The conflict between Over-The-Top Content (OTT) services and traditional telecommunications companies (Telcos) began early, with the arrival of Voice-over-Internet Protocol (VOIP) and mobile messaging apps. As Telcos faced shrinking voice revenues, OTT platforms started eroding messaging income as well. With widespread smartphone adoption, services like YouTube, Skype, Facebook, and WhatsApp have dramatically changed how people communicate—raising questions about the long-term prospects for Telcos.
Current landscape
Recent industry reports show how dominant some OTT services have become: YouTube alone accounts for a significant share of mobile data traffic, and WhatsApp leads global messaging volumes. Since voice and messaging remain key revenue sources for many Telcos, operators must prioritize strategies to protect future cash flow from these services.
OTT platforms unequivocally disrupt the traditional Telco value chain and threaten core voice and messaging revenues. Voice and text still represent an important share of Telco income—industry studies have suggested that roughly three-quarters of typical operator revenues have historically come from these areas, and their EBITDA margins often exceed those of other services. Broadband expansion has been double-edged: more connections generate higher data revenue, but broadband also enables OTT competitors to bypass Telco-controlled services. In addition, many OTTs operate independent of network infrastructure, complicating efforts by Telcos to justify capital-intensive investments.
Telco responses to OTT disruption
Telcos have adopted a range of responses to the OTT challenge. Some tactics are defensive and short-term, while others attempt to create new revenue models or partnerships. Common approaches include:
- Blocking or throttling OTT services: Some regulators and operators have considered or implemented restrictions on OTT services. Such measures can slow OTT adoption in specific markets, but they risk customer churn, reduced data usage, and reputational damage. Critics argue these moves are attempts to delay the broader shift driven by the Internet rather than sustainable long-term solutions.
- Monetizing data access: Many operators bundle data plans that implicitly monetize OTT usage through monthly data fees. While this preserves the billing relationship between the user and the Telco, experts note it has limited success in replacing lost voice and messaging revenue.
- Operator-branded apps: Several Telcos have launched their own voice and messaging apps—such as Orange’s Libon, T-Mobile’s Bobsled, China Telecom’s YiChat, and Swisscom’s iO—to retain customers and compete with OTT alternatives. These apps often offer free voice and text within the operator ecosystem, but it remains unclear whether they can generate sustainable off-net revenues.
- Partnerships with OTT players: Some operators have partnered with popular OTT services—examples include arrangements between carriers and Skype, WhatsApp, or Facebook—to deliver added value to subscribers and capture a share of the app’s appeal. Partnerships can help large operators monetize popular apps, though they may be less feasible for smaller carriers.
- Industry standards initiatives: The GSMA’s Joyn initiative and related efforts aim to create standardized Rich Communication Services (RCS) as a carrier-led alternative to independent OTT apps. While RCS could eventually offer a unified experience, progress has been slow and many operators doubt it can outpace established OTT ecosystems.
How the market may evolve
Even with the strategies above, voice and messaging revenues are likely to decline for many operators. However, changing consumer behavior also offers Telcos opportunities to transform their business models. Moving beyond the traditional connectivity-centric approach will require greater flexibility and a customer-first mindset: delivering services on-demand, across devices, and at any time.
Key elements of a future-facing Telco model include:
- Embracing the OTT model: Launching operator OTT services can be a first step toward network-independent service delivery. Even if operator apps struggle to dominate, the shift signals a more service-oriented approach to reaching customers beyond the Telco’s network footprint.
- Dynamic pricing and transaction services: Telcos can build transaction-management offerings—dynamic and customized billing for OTT services, merchant discovery, loyalty support, bill-shock prevention, and post-transaction support. These capabilities create new revenue streams by packaging billing and commerce services that OTTs often lack.
- Device and app distribution partnerships: Since devices are the primary touchpoint for OTT engagement, Telcos can create distribution models for content and apps on behalf of OTT providers and negotiate revenue shares. Existing examples show how device-carrier relationships can be leveraged to sell content and services.
Beyond direct consumer offerings, operators can pursue additional roles that leverage their assets and market position:
- Offer wholesale network and connectivity services to OTTs, positioning themselves as infrastructure partners rather than direct competitors.
- Provide premium Quality of Service (QoS) delivery for enterprise OTT solutions—high-definition video, cloud-based mobile services, and other latency-sensitive applications where carriers can add value.
- Capitalize on customer proximity by offering services such as customer-care platforms, CRM, customer segmentation, and proximity marketing—areas where Telcos’ subscriber knowledge and billing relationships can be monetized.
Is the threat overstated?
The impact of OTTs on Telcos has often been presented in dramatic terms, but the reality is more nuanced. Revenue lost by Telcos does not always translate into direct revenue gains for OTT providers. Many OTT services are free or very low-cost and do not generate interconnect fees or traditional telecom-style charges. In many cases, revenue simply exits the telecom sector rather than being captured by OTT firms. Additionally, declining voice and messaging income has been partly offset by rising mobile broadband tariffs and data service growth.
Outlook
Messaging and voice revenues are unlikely to disappear overnight. Forecasts from industry analysts through the mid-2010s suggested that voice and messaging revenues and traffic would remain significant for several years due to three main factors: OTT adoption is not yet universal; consumers continue to use SMS and voice when communicating with non-OTT users; and enterprise mobile messaging is an emerging revenue source. As Telcos adapt—through partnerships, new services, and by reinventing their roles in the value chain—they can mitigate revenue erosion and capture new opportunities created by the digital communications landscape.
ENDNOTES
- 1: Reuters report on regulatory actions in Vietnam and OTT services.
- 2: Coverage of regulatory debate on mobile VoIP throttling in Korea.
- 3: Background on Rich Communication Services (RCS) as an industry effort.
- 4: Industry survey reporting mixed sentiment on the GSMA Joyn initiative.
- Sources: Industry articles and Forrester Research reports on the future of over-the-top services and the state of voice and messaging.