Telcos vs OTT Services

Head of Internet Business Unit at IDATE

Telco vs Over the top services :
A three sided Business Model


Is it war or the beginning of a new era of OTT-isation with enough growth for all players involved?

IDATE monitors permanently telecom and internet markets and Vincent Bonneau, Director of the Internet Business Unit, designed a new concept dealing with 3-sided business models for digital gold mines.


What revenues for traditional Telecom Services and OTT services – 2007-2015?


If we compare revenues in telecom services and OTT services from 2007-2015, we can observe flat revenues for traditional telecom businesses being around 6bn EUR – in opposite OTT service revenues are skyrocketing to reach 1.7bnEUR in 2015.


Telecom Operators tend to open Digital Divisions in their corporations and it seems obvious that they tend to get a part of the pie in OTT businesses. But is war between pure OTT players and telcos inavoidable?

Beyond two-sided models: three-sided models!

It is easy to assume that by talking of ‘Telco vs OTT’, it is a simple question of these two sets of players battling it out to provide the same kind of services to the same set of users, and thus competing for the revenues which come attached to their service use (be it in the form of direct payment, advertising or any other model). However, the real picture is much more complex, often involving other sets of players, and there can even be models where partnerships between the telcos and OTTs exist.

When people hear the words ‘Telco vs OTT’, they picture this type of environment:3_two_sided_business_model

Source: IDATE


In fact, though, it is a three-sided business model; there are many parts to the ‘Telco vs OTT’ equation, as shown here.4_three_sided_business_model

Source: IDATE

The five parts of the Telco vs OTT equation

The five parts of the Telco vs OTT equation are outlined in the figure below:


Third part: Transformation of telcos into OTTs

The third part of the equation is what could be classed as the of telcos. Here, the telcos provide services which traditionally belong to the OTTs. For example, in the case of communications, as indicated in the figure above, Telefónica has launched TU Go and TU Me which are OTT communication apps; a similar approach holds for Orange with their Libon app. On a broader scale, the GSMA is pushing for joyn, using Rich Communication Suite enhanced (RCSe), which aims to provide for multimedia communication across operators with the same level of ease of use as traditional voice and SMS. But it is not only in communication services where telcos are providing OTT-style services. In the online video-hosting space, Orange has acquired Dailymotion; in the payment space, Telefónica is investing in Boku; and NTT DOCOMO is investing in Evernote in the cloud storage space.

Telco OTT initiatives in communications


Source: IDATE


Also notable is the way that some telcos have set up a ‘digital division’, with the specific target of discovering and innovating in new growth areas made possible by the digital age. Such new growth areas are often the segments in which OTTs primarily work, such as cloud, applications, video and media and advertising. Telefónica Digital is one such example.

Vincent Bonneau
Project Manager & Head of the Internet Business Unit at IDATE

To learn more on the other parts of the Telco vs OTT equation visit our website
Cloud Markets
Net Neutrality & 3-sided business models

Comments (1) Trackbacks (2)
  1. Ahhhh, Europe is finally waking up to it’s “internet bypass”, something the US experienced in the 1990s. iDate misses the point that there are two things happening simultaneously, a horizontalization of the service stack and a pricing environment which reflects marginal cost.

    100 years of false monopoly network theory and doctrine has been peeled away over the past 30 years beginning with the vertical/logical separation of AT&T and leading to 3 huge digitization waves in voice, data and wireless resulting in retail price declines of 99% in the 1980s-90s. Yet revenues still grew, such was the enormous demand elasticity. http://bit.ly/IZmTfE

    What to do? First, promulgate equal/open access in layer 1 everywhere, regardless of topology (wired/wireless) for both incumbents and new service providers. This is both economically and morally/legally correct as any provider with access to a public right of way or frequency should be obligated to common carriage, as well as scale their models horizontally as quickly as possible via resale and un-silo-ed and unfettered distribution. It will also be easy for the policy to extend into all locations, as every end user has a right to this access and landlords or municipalities can’t get in the way. It is consistent policy throughout.

    The result in the US will be rapid restructuring and consolidation to 3-5 facilities based lower layer service providers and dozens/hundreds of transport/switching providers to support ubiquitous wireless, enterprise and consumer broadband access driven by thousands/millions of application service providers. In Europe it will facilitate the necessary consolidation and restructuring of carriers region wide into a similarly looking model. Asia will follow suit along with the developing world.

    Second, policy stakeholders need to understand the development of settlement exchanges in the middle layers. The article begins talks about multi-sided models, but doesn’t develop the notion of exchange between upper and lower layers (vertically) and from network to network (horizontally), because their analysis is still limited/flawed by the vertical and silo-ed service provider model. In the new horizontal model the settlement exchanges will handle security, session management, network controls, etc… for infinite demand fulfillment; aka the internet of things. The transaction costs will be likewise infinitesimally small, reflecting marginal cost, but enormous markets in their own right. This is the domain of big data and it is happening in the cloud and on the advertising front. http://bit.ly/XOhhZS

    This process is inevitable as we see the simultaneous technology forces of OTT, webRTC, SON/hetnets at the edge, and openflow/SDN at the core getting pulled along by the scale of the internet fueled daily by moore’s and metcalfe’s laws. In other words 30-50% annual performance/price improvement per bit at every layer and boundary point in the Infostack.

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