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Impact of Over the Top (OTT) Services on Telecom Service Providers

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 ISSN (Print) : 0974-6846
Indian Journal of Science and Technology, Vol 8(S4), 145–160, February 2015 ISSN (Online) : 0974-5645

Impact of Over the Top (OTT) Services on Telecom

Service Providers
Joshi Sujata1*, Sarkar Sohag2,3, Dewan Tanu1, Dharmani Chintan1, Purohit Shubham1 and
Gandhi Sumit1
1
Symbiosis Institute of Telecom Management, Village Lavale, Pune - 412115, Maharashtra, India; sjoshi@sitm.ac.in
2
Pacific Academy of Higher Education & Research University, Udaipur, Rajasthan, India
3
KPMG Advisory Services, Mumbai, Maharashtra, India

Abstract
The telecom industry has been one that has had to deal with a continuously changing business and technology environment
more than most other industries over the past half century. Traditionally the principal revenue streams for telecom
operators have been voice and messaging (SMS) with data coming in at a far third till recently. But while telcos had been
quick to react to previous game changing developments such as the internet explosion and the emergence of cellular
mobile communications in the 1990s, they seem to have been caught napping in the face of the newest challenge to their
revenues, Over The Top (OTT) service providers. The growing impact of OTT services on telcos’ voice and messaging
revenue is a widely accepted phenomenon. Their impact on mobile data traffic and telco data revenue is also areas that
have been acknowledged as critical points for consideration. This study attempts to link these issues to shift in consumer
preferences, identify the underlying factors there of and to understand the factors driving users towards OTT services.

Keywords: Net Neutrality, OTT, Telecom, TRAI, VoIP

1. Introduction face of the newest challenge to their revenues, Over The

Top (OTT) service providers.
The global telecom industry, due to its dynamic nature has The OTT service providers deliver audio, video and other
been witnessing a continuously changing business and media over the internet and bypass the traditional opera-
technology environment over the past half century. Since tor’s network. Since, the OTT players do not require any
its initiation with the telegraph and early voice telephony, business or technology affiliations with network opera-
the industry has come a long way. The telecom operators tors for providing such services, they are often known by
today strive to provide seamless and high quality voice, the term "Over-The-Top" (OTT) applications6.
data and multimedia services in a multi-device, mobile These lean and nimble OTT players, enabled by tech-
environment. Traditionally the principal revenue streams nology advances such as smartphones, super-fast IP
for telecom operators have been voice and messaging networks, open source platforms, innovative services,
(SMS) with data coming in at a far third till recently1. cutting edge functionalities and shift in consumer pref-
But while telcos had been quick to react to previous game erences towards their “freemium” based business models
changing developments such as the internet explosion are seeing an ever increasing adoption rate.
and the emergence of cellular mobile communications in Though they utilize the telecom operators’ network and
the 1990s, they seem to have been caught napping in the infrastructure, necessitating continuous capital invest-

*Author for correspondence

 Impact of Over the Top (OTT) Services on Telecom Service Providers

ment, they do not contribute directly to the telcos’ revenue 2.1  Research Methodology
however OTT service usage require subscription of Data
Qualitative research study was adopted wherein we have
pack thus driving the data revenue. But what’s most wor-
studied reports of various organizations, financial reports
rying for the telcos is the fact that these OTT players offer
of telecom companies, whitepapers, newspaper excerpts
services that are close substitute to their own offerings and
and various other research reports in order to answer the
are beginning to pose a credible and measurable threat to
research questions formulated above.
their revenues. The wide variety of applications and ser-
vices offered by OTT players is luring the customers away
from the telcos restricted, relatively more expensive and 3.  Literature Review
severely limited array of services.
3.1 Impact of OTT Services on Telco
The growing impact of OTT services on telcos’ voice and
messaging revenue is a recognized reality. Their impact Revenues
on mobile data traffic and telcos data revenue are also There are many organizations which have studied the
areas that have been acknowledged as critical points for impact of Over The Top (OTT) services on telecom opera-
consideration. This study attempts to link these issues to tor. However, very few have shown how shift in consumer
shift in consumer preferences and identify the underly- preferences & technology trends have led to this state. The
ing factors thereof because we believe that any attempt impact of OTT services on operator’s revenue has been
by telcos to respond to the changing scenario would have fully apprehended by all the stakeholders in the telecom-
its roots in understanding what is primarily driving users munication industry worldwide.
towards OTT services. For example, according to Informa’s World Cellular
Revenue Forecasts 20187, global annual SMS revenues
will fall down from US$120 billion in 2013 to US$96.7
2.  Objective of the Paper billion by 2018, due to increasing adoption and use of
Over-The-Top (OTT) messaging applications.
The objective of this paper is to propose a conceptual Spirit DSP, in its report “The Future of Voice”8, has
framework which attempts to analyze the trends affect- also studied the impact of OTT VoIP (Voice over Internet
ing the consumer behavior towards communication Protocol) applications on voice revenue. According to the
services due to advent of OTT services. Also, it identifies report the overall global telco voice revenues (including
factors such as cost, convenience, features, social propen- fixed subscriptions) will decline from $970.4 billion in
sity, content availability, smartphone and mobile internet 2012 to $799.6 billion by 2020, at a CAGR of 2.4%. Also,
penetration, user experience and net neutrality which are as a result of VoIP by 2020 the telecom industry world-
effectively leveraged by OTT players to offer better sub- wide will see a loss of revenues approximately worth
stitutes to telcos offerings. Furthermore, it studies the $479billion which accounts for 6.9% of the total revenue
impact of these factors on operators' voice, messaging from voice.
and data services. This study will help telcos in designing Another report “Consumer OTT VoIP Outlook: 2013
strategies to overcome the OTT threat and also in iden- to 2018”9 by Ovum, highlights that the OTT VoIP market
tifying changing consumer needs, thereby helping them is growing at a rate of 20 percent. Its application’s usage
design offerings to suit their needs. will reach 1.7 trillion minutes by 2018, which translates
In order to formulate the framework we have asked the to $63 billion in lost revenue. According to this study, as
following research questions a result of increasing demand of online applications for
• What are the trends affecting telecom consumers’ messaging, by the year 2016, telecom operators will stand
behavior with regards to communication services to lose revenue worth $54 billion in messaging services
due to advent of OTT services?
• What are factors leading to adoption of OTT ser- 3.2  Impact of OTT Players on Data Traffic
vices?
• Analyze the impact of these factors on Telecom rev- The impact of OTT players is not just limited to telcos
enues across services (Voice, messaging, data and voice and messaging services but has led to an exponen-
video) tial increase in their data traffic causing severe congestion

