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Today, most people keep their opinions, money, transactions, and even relationships on their mobile devices—typically inside a wide range of free “over-the-top” (OTT) applications that fill their smartphones. While these apps make life more convenient, they also create a major challenge for telecom operators: traditional revenue streams from voice calls and SMS are under pressure as users migrate to IP-based messaging, voice, and video services.
Research by Deloitte estimated that in developed markets about 26% of smartphone users might make no carrier-based phone calls in a given week. Millennials and other users increasingly prefer communication-over-IP (CoIP) services—WhatsApp, Skype, Viber, Facebook Messenger, and iMessage—while still relying on carriers’ cellular networks for data transport.
Ovum paints a similarly urgent picture: the telecom industry faced substantial revenue erosion from the rise of OTT voice apps, with losses measured in the hundreds of billions between 2012 and 2018. At the same time, carriers must invest to expand network capacity to cope with the surging data traffic driven by those same OTT services. The result is a pressing need for telcos to redefine their value proposition and business models.
Understanding and mapping the new ecosystem
The telecom landscape has shifted rapidly due to several interrelated drivers:
- Convergence of data, voice, and video onto fast IP-based networks, transforming traditional telephony and messaging;
- Lower data costs and faster internet connections, making rich communication more accessible;
- Smartphones becoming commonplace—all buyers increasingly expect advanced features as standard;
- Mobile operating systems such as Android and iOS enabling more sophisticated device capabilities;
- A booming mobile-app economy: OTT providers deliver valuable services over carriers’ networks but don’t share telecommunication revenues;
- Widespread use of APIs that accelerates developer innovation for web and mobile applications.
These forces have driven a fundamental change in consumer behavior: many users now prefer OTT apps over conventional voice and SMS services.
Strategies for sustained business growth
Top OTT players have succeeded by focusing on technology, design, and user experience. Many telcos, by contrast, still operate complex IT systems that slow down innovation, often relying on external vendors with long delivery cycles. To compete and reclaim customer mindshare, operators should pursue several complementary strategies:
- Bundle services intelligently: Neutralize OTT cost advantages by packaging data, voice, and messaging together at competitive prices. For example, some operators have bundled entertainment subscriptions with connectivity plans to increase perceived value and retention.
- Reposition legacy offerings: Make traditional voice and messaging more attractive through revised tariffs—unlimited SMS or inclusive voice minutes can help retain customers who would otherwise migrate to OTT messaging.
- Expand reach with RCS and non-smartphone offerings: Implement Rich Communication Services (RCS) and target feature phones and low-cost devices to bring IP-based experiences to a broader audience—an area where pure OTT providers may struggle.
- Launch differentiated OTT services: Develop your own branded OTT apps with compelling pricing and features, and offer them over both mobile and fixed/Wi‑Fi networks to maximize reach. Several operators have experimented with in-house apps offering voice and messaging to complement their core services.
Partner with OTT providers
When direct competition is difficult, collaboration is a sensible alternative. Opening interoperable telco services, aggregated subscriber and device data (with appropriate privacy safeguards), and developer-friendly APIs can accelerate the creation of unique, consumer-friendly apps. For instance, bundling or offering specialized data packages for a popular OTT app makes it easier for customers to adopt bundled services while still benefiting the OTT experience.
Strong partnerships must be supported by a secure, reliable network that delivers seamless experiences across devices. Shifting from merely providing services to offering well-documented, scalable APIs is essential for attracting developers and fostering an ecosystem that drives new revenue streams and customer loyalty.
Set realistic expectations and invest for the long term
Transforming an operator’s business model to compete with nimble OTT rivals is a long-term endeavor. The first imperative is to build stronger technology capabilities. Embracing software-defined networking (SDN) and network function virtualization (NFV) can help operators deliver flexible, advanced connectivity services. Expanding into cloud offerings—storage and personal data management, for example—can create new value propositions for subscribers.
Equally important is the use of data analytics to understand how customers use networks across locations and devices. Data-driven insights should inform product development, pricing, marketing, and customer retention strategies to improve return on investment and deliver more relevant experiences.
In this evolving landscape, data is effectively the new voice of the customer. By designing innovative, engaging experiences that provide clear value for money—and by leveraging network strength, partnerships, APIs, and analytics—telecom operators can compete effectively with OTT providers and reclaim a central role in consumers’ digital lives. Are you ready to adapt and lead?