Over the Top Dilemma - Hug, Stiff Arm or Keep Enemies Close? Part 1

Jim Machi : Industry Insight
Jim Machi

Over the Top Dilemma - Hug, Stiff Arm or Keep Enemies Close? Part 1

As I stated in my blog two weeks ago, at Mobile World Congress there was discussion about the top guys not paying their fair share.   At the opening keynotes during MWC, Telecom Italia and AT&T especially noted the competition from Over the Top players.  For instance, the ITU is reporting that SMS revenues are declining as users adopt different ways of messaging, including Over the Top services.


So let’s examine this more.  Clearly, the wireless service providers are getting some money since the subscribers are buying a data service.  And what subscribers do with the data service is up to them.  If users find that buying a data service and utilizing the apps that run on the data service is cheaper than some other way, such as paying for chunks of SMS usage, and paying for a data and voice service, then good for them.  Why shouldn’t people be able to figure out the cheapest way to communicate?  This “maximization of the dollar” has been going on and on and on in other industries forever.  However, what’s unique here is that competition to the service provider is coming from services that are deployed on their networks. 

And if this isn’t working, revenue-wise, for the service providers who put the entire infrastructure in place and pay for that infrastructure, whose fault is it?  Just figure out a pricing policy that works best, right?  I mean, what if a service provider decided all their services would be offered by the OTT players, and they’d go work with them to make this happen, and up the bill / month a bit to make it easier?  This is the ultimate utility strategy – you offer the basic utility of mobile connectivity.  I’m guessing there are many non-tech savvy consumers that would go for it.

Well, it’s not entirely that simple.  First of all, the service providers like the revenue from the value-added services so they would like to continue to get them.  But there is an added complication in the telecom regulations.  In a perfect supply/demand world, the pricing probably would be figured out.  But regulations don’t create a perfect supply/demand world in this industry.

So what’s a wireless service provider to do, other than complain about the regulations?  Well, as stated above, one avenue is to becoming a pure utility.  We won’t go there in his blog series though and assume the service provider wants to continue to compete with services.  If that’s the case, then the service provider needs to offer something to consumers that they’d be willing to pay for!  What can the service providers do that offer value beyond an over the top player?  There are a few things which we’ll cover in next week’s blog.  One key though is already in this blog.  I called the carriers “service providers” and not carriers.  I was careful with that wording.

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