146 Vol 8 (S4) | February 2015 | www.indjst.org Indian Journal of Science and Technology
 Joshi Sujata, Sarkar Sohag, Dewan Tanu, Dharmani Chintan, Purohit Shubham and Gandhi Sumit

problems in their telecom network. A major contribu- bn from 192.7 bn messages2. During this period, the only
tor to the increased data traffic is the growing consumer reason to rejoice for telecom operator was wireless data
appetite for more video. traffic which grew by 48.1% YoY, thereby offsetting the
According to “Cisco Visual Networking Index: Mobile impact of OTT services2.
Data and Internet Traffic, 2013–2018”10, in the years Similar trend was seen on Indian turf when Bharti
between 2013 and 2018, mobile data traffic is expected to Airtel and Idea announced their financial results for QE
rise at a compounded annual growth rate of 61 per cent. Mar’14. Both the cellular service providers saw a decline
It expected to grow from 1.5 exabytes to 15.9 exabytes in messaging & VAS revenue, Bharti Airtel saw decline
per month by end of year 2018. Mobile video traffic will of 5.6% in its messaging and VAS revenue while for Idea
increase from 633 PB to 9103 PB per month with a CAGR cellular it was around 6.4%3. Even though OTT apps offer
of 70%. This exponential increase in data traffic will put free voice over IP services still there was no significant
a strain on the operators’ network as signaling traffic will impact on voice revenue since India has the lowest voice
outpace the growth in data traffic by 40%18. This will tariffs in the world4. Favorably, presence of OTT players
require telcos to invest in network capacity enhancement helped telcos to add data revenue in a significant manner
measures like spectrum, small cells, among others. as can be corroborated form the fact that the total data
A report from Heavy Reading, “Internet TV, Over- revenue for Idea cellular for 4th Quarter 2014 increased
the-Top Video, & the Future of IPTV Services”11 highlights by 10.1% as compared to 9.5% previous quarter3.
that operators perceive competition from Internet service It is clear that Over The Top (OTT) services have
and OTT video services as a significant threat. According impacted the telecom operators resulting in the erosion
to this report, the OTT players without making any heavy of billions of dollars from the operator’s balance sheets
investment make use of the available IP networks. The worldwide5. If these OTT players are not dealt strategi-
operators are getting concerned over the fact that OTT cally, then in the medium to long term the telcos might
video providers will take away the value proposition just become a dumb pipe for OTT services.
offered by their VoIP services and they would be relegated Therefore, we believe that OTT services must be ana-
from broadband network operators to a dumb pipe. lyzed in great detail & the operators should take reference
However, according to Simon Landsheer, CEO of from the OTT players and fill the gaps in their services,
Silver street “The OTT operators benefit in a two fold man- which might even require transformation in their busi-
ner; one due to increase in the traffic for Short Messaging ness model. Hence, this paper is an attempt towards
Services (SMS) and other due to rise in the data traffic as a analyzing and identifying factors that have created an
result of increasing number of people using smart phones impact on revenues of the telecom operators globally &
for OTT services, not only from increasing SMS traffic to come up with a conceptual framework which will help
but also from increased data traffic as more smart phone telcos in designing strategies to overcome the OTT threat
users embark to OTT services”. and also in identifying changing consumer needs, thereby
The above argument is further corroborated by the helping them design offerings to suit their needs.
fact that for China mobile in the year 2012, SMS reve-
nue decreased but the data traffic during the same period
increased at an extraordinary rate of 187% because of the
4.  Conceptual Framework
large scale uptake of OTT services2. The viral nature of The conceptual framework looks at various factors &
OTT communication services dramatically increases the trends which have led to dramatic adoption of OTT ser-
total data consumption of the consumer. vices leading to impact on telcos revenue.
Impact of OTT is not just in theory but is getting Also, it identifies factors such as cost, convenience,
reflected in operator’s financial statements as well. China features, content availability, smart phone and mobile
Mobile, world’s largest operator, has shown drastic decline internet penetration, user experience and net neutrality
in its profit for the first quarter of 20142. Its profit fell by which are effectively lever aged by OTT players to offer
9.4% to its lowest point in five years, blaming OTT services better substitutes to telco offerings. Furthermore, it studies
for the same2. Increased usage of over the top services has the impact of these factors on operators' voice, messag-
reduced the growth rate in voice usage which grew by a ing and data services. From the research we confer, that
meager 0.6% YoY, while messaging traffic declined to 153

Vol 8 (S4) | February 2015 | www.indjst.org Indian Journal of Science and Technology 147
 Impact of Over the Top (OTT) Services on Telecom Service Providers

Cost, Convenience, Communication (Social propensity), driven. Various market trends that we have identified are:
Content availability, Advancement in technology and in Personalization & customization, advancement in tech-
devices as well as telecom networks and Net Neutrality nology messaging preferences, client distribution and
have led to adoption of OTT services. social propensity. These trends and factors we believe
This rapid uptake of OTT services had a huge impact have been and continue to be the primary reasons for the
on the telco revenue and services. Various factors and encroachment of OTT services i.e., voice and messaging
trends that have attributed to this impact are further on telecom operators’ revenues. The following section
illustrated in the conceptual framework shown below in delves into these trends and factors in greater detail.
Figure 1.
5.  Analysis and Findings
This study proposes a conceptual framework which is
formed after analyzing the following research questions:
RQ 1. Due to advent of OTT services what are the trends
affecting telecom consumers’ behavior with regards to
communication services.

