriers, or take equity stakes in network builders (eg Facebook’s investment in the Asia-Pacific Gateway sub-oceanic fibre consortium). Some so-called OTT players even own (explicitly or secretly) cellular networks or shares in them, allowing preferential roaming or interconnect rates.
In Disruptive Analysis’ opinion, this blatant hypocrisy over the OTT/Telco distinction is calculated, defensive and reactionary. It is also misguided.
The true opportunity for the telco community is not pursuing fruitless legal arguments that might help them tax or slow down the very services that their access customers actually want. Instead, operators need to either help deliver those services more effectively to a wider audience, or instead create something better of the same ilk. It should be apparent that new services only gain viral adoption and popularity when they can scale rapidly across the Internet/smartphone user base as a whole. Interoperated or “federated” services like the GSMA’s RCS/Joyn concept are slow to emerge from standards committees, and lack feature richness, while suffering from compromises and poor differentiation. They cannot be “cool.”
Instead, operators are adopting new Telco-OTT strategies – often while other departments are still fighting the old battles. Virtually every major operator on the planet now has some form of in-house or partner-based OTT initiative, whether it is a web portal, a VoIP play, or even a femtocell offer designed to work over third-party broadband. Numerous operators are partnering with Skype, WhatsApp and Facebook to improve the attractiveness of their mobile data packages. Ever greater numbers of operators are touting “TV anywhere” apps intended to work on tablets or smartphones, typically over another telco’s WiFi or 3G/4G networks.
Disruptive Analysis has identified well over 100 examples of such “Telco-OTT” service deployments – with some operators operating five or more independent initiatives. The best-known is probably Telefonica’s TU Me offering, but it is merely the tip of the iceberg.
Yet against that backdrop, there is still a lot of legacy “them and us” argument – it serves a useful media and political purpose to continue pretending that there is clear blue water between “traditional” operators and so-called “OTT players.” It is conspicuous that none of the operators’ Telco-OTT business units have sought to buy quality of service (QoS), or offered to pay for data carriage, from their fellow operators. All things being equal, one would expect that one operator’s online video unit would be first in the queue to pay for other operators’ enhanced network capabilities or capacity usage.
The time has come to adopt a more mature and adult approach to the industry structure. The software industry has long used the term independent software vendor (ISV) to describe a similar situation – one firm providing applications that run over another’s platform. Often, these are “enemies,” such as Microsoft and Oracle. Yet they maintain cordial relationships at a platform/ISV level even though they compete on retail application products. The consequent “co-opetition” approach works to the health of the whole industry.
The telecom industry would do well to embrace a similar grown-up stance. Telcos are OTTs and OTTs are telcos. Separation of network access and service/applications is inexorable and inevitable – and a huge opportunity, even while legacy models are displaced. Companies should abandon the often-pejorative term “OTT” altogether, and adopt something like less judgmental, perhaps Network-Independent Application Provider, or similar. “Them and us” is actually just “Us.”
Biography: Dean Bubley is the Founder of Disruptive Analysis, an independent technology industry analyst and consulting firm. An analyst with over 20 years' experience, he specialises in wireless, mobile, and telecoms fields, with further expertise across the broader technology industry.
Dean Bubley's Disruptive Wireless: http://disruptivewireless.blogspot.com/
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