Sleeping With The Enemy: Telco vs OTT
Earlier today, I attended a discussion event held by our friends at IndoTelko. I find the event super interesting because they’re covering one of the biggest question in the telecommunication industry “OTT, Friends or Foe?”. The event itself was attended by all the top people from the telco companies, CEOs from XL Axiata, Indosat, Smartfren, Telkomsel, Axis and also telecommunications regulatory body, BRTI as well as Andy Zain to represent the OTT side.
For you who doesn’t know, OTT (Over The Top) is what the telco people call every services that is running on the telco’s infrastructure but in most cases are not controlled whatsoever by the telco. Common people would refer OTT as … apps. But I’ll refer apps as OTT from now on.
The background of the discussion is about business model that is suitable for both businesses (telco and OTT). As you probably know, telco is a high-cost business investing and relying heavily on the super expensive infrastructure. And we all know how OTTs are simply apps or websites that (in most cases) can be built relatively cheap. The capital disparity between the two businesses creates a different point of view on how both businesses generates revenue.
The trend suggests that although the traffic for OTT consumption is increasing really fast, telco’s revenue (generally speaking) is going downhill, pretty fast too. Telco’s decreasing revenue is in fact a direct impact on OTTs, which makes the relationship even more complicated.
A good example, Skype allows users to make calls using the internet, bypassing telco’s voice (chargable) infrastructure, therefore reducing telco’s revenue from voice usage. Another good example, a more lethal one is Instant messaging. KakaoTalk, Whatsapp, Line, WeChat, BBM, iMessage. It’s a solid fact, that in countries like US, telco’s revenue from SMS decreased significantly due to consumer’s switching to instant messaging platforms which allows them unlimited messaging service.
In a way, OTT kills telco’s SMS and Voice business. In another angle though, OTT increases the number of data traffic for telco.
A survey in Europe showed that 51% of the telco thinks that OTT is both a threat and potential partner. Most of the telco CEOs stated that they’re more than willing to open their door for those who wish to partner with them but most of the OTT companies that came to them wasn’t really that good, especially local ones. They’re “forced” to work together with foreign OTT which kinda brought in another problem, international bandwidth, but we’ll talk about that some other time.
When I said the telcos were “forced” to work with foreign OTT companies, I was talking about consumer experience. Most of the local companies who wanted to partner with telcos, relies heavily on services but the user experiences is often neglected. Telcos would’ve be happy to partner with local OTT companies, but to a certain degree, they have to maintain their consumer experience while using those OTT services.
Again, all telcos agreed that finding business model for OTT in Indonesia is still hard. They can’t charge OTT for running on top of their infrastructure, that’s just plain ridiculous. Although some of them charge OTT companies in exchange for cross promotions via offline and mobile campaigns. But it’s not enough.
So basically, telcos have a few options to respond to OTT:
Block access to YM, WeChat, Line etc and put a package for text messaging, say $20 bucks per month unlimited texts. That strategy can lure users to pay for texts and leave instant messaging services. Or simply block Skype over 3G in order to get people to keep using Voice access.
Basically come up with plans to partner with OTT, some telcos in Indonesia is already doing this by partnering with OTT companies. Sign a profit sharing deal between telco and OTT companies does pretty well for the telco but in most cases not so well for the OTT companies. Of course, it all depends on the term sheet.
Another example of a partnership between telco and OTT companies is a campaign called “10 mins voice call, free 1 min facebook” done by a European telco a few years ago that wen’t pretty well. You just have to come up with a nice hack!
Instead of fighting or partnering with OTT companies, why not create OTT services on our own? Build the team, build the app, it’s easier to control and to make sure they’re align with the company’s revenue generating plan. The downside of this plan, is of course the competition with incumbent OTT services and this strategy required huge load of capital to start.
Of course the approach that a telco takes in each market can be totally different each with its own reasoning behind it. There’s not correct answer for this, although I’m pretty sure that you’ll notice when things go wrong (or great!) for both the telcos and OTT companies.
In conclusion, most telcos are open for partnership and they’ve learned a lot about partnering with OTT companies for the past year. Partnering with telco is probably one of the boost startups need especially for market entry, their huge user base can be a good start for the next plan of organic growth, assuming you don’t have that much marketing budget. A survey in the US stated that 77% of mobile subscribers use OTT apps, and I don’t think Indonesia is much different.
As for most telco companies around the globe, OTT companies are the enemy they have to keep close. To quote Sun-Tzu, “Keep your friends close, keep your enemies closer”. In the telco’s case, they also have to be in the same bed with the “enemy”.
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