5.1 Trends
5.1.1  Personalization and Customization
Consumers of communication services have increasingly
put a premium on a more personalized customer expe-
rience and more customizable access to services of their
choice. The availability of a wide variety and huge quan-
tity of content has led to the consumer insisting on the
right and relevant information and content being made
available to him at all times. The consumers’ demand for
convenience has made it necessary for service provid-
ers to track the preferences of individual consumers and
deliver the information and content accordingly. Rising
smartphone and mobile internet penetration has put the
equivalent of a sophisticated and powerful yet personal
communication system in the pocket of every consumer.
Since the consumers spend a major amount of their time
Figure 1.  Conceptual framework.
interacting with their smartphones, they want their expe-
rience to be unique and one-of-a-kind.
An in-depth study of existing literature on the subject
as well as inferences and insights derived from market 5.1.2  Advancements in Technology
indicators such as financial reports and industry studies With time the telecom technologies especially radio
have helped us identify various factors like cost, content access have advanced. It has moved from initial GSM
availability, convenience, smartphone penetration user and CDMA technology to Third Generation (WCDMA,
experience and net neutrality. These factors we believe are TD-SCDMA, CDMA2000) and to more advanced Fourth
the prime forces for the rampant adoption of OTT ser- Generation technologies (TD-LTE, FD-LTE, LTE-A).
vices at the cost of telco offerings. These technology advancements have provided the end
A parallel study of the trends observed in the market user with data rates, which were unthinkable a decade
for telecom services and the shift in consumers’ reac- ago. The enhanced data rate can be very closely linked
tion to new developments has enabled us to map the to the adoption of the bandwidth hungry OTT services
above mention factors to the market trends they have like video calls and multimedia services like Video on

148 Vol 8 (S4) | February 2015 | www.indjst.org Indian Journal of Science and Technology
 Joshi Sujata, Sarkar Sohag, Dewan Tanu, Dharmani Chintan, Purohit Shubham and Gandhi Sumit

demand. This can be seen from the fact that video OTT 5.1.4  Content Distribution
players like Netflix are more widely used in developed As the consumers’ demand for content has accelerated,
countries, where the radio access technologies are more service providers have been trying to match the supply
advanced and supports higher data rate. Handset tech- of content to the demand. At the same time they had to
nology advancement is another factor which has enabled develop capabilities to deliver this content to consumers
the OTT services delivery to the end user. Migration of distributed across geographies, technologies, platforms
mobile from feature-phone to technologically advanced and devices. This has led to rapid advances in content dis-
smartphone has allowed data streaming, which is one of tribution capabilities. Nowadays, content be it audio or
the most prominent enabler for any OTT. Smartphone video is readily available on different platforms such as
also enhanced the consumer experience which in turn YouTube & Netflix which contributes approximately half
lead to more innovative OTT services. of the internet traffic. While availability of content and
rising penetration of smartphones and mobile internet
5.1.3  Messaging Preferences were the major contributing factors towards the focus on
Driven primarily by cost, smartphone and mobile broad- content distribution, the need to satisfy consumer expec-
band penetration, availability of advanced features and tations in regards to convenience and customer experience
net neutrality, the consumers’ messaging preferences have forced service providers to maintain this focus and
have rapidly and possibly irreversibly shifted from telcos’ keep improving their content distribution mechanisms.
SMS and MMS services to OTT messaging services. Most
of the OTT services employ a ‘freemium’ based busi- 5.1.5  Social Propensity
ness model, where they provide unlimited messaging to With the seemingly boundless means available for com-
consumers for a meagre fixed subscription fee or charge munication and remote social interaction, the modern
consumers only for certain premium features. Hence, a consumer feels the need to share every small or big emo-
consumer in effect needs to pay only for the mobile data tion, thought and experience instantly with everyone.
usage. Consumers have been increasingly choosing this And consumers don’t just want to share information, they
option over the telcos’ pay-per-message models. have increasingly been sharing exponentially rising quan-
Adoption of OTT messaging is very closely linked to tities of pictures, videos and audios. Explosion of user
smartphone and mobile broadband penetration. While generated multimedia content also has led to increased
in matured markets growth in smartphone and mobile sharing & communication among social groups. Since
broadband penetration has been a key driver for increased OTT services have drastically reduced the cost to con-
OTT messaging adoption, in many developing markets sumer for sharing information and content, cost is no
this penetration itself has been fuelled to an extent by the longer a deterrent in this regard. With easy, convenient
consumers’ desire to use OTT messaging services such as and instant access to advanced communication technolo-
WhatsApp. This close relationship has in fact resulted in gies, the consumer would only want to share more. This
many telcos collaborating with such OTT messaging ser- can be seen by the emergence of OTT applications like
vice providers to in centivize mobile broadband usage by Instagram, Snapchat, Vine, WeChat etc. which allow users
consumers. to share multimedia content with their friends.
Fast IP networks and advances in technology have also RQ 2. What are factors leading to adoption of OTT
enabled OTT messaging service providers to offer a bou- services
quet of innovative services and features to the consumers Key trends and factors affecting increase in adoption
such as voice messages, media sharing, microblogging, of OTT services.
Stickers etc. Telco messaging services on the other hand According to the studies mentioned below, it can
have practically remained unchanged and lackluster since be asserted that the growth in usage of OTT services is
their inception. driven by a number of factors such as improvements in
The principle of net neutrality has also worked in favor of the availability as well as speed of the mobile networks,
the OTT services, as telcos are forced to remain neutral the expanding power as well as affordability of wireless
in providing customers access to any service, whether its devices such as smartphones and tablets, and continued
own, a partner’s or a competitor’s. dominance of social communication over the Internet.

