The numbers bear out the size of the challenge, with mobile operator revenues for voice and data services, for example, expected to fall by over $50 billion between 2017 and 2022, according to a Juniper Research forecast from last year. One of the culprits? Continued migration to OTT messaging and social media services.
But OTT players are here to stay – and with companies such as Google, Microsoft and Facebook now even rolling out their own terrestrial and subsea networks via projects like the MAREA submarine cable, it may be more important than ever for carriers to find the best ways to both work alongside OTTs and offer their own value-added services to remain appealing.
Indeed, the message among carriers is generally that the industry has evolved in recent years to be much more open to these players – which do, after all, drive huge amounts of network traffic and innovation.
As Rolf Nafziger, SVP at Deutsche Telekom Global Carrier, says, over-thetop (OTT) players are these days an “integral” part of the telco industry, even if there also remains rivalry between the two.
When WhatsApp launched a decade ago, it was a “big shock” to the telcos because it cannibalised their SMS revenues, says Nafziger. However, he says, services like that and YouTube have brought innovation that has propelled the industry forward. “For us, the OTTs are very important partners,” he adds. “I think the rivalry in our industry was bigger in the past on the retail side compared to wholesale, but even on the retail side it’s very much normalising.”
He points out that with the wave of smartphone developments and new applications, OTT players are providing a lot of essential content for Deutsche Telekom’s customers and have built up substantial bargaining power due to their ability to scale to billions of customers at once.
Deutsche Telekom Global Carrier therefore offers a large portfolio to help boost OTT services, from leased capacity, traffic termination and HD voice to application-to-person (A2P) services for two-factor authentication. The company is also seeking to improve interconnection between its network and OTTs, and building up its Lambda Connect DWDM service to enable higher amounts of bandwidth for them.
“In the end, the OTTs cannot live without the telcos and we cannot live without the OTTs,” says Nafziger. “It’s a yin and yang situation, because without the telco, the OTT would not be able to reach the end customer.”
Opportunities
Nafziger points to cloud as a segment in which such partnerships are gaining traction, with Deutsche Telekom Global Carrier trying to create more direct interconnections for carriers to cloud service providers through its Secure Cloud Connect product that it launched last year.
In addition, the company is looking at how the market will change in the move towards 5G and edge services, though Nafziger says it is too early to say what this will mean for the evolution of partnerships.
However, parent Deutsche Telekom already has a subsidiary in place called MobiledgeX to which it is outsourcing activities related to building an edge platform, aimed at growing an ecosystem that could help collaborators find new models.
Nafziger believes, meanwhile, that the wholesale market also has room to learn from OTT players in how to increase agility – something increasingly required in the move towards virtualisation. “We need to change and learn in some areas from the OTTs, such as on how to service customers in a leaner way, become more agile and less hierarchical, and how to adapt and provide a quick turnaround,” he says.
Francisco Santos, head of wholesale services at Telefonica International Wholesale Services (TIWS), says the current relationship between carriers such as TIWS and OTT players is “a bit of both, collaborative and competitive”.
“However, in essence there is a common understanding that TIWS represents a commercial channel that creates a win-win scenario for OTTs,” he adds. “OTT players see Telefonica as a strategic ally to reach the most customers, while Telefonica sees OTT products as a perfect cross-selling opportunity for other networking products.”
Santos explains that to help the change in mindset required for teaming up with both cloud service providers and OTTs, Telefonica has recently incorporated more than 200 professionals trained as “solution architects” into its global team. Furthermore, he says the company has specialised teams in some geographies for presales, provisioning and operations that work with “agile methodologies” to help adapt to customer needs.
Bill Wohnoutka (pictured), vice president of global internet and content delivery services at CenturyLink, agrees that collaboration is key. “The relationship between carriers and OTT players is important to ensure content is delivered to eyeballs all over the world,” he says.
Wohnoutka believes content delivery networks (CDNs) provide a major opportunity going forward for carriers like CenturyLink in such partnerships, citing 20 per cent annual growth in CDN revenues across the market. In this area, he thinks, CenturyLink offers something unique for OTTs by providing both its fibre connectivity and an end-to-end media delivery service, with its Vyvx broadcast video service.
CenturyLink is planning to expand its partnerships globally with both new and established OTTs, says Wohnoutka. “Content owners need a way to pass off the content from the acquisition source to the digital platform. CenturyLink can play a critical role in this shift with our capabilities and global network footprint,” he says.
“We believe the industry is working in a spirit of collaboration as the worldwide demand for content continues to explode.”
OTT stance
OTTs themselves talk of a more collaborative environment today, too. “Carriers are generally very cooperative with us,” says Dave Temkin, VP of networks at Netflix. “They want to see us preloaded on their handsets and present on their set-top boxes.”
The relationship has become more symbiotic over time, he says, after there was some initial friction – particularly among telcos that ran their own video services.
“When we first started out, we were seen as direct competition, but we have good relationships with the carriers now,” says Temkin. “They tend to want to work with us on all sorts of things to unlock new ways to retain customers or increase revenue or market share.”
These include “billing-on-behalf”, whereby people can add Netflix to their regular carrier bill and bundles in which carriers sell the service as part of a larger programming package.
Telcos are also enthusiastic about interactive user content such as the choose-your-own-adventure-style programme Bandersnatch that recently came out on its service, a theme that Temkin says Netflix plans to use again on other titles. “Carriers are really excited about that stuff and anything that gets people more interactive with our service. The more engagement, the more indispensable our product becomes.”
In addition, via its Open Connect programme, Netflix partners with ISPs to more efficiently deliver content as close to their end users as they need it. “We’ve designed these servers and services to be as ISP-friendly as possible, and it’s saved them tons of money, time and complexity on getting things going,” says Temkin.
