Over the Top Apps Pose Huge Risk for Some Mobile Service Providers

Over the top mobile voice and texting apps now affect traffic for almost 75 percent of mobile service providers operating in 68 countries surveyed by mobileSquared as part of a project sponsored by Tyntec. 

But the potential danger will vary from country to country. Service providers in smaller countries, where lots of cross-border calling or messaging occurs, with high tariffs for cross-border traffic, will experience more danger than large countries with larger internal populations that can call quite some distance without crossing a border. 

OTT apps and services also will cannibalize international calling revenues in any country with a large migrant population outside the home country. Think Filipinos working in the Middle East, or Indians living in the United States. 

On the other hand, retail packaging can alleviate some of the potential risk, as Verizon Wireless is doing with its "Share Everything" plans.
About 52.1 percent of respondents estimate over the top mobile apps have displaced about one percent to 20 percent of traffic in 2012. That’s a clear issue since traffic lost means lost revenue as well.

Almost 33 percent of respondents expect one percent to 10 percent of their customers will
be using OTT services by the end of 2012, with 57 percent of respondents believe 11 percent to 40 percent of their customers will be using OTT services in 2012.

But 10.5 percent of service providers anticipate more than 40 percent of the user base will be using OTT services by the end of 2012.

In 2016, 100 percent of respondents believe at least 11 percent of their customers will  be using OTT services. In fact, 42 percent of operators believe that over 40 percent of their customer base will be using OTT services in 2016.

The issue is what to do about the threat. In some countries, it might be legal for mobile operators to block use of OTT apps, as some carriers blocked use of VoIP. You can make your own judgment about whether that is a long-term possibility.

There are direct and indirect ways to respond, though. It is at least conceivable that some mobile service providers can legally create separate fees for consumer use of over the top voice and messaging apps. In other cases service providers will have to recapture some of the lost revenue by increasing mobile data charges in some way.

Verizon Wireless protects its voice and texting revenue streams by essentially changing voice and texting services into the equivalent of a connection fee to use the network. Verizon charges a flat monthly fee for unlimited domestic voice and texting.

The harder questions revolve around whether any service provider should create its own OTT voice and messaging apps, even if those apps compete with carrier services. Aside from potentially cannibalizing carrier voice and data services, this approach arguably does take some share from rival OTT providers.

On the other hand, it is a defensive approach that essentially concedes declining revenue, with some amount of ability to capture revenue in the “OTT voice and messaging” space.

Some larger service providers might find they are able to consider a partnering strategy with leading OTT players. To some extent, this also is a defensive move aimed at recouping some lost voice and messaging revenues. In other words, if a customer is determined to switch to OTT voice and data, the revenue from such usage ought to flow to the mobile service provider, if possible.

But there is a notable difference to the branded carrier OTT app approach. In principle, such OTT apps can be a way of extending a brand’s service footprint outside its historic licensed areas, into countries where it is not currently licensed.

Instead of functioning as a defensive tactic that recoups some share of OTT revenue in territory, OTT voice and messaging can be viewed as an offensive way of providing voice and messaging services out of region, says Thorsten Trapp, Tyntec CTO.

Over the longer term, it might also be possible for mobile service providers to replicate the network effect that makes today’s voice and messaging so appealing, namely the ability to contact anybody with a phone, anywhere, without having to worry about whether the contacted party is “on the network” or “in the community” or not. The RCS-e/Joyn effort is an example of that approach.

Likewise, mobile service providers might be able to create a mediating role that bridges a closed OTT community by enabling third party access to some other third party community using the mobile phone number.

A version of this story originally appeared at Metaswitch Networks Carrier Evolution.