Vol 8 (S4) | February 2015 | www.indjst.org Indian Journal of Science and Technology 149
 Impact of Over the Top (OTT) Services on Telecom Service Providers

According to a report published in Business today, the RQ 3. Analyze the impact of these factors on Telecom
revenues of telecom operators are on a rise as a result of revenues across services (Voice, messaging, data a and
increased data usage facilitated by video downloading. video).
According to the report, the total data consumption for The following factors have been identified earlier
the Indian telecom operator Airtel in year 2012 increased in the literature review section as instrumental in the
almost by 81% with the technological advancement and increased adoption of OTT services. Cost, Content avail-
increase in speed i.e. when the operator moved from 2G ability, Convenience, Smartphone and mobile internet
to 3G services. penetration, User experience, Features, Net neutrality. A
The market is changing at a rapid pace. There has been measure of their impact on telcos can be better under-
a significant shift in both the demographic as well as the stood by answering the following questions.
psychographic indicators. Although these changes are not
apparent to a larger audience, the marketers are aware
of how these factors have contributed in changing the
6.  Cost Advantage
business landscape and helped in development of OTT Is the cost advantage offered by OTT players driving
industry. the use of OTT Services thereby leading to decline in
Arthur D. Little in his report “Disruptive threat and usage of telecom core services?
Innovative opportunity”12 has identified few key trends in
these changing scenario that has influenced the adoption 6.1 Voice
of mobile voice OTT. According to the report smart-
Voice calling charges have traditionally reflected wide
phone penetration and enhanced functionality provided
variations depending on factors such as originating coun-
by OTT players are two most prominent contributors to
try, terminating country, on-net/off-net calls and usage
the OTT growth. Innovative and smart services provided
based or subscription based charging. These variations
by OTT players are other factors contributing to the OTT
make it difficult to have a standard comparison matrix for
growth12.
voice call charges.
Factors influencing the adoption of video services
While usage of OTT services such as Skype and Line
were studied by Motorola in its paper “Opportunity and
for local or national calling has begun to see increased
impact of video on LTE Networks”13 emphasizing notable
adoption only recently driven by technology advances
consumer trends such as personalization, content avail-
driving higher data bandwidth and service quality, these
ability, social features, device technology etc.
and similar services have had a far greater impact on the
Telco revenues from international calls. Especially in a
market like India where the cost advantage for local and
national calls is minimal considering the relatively low
calling rates offered by the telcos and data networks are
limited in their capacity to offer comparable service qual-
ity, the real impact of the cost factor is best observed by
comparing international call charges.
The following Table 1 compares call charges offered
by various telcos and OTT services for international
calls from India to the USA. On-net charges reflect the
greatest cost benefit since on the one hand telcos do not
offer any special on-net discounts for international calls,
OTT services offer calls to other users of the same service
absolutely free of cost. OTT players also offer additional
services free of cost for on-net calls such as video call-
ing (Skype, Fring, Line), media sharing (Skype, Nimbuzz,
Line) among others. On-net charges though might not be
Figure 2.  Factors leading to adoption of OTT services. the best perspective to compare voice call costs for tel-

150 Vol 8 (S4) | February 2015 | www.indjst.org Indian Journal of Science and Technology
 Joshi Sujata, Sarkar Sohag, Dewan Tanu, Dharmani Chintan, Purohit Shubham and Gandhi Sumit

cos and OTTs since an on-net call over an OTT service a major contributor to them. The principal reason for
requires both the caller and the receiver to be on the same this rapid adoption is the cost savings offered by these
OTT network and have the application installed on their services. One look at the following table 2 makes these
devices. cost savings evident. While telcos continue to demand

Table 1.  Comparison of telecom operator and OTT players cost incurred Source: Operator’s & OTT
players’ Website14

ISD Calls to USA from India Off-net (Per min charges) in INR Off-net (Unlimited) On-net

Airtel 8 Not Available Not Applicable

Vodafone 8 Not Available Not Applicable
Idea 8 Not Available Not Applicable
Skype 1.39* $6.99/month free
Nimbuzz 0.48* free
Viber 1.14* free
Fring 0.72* free
Line 1.20* free

Comparing the off-net call charges in the table, the considerably high per message charges inspite of the fact
usage based charges that telcos offer users are much that they utilize much of the same and already in place
higher than what consumers would pay for calls made network infrastructure, OTT messaging services offer
from the OTT services to mobile or landline numbers. basic messaging services either free of charge or for a very
While consumers can avail discounted calling rates subsidized subscription fee. Considering the fact that the
through subscription based calling plans which both, tel- amount of mobile data used for basic OTT messaging is
cos as well as OTT services (Skype, NimbuzzOut, Fring, very low and the number of messages is not limited, the
Line) offer, these subscriptions typically have a Fair User cost per message to consumer is negligible.
Policy cap on usage. Some OTT services such as Skype These cost savings were the major reason that catapulted
even offer unlimited usage (unlimited minutes of calling) OTT messaging services to the level of mass adoption
for a fixed monthly charge. that they enjoy now and continue to diminish the use of
The cost economies offered by OTT players are also telco messaging services.
showing their impact on the telcos’ enterprise VoIP rev-
enues. The SME sector businesses in particular find the Table 2.  Comparison of cost to consumer for TSPs
trade-off between the service quality and cost savings and OTT players Source: Operator’s & OTT players’
offered by OTT services acceptable and prefer using these Website
services over the telcos’ managed VoIP offerings.
These cost benefits and flexibilities offered by the OTT
players have led to consumers increasingly preferring
using them for international calls over the telcos.