Netflix’s relationship with carriers looks good going forward, he says, while he has seen telcos evolve their partnership teams to become more open in working with OTTs. “If we continue putting out products our customers want, they’re going to find ways of working with us,” he adds.
Temkin says the company also seeks to strike up “holistic” relationships with carriers, including taking terrestrial fibre and submarine cable capacity from them to better integrate their networks. “The better relationship we have with the consumer side of the business, the more likely we are to be a great wholesale partner as well,” he says.
Network play
Unlike players like Google and Facebook, Temkin says Netflix has no plans to invest in rolling out its own terrestrial fibre or undersea cable networks, with the company believing that its partners are best at delivering that. However, he thinks Google and Facebook have done a good job in getting ISPs to evolve their product offerings and that their initiatives to roll out broadband to the underserved are exciting for the industry.
But this will also pose a question for telcos, says Temkin: “Carriers have to decide whether they want to continue with their existing business model and chance someone else being first to market with a quality product in an underserved area,” he says.
Facebook, Google and Microsoft were all unavailable for comment, but carriers themselves remain bullish about their ability to handle any potential rivalry. Nafziger says, for example, that Deutsche Telekom Global Carrier is flexible in its ability to adapt to new business models resulting from market changes. “There are always new areas of competition and we always need to adapt,” he says. “We need to learn how to deal with that and find our own way to be competitive.”
Carriers are also looking at how they can innovate and add value in areas where OTTs have moved onto their patch. In this vein, Deutsche Telekom Global Carrier’s SMS+ Transit offering helps by providing high-quality routes to tap into the opportunity for A2P messaging, which carriers can pursue to compensate for falling person-to-person SMS volumes. Industry figures suggest this could be a smart ploy, with research firm Mobilesquared predicting that A2P SMS revenues will more than double from $11.9 billion in 2017 to $26.6 billion in 2022.
Meanwhile, Frank Paterno, VP of carrier business development at business communications provider PGi, thinks carriers can find new revenue streams from the next phase of unified communications by bringing such services together into a more streamlined package for businesses.
In line with an anticipated surge in demand for unified-communications-asa-service, PGi launched a UCaaS offering via its GlobalMeet platform in the EMEA region in May, after unveiling it in the US two months earlier. The service features cloud voice capabilities and a collaboration app, with interested telcos also able to gain from what Paterno describes as a carrier-friendly support network that helps solve customer issues in real time. “We realise the carrier still has to provide some value-add, so that they’ve got some ‘skin in the game’ and are using something more than just their name,” he says.
Separately, Tata Communications has been increasing its focus on multinational enterprise rather than traditional wholesale as OTTs have started rolling out their own infrastructure and alternative chat apps have gained traction, says Tim Sherwood, the company’s vice president for mobility and IoT solutions. “We don’t really view what they’re doing as a competitive threat, but obviously it limits what we can sell to them because they’re doing more themselves.”
That means the company has focused more on partnering on services such as unified communications and cloud with players like Microsoft, Cisco, Amazon and Google, providing the wide-area networking that’s required to connect to the cloud. “It really makes sense to figure out how to partner together to provide that combined solution, as there are still a fair few challenges for the CIO community to stitch together end-to-end services,” says Sherwood.
He concedes that there could be some threat to legacy wholesale business if OTTs deploying networks go further beyond using them to serve their own direct retail customers to adopting more of a full international carrier model – but Sherwood believes from his conversations in the industry that this is not what they’re planning.
And he says, for example, that the activities of players like Facebook to reach the underserved through more localised wholesale projects such as its Middle Mile Infrastructure initiative in the US or the Telecom Infra Project (TIP) globally will actually help carriers like Tata Communications by providing an overall greater density of communications infrastructure.
This is reflected in the fact that Tata and many other carriers are in fact collaborating alongside Facebook on the TIP initiative, which aims to find innovative ways of deploying network infrastructure. They are also working with OTTs on other cable projects, such as Orange’s collaboration on Google’s Dunant transatlantic submarine cable.
Looking to the future
At Telia Carrier, vice president and chief evangelist Mattias Fridström is optimistic about the future opportunity for continued positive coexistence between carriers and OTT players – pointing to the way his own company has always found ways to stay relevant as the challengers have gained ground.
He puts this partly down to maintaining close relationships with such players. “We’ve always found a way to keep on discussing with them, having a good dialogue and doing things that they don’t want to do,” he says. “We try to understand what they need from us and where we can be of help.”
He adds that OTTs have huge amounts of traffic that they need to deliver around the world because of the enormous traction that some of them gain from users, with Telia Carrier able to help do this with its huge fibre network and strong record in IP transit.
Fridström also doesn’t think the OTTs want to build networks everywhere, instead looking for lowest-cost routes and opportunities to grow capacity where there isn’t any. This, he says, means there is still significant room for carriers to work with them to spread their content and build fibre to connect data centres: “They have a lot of traffic they need to distribute and carriers still fill a role there.”
On top of all that, Telia Carrier can help further boost the need for OTT providers to deliver content at the edge of the network, improving latency and quality of service to more people, through partnerships it has struck up with edge data centre providers such as EdgeConneX and TierPoint. “When we go with providers like that to tier-2 and tier-3 markets, we can bring a lot more quality into those areas and people there can consume these OTT players’ products much more easily,” says Fridström.
At the end of the day, he says, the key is to continuing to work with OTTs to understand their needs and deliver what they want, supplying them with “pieces that they don’t have”. “If we have a good dialogue, we can continue to be relevant,” he concludes.
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