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There’s a massive development underway in mobile communications and its significance seems to be “over the top” of most end users’ heads. Forgive the awful pun, but OTT (over-the-top) services have been disrupting the mobile communications industry as we know it over the last several years and the question now is how will traditional telcos cope with their emergence?

For end users, the names of these OTT services are much more familiar than the concept itself; namely WhatsApp, Apple, and Skype. The way these services work is that they utilize the cellular data network that you purchase and use it as a platform for their VoIP and messaging services.

Let’s take a closer look at some of the ins and outs of OTT services, as well as some of the major challenges facing mobile providers today.

OTT services operate “over the top” of traditional cellular networks but they also have the added benefit of being able to work over Wi-Fi. When they work over Wi-Fi, they aren’t subject to the regulations and costs associated with the cell providers’ mobile networks. This represents a significant challenge for providers, especially in less advantaged economic regions where communication using WhatsApp is essentially free, sans the cost of the device.

WhatsApp, Google, Skype and Apple VoIP & messaging services also benefit from orthogonal business models – they derive revenues from something other than the usage based fees of traditional telcos. For them, VoIP and messaging services are merely a way to attract and keep “eyeballs” engaged on their platforms, thereby adding more advertising or subscription based revenue. The orthogonal “cash cows” allow them to attract top software talent and vastly “out-innovate” telcos who’s budgets are tied to ever decreasing profit margins in a largely commodity market.

Are these companies making the dedicated phone number obsolete? If VoIP and messaging services are extremely cheap, if not free, why would consumers stick with the old model?

One reason is that they don’t really have a choice. While the OTTs are marvels of disruption and innovation, they don’t seem to have any appetite for the decidedly un-sexy business of building and operating regulated telecommunications infrastructure. Microsoft has just aborted its phone building business. Apple still relies on major carriers for its top selling product. Google Fiber found out how hard building residential fiber can be and India said no to Facebook’s “free” internet. Finally, all of them would shudder at the type of government oversight that licensed carriers must endure with respect to user data and privacy – talk about killing the cash cow!

Telcos and OTTs have had little love lost between them these past ten years (the words “settlement free peering” has added more than a touch of grey to the heads of executives from both sides). The press and others stoke these fires by characterizing the relationship as a zero sum game but this “us vs them” dynamic has been counterproductive at best. Can’t we all just get along?

The simple fact is, we need each other. Telcos need OTTs to keep users in love with their devices and OTTs need Telcos to pick up the phone when things go wrong. The “knitting” we can all stick to falls into three broad categories’:

    1. One number to rule them all. Yes, we will still need the phone number! While the anonymity and privacy of the Internet is an essential tool for democracy, there are a vast array of internet services that need proof that you are who you say you are. Your cell phone number is quickly becoming a key component in a variety of identity management solutions. With their legacy of public trust and interoperability, telcos are uniquely positioned to not only assure identity but to protect it as well. Massive credit card fraud and identity theft are occurring with alarming regularity. Expanded carrier billing solutions could offer consumers a single bill for most of their digital services and keep their credit cards out of harm’s way.
    2. If we build it, will you come? A robust global internet infrastructure is key to the success of OTTs but after years of carrying this traffic at low to no cost many regional and global ISPs have consolidated, lowering the total number of parties with an appetite for submarine cable builds. As Facebook, Google, Amazon and Microsoft scramble to put together their own submarine teams, the market seems to be begging for a new model. Rather than duplicating not just the engineering staff but all the attendant and highly specialized back office functions, would it not be easier for OTTs to outsource much of this to a few nimble, established telcos with this as their core competency? OTT money and “telco grade” construction & operation seems to be a match made in heaven.
    3. Be so good they can’t ignore you. Telcos could take a page from the OTT book on user experience – their maniacal focus on this has made their services irresistible to customers. Rather than trying to compete with their own OTT service, telcos should aspire to build networks that offer the best possible OTT experience. Seamless Pokémon hunting, HD Skype VoIP and lightning quick video streaming will allow telcos to charge a premium for their services – to both consumers and the OTTs that serve them.

What do you think providers will do to deal with the threat posed by OTTs? Can they coexist? Join in on the conversation! Share this blog post with your colleagues on social media.

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