6.2 Messaging
Messaging (SMS and MMS) revenues are probably where
OTT players have hit telcos the hardest. Adoption of OTT
messaging services has been so fast and widespread that it
is no more just a product of mobile data and smartphone
penetration but has for all intents and purposes become

Vol 8 (S4) | February 2015 | www.indjst.org Indian Journal of Science and Technology 151
 Impact of Over the Top (OTT) Services on Telecom Service Providers

7. Content Availability & the adoption of OTT services by the consumers. These
OTT service providers offer large amount of content at
Development of Content very low cost to its customers and allows them to watch
Delivery Networks (CDN) movies and TV programs as per their convenience and
Has explosion of content availability over internet & preference. While OTT players are the front end for the
development of Content Delivery Networks (CDN) led consumer, Content Delivery Network (CDN) are the
to increased adoption of video OTT applications that essential backend responsible for delivering this content.
led to increase in data traffic but also requires telcos to CDNs are proxy web servers that deliver content to the
invest heavily in their networks? end consumer based on the proximity to the end user.
The growth of smartphones and the development in tech- Since, the content is distributed depending upon the
nology have created some data-hogging phone habits in proximity to the end user, these CDN servers are located
consumers like streaming videos or posting them on social in different geographical regions.
networking sites. Since video has much higher bit rates as Thus, CDN hosting system allows OTT players to
compared to other content, the increase in video traffic transmit the content to the end users as quickly and as
puts a great deal of demand on networks. According to efficiently as possible, which is turn helps in enhancing
Cisco Visual Networking Index-2014, IP video represents the consumer experience. OTT players are not just pro-
66 percent of the total data traffic, which is expected to viding the streaming services but are also producing their
surge due to increasing content availability and develop- own original content. The ability to stream this content
ment of content delivery networks. on multiple internet connected devices like smartphone,
Apart from smartphone and technology advancement, PCs, laptop and smart TV is an added facility provided by
another major factor which is shaping this consumer the OTTs.
trend is the huge availability of content through OTT pro- Content owners have also played a very important
viders such as YouTube, Netflix, Amazon Instant Video role in driving the adoption of OTT services by reduc-
etc. This can be corroborated from the fact that the num- ing the time it takes a film to go from theatrical release
ber of videos uploaded on You Tube are approximately to availability for purchase on Electronic-Sell-Through
100 hours each minute. [You Tube Statistics, 2014]. Also, (EST). Movies on an average are getting released within
the availability of content in local languages further drives 3 months after theatrical release on the internet platforms

Figure 3.  Average No of months from theatrical release before a film is available on
EST15.

152 Vol 8 (S4) | February 2015 | www.indjst.org Indian Journal of Science and Technology
 Joshi Sujata, Sarkar Sohag, Dewan Tanu, Dharmani Chintan, Purohit Shubham and Gandhi Sumit

which brings additional revenues for producers and As mentioned earlier when we were discussing the cost
increases demand for Movie on Demand (MoD). benefits of OTT voice services, even enterprise custom-
This increased video traffic has put a lot of pressure ers in large numbers are beginning to prefer services like
on the telecom network which has led to network con- Skype over enterprise telcos offerings. One reason for this
gestion, degradation in Quality of service and hence poor is the extent to which such services make collaborative
customer experience. In order to tackle these issues oper- work possible. With OTT players offering premium ser-
ators will have to invest significantly in acquiring more vices to businesses with features like zero advertising, live
spectrum and upgrading their existing infrastructure. chat customer support, group screen sharing and group
According to GSMA intelligence, operators will have to video chatting, many organizations are choosing them
increase CAPEX in their networks with a CAGR of 4.7% over the considerably higher priced solutions that telcos
between 2013-2020 in order to meet consumer demand offer for similar communication needs. In a recent survey
for bandwidth mainly driven by video traffic. conducted by Skype of 250 of its enterprise customers, as
many as 80% respondents said using Skype had increased
employee productivity
8.  Better Features
8.1.2 Messaging
8.1 Convenience
Telco operators have not only remained rigid with SMS
Do OTT Players offer better features & greater conve-
and MMS pricing but they have also not really tried to
nience leading to better user experience in comparison
innovate with the features of these services. SMS has
to Telecom operators’ services (comparative analysis of
stayed limited to a 160 character limited text messaging
services)?
services while MMS to a one to one multimedia messag-
8.1.1 Voice ing service that is much more expensive compared to even
the SMS. Compared to this, OTT messaging services offer
Most OTT services that offer voice calling facilities using
consumers a feature rich experience combining capabili-
VoIP have also either included the features offered by OTT
ties like exchanging multimedia like pictures, videos and
messaging services in their list of offerings or had started
audio in addition to text, group chats, voice messages,
off as a messaging service in the first place. Players like
location sharing, etc (Table 3).
Skype and Google Hangouts make it possible for users to

Table 3.  Comparison of cost to consumer for TSPs and OTT players Source: Operator’s & OTT players’
Website

International
911
Group calling Group Video Location Multimedia Screen
emergency
calling without prior video call message sharing sharing sharing
calls
permission

OTT yes yes yes Yes yes yes yes no

Operators yes no yes No no no no yes

Source: Operator's and OTT players' Website

have their phone, social and OTT service contacts inte- There are no limits attached to the size of text mes-
grated flawlessly in one place and let users communicate sages and the ones on multimedia content are sufficient
with these contacts over voice or text, share content and for most purposes. The table 4 shown above presents a
handle communications over multiple devices. comparative analysis between the features offered by SMS

Vol 8 (S4) | February 2015 | www.indjst.org Indian Journal of Science and Technology 153
 Impact of Over the Top (OTT) Services on Telecom Service Providers

Table 4.  Feature comparison matrix for various messaging service provider

SMS WhatsApp Line WeChat Kakao Talk Chat ON Viber BBM

Text ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓
Characters 160 None None None None None None None
Group Chat × ✓ ✓ ✓ ✓ ✓ ✓ ✓
Emoticons × ✓ ✓ ✓ ✓ ✓ ✓ ✓
Stickers × × ✓ ✓ ✓ ✓ × ×
Photos × ✓ ✓ ✓ ✓ ✓ ✓ ✓
Videos × ✓ ✓ ✓ ✓ ✓ ✓ ✓
Audio × ✓ ✓ ✓ ✓ ✓ × ✓
Location × ✓ ✓ ✓ ✓ ✓ ✓ ×
Contact × ✓ ✓ ✓ ✓ ✓ × ✓
Walkie-Talkie × ✓ ✓ ✓ ✓ × × ×
Voice & Video
× × ✓ × × × ✓ ×
Call
Animessage,
Line
Others Poll, Schedule File, Calendar, Doodle Appointment
Camera
S Note

and various OTT messaging services. To put it simply, telephony and smartphones possible and then the incre-
OTT messaging services have succeeded in offering much mental advancements that these devices affordable and
more value to the consumers than telcos’ SMS and MMS accessible to the masses. These advancements and the
services ever did. In addition to offering a better experi- resulting pace of device penetration has spawned new
ence through the various additional features mentioned, business models that have disrupted the communications
OTT services have unlocked the potential of an attribute industry.
today’s consumers are increasingly demanding - conve-
nience. Through features like auto-sync with the user’s
entire contact list including phone contacts as well as
those on social networks and other OTT services, sorting
messages into conversations and eliminating the need to
send multiple messages due to character limits these OTT
messaging services have made it convenient for users to
communicate with other in any way they want to.

