Telcos and OTT applications: Compete, Partner or Accept?

Remember all the hand-wringing we did back in the 2000s about “text speak corrupting the language of the younger generation”? You don’t really hear those complaints any more - so what happened?

Text speak came about due to necessity: mobile carriers were placing a limit on text message length (often to as little as 160 characters) and charged a fee to send or even receive them. Under those conditions, it is no wonder that we developed more concise and economical ways of writing. It is also no wonder that we quickly migrated to the free alternatives that began to pop up around the early 2010’s - once we could type freely without fear of excessive charges, text speak began to disappear.

While this was certainly a relief to teachers everywhere, it posed a problem for telecommunications providers, because it announced the arrival of over-the-top (OTT) media services such as WhatsApp, which managed to do an end run around their revenue model by providing like-for-like experiences, often for free.

With the cat out of the bag, and OTT applications an established part of the playing field, telcos have to engage and compete with them somehow. The strategies for doing so fall broadly into three categories - Compete, Partner and Accept - each with their own advantages and disadvantages.

Compete

With competitors encroaching on your turf, you can either try to beat them at their own game by developing your own better alternatives, or go on the offensive and take them out of the picture outright by blocking their service.

Develop 

Pros: If you develop your own application, you get full control over the quality of service your application offers, plus you have the opportunity to integrate this new service into your other offerings. You are no longer vulnerable to a widely-used OTT application falling in popularity, and you regain full ownership of the revenue stream you were losing to third-party OTTs. 

Cons: If you don’t already have the skills or capacity in-house to develop your own, you will have to acquire those skills. This can be a major expenditure, consume time, and carries with it high potential business risk. On top of that, you will be “starting from zero” while OTT applications have built up a loyal user base and positive reputation over years.

Block

Pros: The main benefits of blocking an OTT application is that it buys you time to develop your own competing alternative, and eliminates “lost” revenue (at least in the short run).

Cons: However, it is the most drastic course of action, and may incur reputational damage to your business among the public. This will be exacerbated if the blocked platform enjoys  popularity, and you will experience churn as loyal users move on to other providers, to continue using the OTT service. 

Partner

If you can’t realistically beat these competitors at their own game, another strategy is to join them through a partnership that you can both mutually benefit from. This is increasingly popular as an option, as telcos increasingly acknowledge the possibilities of bundling popular media platforms in with their packages.

Pros: Partnership with a well-liked OTT can improve your company’s reputation, drive acquisition by bringing the loyal user base that your partner has independently built up, and also strengthen retention among your existing user base. Not only that, but it allows you to regain control over revenue streams.

Cons: On the other hand, since you do not own the OTT yourself, you have no control over the quality of service it provides, potentially putting customer relations at risk, while whatever benefits you do enjoy will only continue for as long as your partner is in demand. 

Accept

The third reaction to the proliferation of OTTs is acceptance: OTTs exist, are a huge driver of customer numbers, and show no sign of slowing down, so why fight it? 

The turning point for this was approximately 2012. This was the year when global usage of SMS and long-distance calls both began to decline, while the popularity of handsets that only offered voice calls and SMS had already begun falling in 2011.

In fact, between 2012 and 2017, the total minutes of international calls made over OTTs increased by 354%, while the total number of OTT text messages increased by 967% during the same time (to a total of 32 trillion messages).

The advent of 5G (which 92% of telcos are planning full deployment of by 2022) is only going to give OTT applications more power than ever, putting telcos in as much of a reactive position as a proactive one. 

Given these pressures, the “Compete” and “Partner” strategies are unlikely to be successful, with the best avenue for success being to accept the existence of OTTs are inevitable, while developing alternate strategies to evolve their business model.