Mobile operators vs OTT: No end in sight

•  ‘Over the top’ challenges come to the fore at MWC; complex issue, here to stay, but without easy resolution
• Revenue share model with OTT players could work; but tricky to work out actual commercial details in practice

NEWS ANALYSIS: AMID the glitzy array of smartphone and tablet announcements made in the first few days of the Mobile World Congress (MWC), there were other industry issues debated, albeit more inconspicuously, within the halls of the Fira Gran Via – issues that could threaten disruption in today’s fast growing mobile-dominated world.
 
On the second day of the Barcelona event, upstart messaging company Viber Media fired the first salvo at traditional mobile operators when its founder and chief executive officer Talmon Marco defended his over-the-top (OTT) brothers-in-arms by suggesting that mobile operators should just accept OTT players and learn to play alongside them instead of complaining.
 
Founded by Israeli entrepreneurs and based out of Cyprus and Belarus, Viber Media designed Viber as a cross-platform text, multimedia messaging and Internet voice telephony service in the same vein as Microsoft’s Skype.
 
Besides competing with other cross-platform players such as Skype, WhatsApp and WeChat, it also vies with traditional global mobile players such Vodafone and Telefonica by routing its services “over the top” of basic bandwidth provided by these mobile operators’ very expensive network infrastructure.
 
OTT players have been in contention with traditional operators for many years now as they “eat into” the bandwidth provided by the latter; and at their expense too. This situation has been made worse in the last three years as consumers and enterprises use devices such as smartphones and tablets to consume data, often on an unlimited all-you-can-eat basis.
 
Such moves affect the revenue of traditional operators, who argue that it’s not fair for OTT players to use their networks without having to pay premium for “over the top” data usage, hence the name OTT operators.
 
At the MWC though, Marco (pic) made no apologies for the role of OTT players in today’s world, and in fact, “showed no remorse for sapping telco revenues as he believed that consumers are just moving to where the innovative, useful services are taking place,” according to a CNET report.
 
“There's no difference between the SMS of 1993 and 2013,” Marco was quoted as saying on CNET. “We delight our users with cool new features.”
 
In defending the cool factor of Viber, Marco alluded to the fact that 90% of the 35,000 or so population in Monaco preferred to use its services despite SMS being free in the country, CNET noted.
 
But as Marco defended his OTT service and that of his peers at the MWC, two other traditional operator chiefs were equally sharp in criticism, decrying his position and calling him out on issues that remain unresolved.
 
Rene Obermann, Deutsche Telekom chief, described the thorny relationship between the two parties this way, “You invest, we take the profit. It's not sustainable that the network makes all the investments and others just get a free ride,” he said on CNET.
 
His industry colleague Suk-Chae Lee, Korea Telecom’s (KT) head, added, “In the last four years, KT revenue has stagnated, but capex [capital expenditure] has increased to US$4 billion from US$3 billion before.”
 
“The builders of this cyberspace, the telcos, may have to watch the space be dominated by the giant Internet players or the OTTs.”
 
As a result of this tension, traditional mobile operators have had to resort to various tactics to stem the OTT tide, including blocking or throttling their services, claimed Viber’s Marco.
 
"Blocking Viber is really easy, and every operator knows that," Marco told The Guardian. “We don't get blocked in the UK but we do see service disruptions particularly by Vodafone. Our bandwidth gets limited. We urge Vodafone not to throttle our service.”
 
This allegation was denied by Vodafone, which said that it did not target particular services, but that restrictions were enforced on Internet connections when the network was overloaded. A spokesman said: "We manage traffic when the network is congested so that there is not impact on emergency services."
 
Live and let live
 
In an interview last year with an analyst on the OTT issue, Julie Kunstler, principal analyst with Ovum, said there are no simple answers to this complex challenge but both parties will need to find a way to live together.
 
Kunstler had then advocated that traditional players up their game by diversifying their services away from what they already have today.
 
“Traditional players need to find ways to differentiate themselves from the OTT players,” she said last year in an interview with Digital News Asia (DNA). “For example, if you have a traditional player offering music or video download services, it would need to offer a service superior to that of OTT players in order to differentiate itself from the competition.”
 
One concession that could be made to this complex issue is to implement revenue share with its bandwidth providers, something Viber’s Marco is willing to consider and Deutsche’s Obermann is open to, since it already has a similar working model with streaming music provider Spotify.
 
"We're definitely prepared to share revenues when we charge users,” Marco was quoted as saying on CNET. But Marco reiterated that as long as some services on Viber are free, he would not pay mobile operators.
 
Devil is in the details
 
This solution, which seems fair and expedient for both sides of the aisle, may be easier said than done, one analyst told DNA.
 
“Agreements between telcos and OTT players could work and may include revenue sharing, and there are certainly examples of this already,” said Trevor Clarke (pic), lead analyst with Tech Research Asia.
 
“But what is in it for them [OTT players]? They’re really in the driving seat at the moment and one would have to ask if it makes sense for them to enter into any arrangements with telcos.
 
“That's why so many telcos are trying to diversify by moving into media content, broadcasting and IPTV, and IT services.”
 
Asked how this scenario of OTT vs mobile operators would play out here in Asia, Clarke said the same situation exists worldwide and it's certainly not limited to Europe or the United States.
 
In most developed markets across Asia, where markets are more saturated, telcos have already been looking to diversify for a few years now already, he noted.
 
That said, there is one major difference here in Asia compared to that in the West – the existence of very popular local OTT players, especially in China, South Korea, Taiwan and Japan.
 
“In these markets, especially Japan, Taiwan and South Korea, the big international OTT players also have a strong presence,” Clarke says.
 
“Even though we expect some local arrangements to be forged between Asian telcos and OTT players with different characteristics of those in other regions, the key will still be for telcos to continue diversifying their business, something that is happening slowly and with mixed success.”
 
A senior executive at a Malaysian telco dealing with the OTT issue was also not so optimistic about partnerships with OTT players here.
 
“It was like when MVNOs (mobile virtual network operators) came to Malaysia,” he said, speaking on condition of anonymity as the issue was sensitive. “Telcos were wary then of such players and only cut deals when it made sense to them.

"Maybe a small telco would work with OTT players as they have nothing to lose. But for big telcos, it would only make sense to them to work with OTT players if it brings strategic benefit to them.

"So the situation will be status quo for now, where telcos will continue to watch OTT players and ‘control’ their services via bandwidth management techniques, which may result in the slow delivery of messaging services such as Viber on their network.”
 
“The only scenario where I can see partnership is in specific niche segments such as the youth market, where agreements with a service like Instagram would make sense,” he added.

(Pics & logo courtesy of Mobile World Congress, Sergio Uceda's Flickr photostream & Tech Research Asia)
 
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