9. Mobile and Smartphone

Penetration
Has Mobile and smartphone penetration led to the
adoption of OTT services leading to loss of revenues to
Telecom operators throughout the world?
Mobile and smartphone penetration over the past two
decades has been driven by two major evolutions - first Figure 4.  No. of users of OTT players (LINE, WhatsApp,
the greenfield technological evolutions that made mobile WeChat, Viber). source B.I. intelligence.

154 Vol 8 (S4) | February 2015 | www.indjst.org Indian Journal of Science and Technology
 Joshi Sujata, Sarkar Sohag, Dewan Tanu, Dharmani Chintan, Purohit Shubham and Gandhi Sumit

Speaking of numbers, in 2013 there were approximately There is little doubt that increased mobile and smart-
1.4 billion people that owned and used smartphones [ABI phone penetration has been a dominant factor in rapid
Research]. OTT adoption. Figure 1 and 2 show the rise in global
The devices themselves and how people use them are smartphone shipments and number of users of some
both evolving rapidly. Over 45% of smartphone users also OTT services respectively over the past few years. Figure
use at least one Instant Messaging or OTT messaging app 5 gives a combined view of the rise in smartphone ship-
according to a new Analysys Mason report. The report ments, users of popular OTT messaging services and
also finds that 20% of smartphone users also use a VoIP users of popular Social Networks. Global smartphone
application and 20% of these use it more often than tra- shipments almost doubled year-on-year in 2010. This is
ditional voice services offered by their telecom operator. the year when major OTT services like WhatsApp and
[Smartphone usage - voice and messaging trends: Stephen WeChat began to gain popularity. Social networks like
Sale, Lead Analyst, Analysys Mason Viewpoint, October Facebook, LinkedIn and Twitter were already seeing a
08, 2012]. healthy growth in their number of users for a couple of
years. By 2011, existing OTT services began to see a sharp
rise in their number of users and players that were just
entering the market also found considerable adopters for
what they had to offer.
The effects of these changes also began to reflect in
the amount of data traffic beginning to move over mobile
networks worldwide. In 2010, for the first time ever, the
total amount of data traffic on global mobile networks
was more than the total voice traffic. By 2011, the data
traffic was more than twice the amount of voice traffic.
People were beginning to use mobile phones and net-
works primarily to access data and not to make phone
Figure 5.  User growth: Social networks, messaging apps calls. Not only that, people were beginning to consume
and smartphones(billions). most of this data through OTT service providers, giving

Figure 6.  Global total data traffic in mobile networks, 2007-2013.

Source: Ericsson Mobility Report17.

Vol 8 (S4) | February 2015 | www.indjst.org Indian Journal of Science and Technology 155
 Impact of Over the Top (OTT) Services on Telecom Service Providers

telcos no piece of the pie other than the increase in their Table 5.  Comparison of operators & OTT players
data revenue. with respect to taxation & regulation
Thus we can conclude that increased mobile and
smartphone penetration has been adominant factor in Telecom
Parameters OTT players
rapid OTT adoption. Operators

License cost (UL) 15 Cr 0

10. Lack of Regulation and Net
Spectrum cost (5Mhz
Neutrality in 1800 MHz band Rs. 8,825 cr* 0
Pan India)
Is lack of regulation driving the adoption of OTT services,
and how is it impacting Net neutrality? Revenue share 8% of AGR Not applicable
Various OTT providers like Netflix, Skype, Viber,
WhatsApp among others are creating huge data traffic USOF 5% of AGR 0
consequently congesting the mobile and cable operators’
network. These operators are hence under tremendous depends
Corporate tax 33.99% on local tax
pressure to upgrade their existing infrastructure.
structure*
These OTT players have two advantages over mobile
and cable network operators: they can use the telecom Customer care Mandatory Not mandatory
infrastructure without paying for it, and they’re not sub-
Local Municipalities
ject to the regulatory regimes that apply to operators such permissions (towers, Required Not required
as Idea, Airtel & Vodafone. RoW)
Table 5 gives a comparative analysis of regulatory
environment for OTT players and Telecom operators. QoS parameters Stringent Not Applicable
Unlike OTT players, telecom infrastructure providers
must obtain spectrum, telecom license (CMTS, UASL, SUC 5% of AGR Not Applicable
UL, ILD, NLD, ISP etc.) and various other permissions
from the government in the form of Right of Way to pro-
Security(LIG) Mandatory Not mandatory
vide services. Besides, they have to comply to roll out and
QoS obligations. It is also mandatory for telcos to provide
customer care services and have a complaint redressal Rollout obligations Stringent Not Applicable
mechanism in place to address customers’ concerns.
The telecom service providers also bear the additional Cross platform Can be done Not Possible*
burden of various tax provisions by local, regional and
national authorities. In a number of countries like India, throughout the world. They are also not governed by any
the taxes applied to telecommunication services are dis- regulatory body globally as well regionally.
criminatory as in addition to the corporate taxes they are This lack of regulations allow OTT players to adopt
also liable to pay Spectrum Usage Charge (SUC), License innovative, flexible and agile business model which are far
Fee (LF) and Universal Service Obligation Fund (USOF) more optimized. While Operators are liable to pay taxes
on their Adjusted Gross Revenue (AGR). in every country they are operating in, such an obligation
Network providers are also subject to requirements is not applicable to OTT players as they are required to
such as local sourcing obligations, data protection rules, pay taxes to the country where there HQ is located.
lawful interception laws, and non-discrimination pacts. These OTTs take advantage of different tax regimes
Furthermore, the operators are also constrained by the by establish themselves in low tax countries and serv-
geographical boundaries of their networks they are serv- ing to users in high tax countries. OTTs like Skype and
ing in. However, OTT players are not constrained to any Facebook have their offices in Luxembourg and Ireland
geographical region and can practically serve consumers respectively, each of which is considered to be a tax-haven
country. Since OTT players do not have to comply with

156 Vol 8 (S4) | February 2015 | www.indjst.org Indian Journal of Science and Technology
 Joshi Sujata, Sarkar Sohag, Dewan Tanu, Dharmani Chintan, Purohit Shubham and Gandhi Sumit

telecom Regulations they are able to provide inexpensive/ services. Even though the OTT services that are eroding
free of cost services to their customers and are thus able their revenues depend entirely on the operators’ com-
to realize an exponential growth in their consumer base. munication networks, the operator can neither limit the
The telecom industry globally and especially in India resources it provides to these services nor can it compel
is a highly regulated sector, primarily because of two rea- the services to pay for the resources they use.
sons. One, they use Radio Frequency spectrum, which is
a limited national resource. Two, in the communications 11. Managerial Implications and
age development of telecommunications is critical to the
development and welfare of any society or nation. This
Recommendations Based on
heavy regulatory oversight often proves to be a limiting Use Cases
and expensive constraint for telcos. It limits the way tel- Although telecom operators are in a reactionary mode
cos can do business and earn revenues while at the same to the challenge smooted by OTT service providers, they
time adding expenses in the form of compulsory confor- are well-placed to confront them. OTT services can only
mances such as roll-out obligations, services to rural, low flourish in the telecom ecosystem by way of telecom oper-
density areas and so on. Compared to this, OTT players ators offering affordable data packages to ensure an open
face minimal regulatory constraints. The limits put on & neutral internet experience for their customers. This
their business usually exist only to the extent of address- menace is interface that is not only captivating and intui-
ing the security and privacy concerns associated with user tive, but has altered the experience between the phone
data. And even these regulations are not well defined in and user explicitly. Consequently, OTT service providers
most nations till date. As far as service obligations go, are providing services directly to customers that are chal-
they are practically non-existent for OTT players beyond lenging the telecom operators’ leadership in the mobile
what they promise their users. Hence OTT players have industry. Telecom operators can benefit not only from
essentially been able to build creative, flexible business analyzing consumer trends but also from the factors that
models which they continue to adapt to the market’s are leading to adoption of OTT services. This can help
requirements. them in service development, marketing strategies etc.
Under telecom laws in India, calls originating in the Based on the study of solutions adopted by telecom opera-
county can’t be “terminated on mobiles or landlines any- tors against OTT players in various countries throughout
where in the world without a license. However, an OTT the world we have come up with the following recom-
player can still launch “a full-fledged VoIP service" by tie- mendations:
ing-up with someone who has a license. Nimbuzz has tied
up with Spectranet for providing VOIP services which
11.1  Blocking OTT
allows Indian users to make international calls. For an
OTT player, the cost of providing VOIP service will cost Operators can adopt a short term strategy wherein they
a fraction as compared to the cost beared by a telecom can decide to deny users the access to the OTT services.
operator. However these regulations apply only to Indian If applied, it would halt SMS substitution. However, it
companies. Viber has recently launched Viber out service is a short term strategy and has a high dependency on
in which it lets its user call landlines and mobiles without net neutrality policies in a given country, moreover it is
having any license. detrimental to the business as it will ultimately limit the
Net neutrality, one of the core philosophies in place revenue-generation possibilities for the operator through
since the origins of the Internet as we know it today, is the increased data usage. It should be noted that such a will
idea that Internet Service Providers (ISPs) should provide only work if all the operators adopts same strategy simul-
their subscribers equal access to all information on the taneously.
internet with no prejudice against the source of the infor- Examples:
mation. This principle, though not explicitly enforced by In South Korea, after being pressurized by CSPs KT,
regulations in most countries, has been adhered to across SK Telecom and LG U +-, the national regulator sanc-
the major part of the free world. What it means for telcos tioned the blocking of Kakao Talk Service. Telecom
is that as ISPs, they are forced to provide their subscrib- companies in many countries have either blocked Skype
ers with unhindered and unprejudiced access to OTT

Vol 8 (S4) | February 2015 | www.indjst.org Indian Journal of Science and Technology 157
 Impact of Over the Top (OTT) Services on Telecom Service Providers

or slowed down the speed of skype traffic however users wherein they are partnering with the OTT players and
can get access to the blocked content using VPNs. benefit from their traffic. Some of the examples are as fol-
In UAE, Etisalat (incumbent operator) has out rightly lows:
blocked the Skype and other VoIP services for using their • Viber’s partnership with Axis in Indonesia: Axis, an
network and cannibalizing revenue, such blocking of Indonesian telecom operator has entered into a part-
voice OTT blocking has been possible only because of the nership with Viber wherein Axis lets its customers
fact that UAE is a highly regulated market and Etisalat has buy a Viber data service rather than a full data plan,
the support of telecom regulator. as a migration strategy that educates customers about
buying data bundles from their mobile provider and
11.2  Bundling with OTT allows them to become comfortable doing so16.
• DiGi telecommunications, a Malaysian mobile
Bundling of services is another strategy which can be
service provider, has partnered with WhatsApp
followed. Many operators are resorting to this strategy
provider as a result of which the DiGi customers
wherein they are bundling offers in such a way that the
can get unlimited access to WhatsApp service for a
lure of financial saving by using OTT services becomes
fixed fee. Same strategy has also been adopted by 3
less enticing. For example in case of SMS services, they
Hong Kong, a mobile network operator and broad-
are trying to extract a base revenue from users in the form
band service provider in Hong Kong and by reliance
of a fixed free for the SMS package and then charging data
Communications in India.
based on actual usage. Thus by bundling data or voice
• Aircel partnered with Nimbuzz and promoted their
package with SMS plan, at an affordable price operators
partnership, in the state of Jammu and Kashmir
can maximize their revenues and at the same time reduce
wherein the Aircel via SMS informed and encour-
the threat of OTT services. However, this would only help
aged its subscribes to download Nimbuzz application
the operator retain some level of customer loyalty for a
whereby 40 MB of data usage would be transferred
short time period. Content bundling is another innova-
for free to those subscribers who would download
tive way of operator to bundle the data intensive OTTs like
and activate the application within a time span of 24
Video apps (Netflix) with their normal voice subscription
hours.
plans to encourage the customer for using these apps thus
These strategies have enabled the operators to keep
driving the increased data usage. This also enhances the
the traffic and gain a share of the revenues. However, the
customer experience as the time bound monthly limit
operator has limited or almost no control on the direc-
instead of per Mb charging eliminates the fear factor for
tion as well as quality of the services offered through these
customers when signing up to a value added service.
partnership deals. This may adversely affect their rela-
Examples:
tionship with their customers. Moreover they can reap
After a failed attempt to block Skype, TeliaSonera, now
benefits of the partnership only as long as their partner
offers Skype with select data plans. Many Indian telcos
brand is in demand. It would also diminish the MNOs’
such as Tata Docomo, RCom, Airtel among others have
role. They would be relegated to a transport mechanism
plans specifically for whatsapp, Facebook, saavn services.
for “off deck” applications and would pressure MNOs to
Vodafone in the UK has begun to incorporate a
reduce OPEX and CAPEX costs on their network.
choice of one of Spotify Premium, Sky Sports or Netflix
access free for 6 months, as part of their Vodafone 4G
Red plans. This gives Vodafone a nice headline message 11.4  Developing their Own Services
which encourages customers to sign up to a higher tier Another long term strategy which can be adopted by
and increases mobile data usage. telecom operators would be to introduce its own OTT
service. This will enable them to have full control over the
11.3  Partnering with OTT service and also enable them to interact with other such
initiatives within the telecom fraternity. The operator can
There is a saying that if you cannot beat them, join them.
develop the necessary expertise in-house or acquire a
So partnering with the opponent can be a god strategy
company with relevant skills and know-how. Although it
when it is difficult to beat them at their game. Many
is not the fastest route to market but it enables the CSP to
telecom operators are already resorting to this strategy

158 Vol 8 (S4) | February 2015 | www.indjst.org Indian Journal of Science and Technology
 Joshi Sujata, Sarkar Sohag, Dewan Tanu, Dharmani Chintan, Purohit Shubham and Gandhi Sumit

own the consumer relationship and expand into adjacent lead to higher data usage and additional revenues for
market and reach a much broader customer base. They the telecom operators thereby offsetting the loss due to
can also leverage their core assets (control over the net- decline in messaging and voice revenues to some extent.
work, customer insight, customer care and distribution Furthermore, OTT players like Viber, Snapchat and
channel) to differentiate their OTT services from other WeChat among others take advantage of new possibilities
offerings in the market. to obtain income by exploiting the “two-sided” aspect of
However, the investment required for such an their markets and earn their revenues mainly from adver-
approach is quite high and the approach is risky for CSPs tising, in-app purchases and subscription charges. In this
as they do not have the necessary skills to launch such regard, telecom operators are finding it difficult to adapt
services. to this model where they don’t have experience. They are
Example: trying to identify the reasons so they can devise strate-
T-Mobile USA has launched Bobsled, Telefonica gies accordingly. At the same time, their market power
Digital has introduced Tu Me service both of which offer is being eroded due to higher competition and is shift-
free voice and texts. Orange have also launched their own ing towards content providers, especially in case of music
branded OTT communication services namely Libon. and video streaming services such as Netflix, YouTube,
Similarly, Comcast has started providing web access to its among others. One of the objectives of this study was to
films and TV shows in order to compete with Netflix. analyze the consumer trends which have led to the adop-
The GSM Association (GSMA) is actively promot- tion of OTT services. Also, it identifies factors such as
ing Joyn, its IP-based communications specification and cost, convenience, features, social propensity, content
brand. Member companies are encouraged to use it as the availability, smartphone and mobile internet penetration,
standard approach to develop and introduce new services user experience and net neutrality which are effectively
such as chat, image sharing and file transfer that can com- leveraged by OTT players to offer better substitutes to tel-
pete with 3rd party OTT services. What might just make cos offerings. Furthermore, it studies the impact of these
this endeavor work is that the GSMA is a community that factors on operators' voice, messaging and data services.
spans all Joyn enabled operators, similar to what current This study will help telcos in designing strategies to over-
SMS and telephony technologies do. This would make come the OTT threat and also in identifying changing
services originating from Joyn ubiquitous across commu- consumer needs, thereby helping them design offerings
nication providers. to suit their needs.
Joyn however is not without its own challenges, many The most determining factor of the growth of OTT
of which are out under individual operators' control. services will be the government and regulatory stance
The long development and time-to-market cycles mean towards them. In our opinion, it is important to keep
that commitment from device manufacturers to the in mind at all times that high speed Internet access, the
technology is critical to its success. Until Joyn manages opportunities it offers for the development of new busi-
to effectively address these issues, in its current form it ness models such as OTTs and their implications for
remains an urgent necessity but an incomplete solution. telecom operators essentially foretell a technological
revolution. Throughout history, technological revolutions
have had "winners" and "losers", but finally what should
12. Conclusion be considered is the ultimate aggregate effect on the wel-
The traditional sources of income for telecom operators, fare of society at large. Therefore, governments should
based predominantly on subscriptions and metered ser- facilitate this process and should not implement measures
vices, are showing signs of becoming obsolete. On the that could hinder it.
other hand, the business models that are gaining domi-
nance, such as OTT services like WhatsApp, Skype and 13. References
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