(Image Credit: iStockPhoto/akrp)
Why do over-the-top (OTT) communication apps like Skype, Viber, Line and WhatsApp exist? In my view, they arise to exploit inefficiencies in the market. If a ubiquitous, seamless, low-cost communication service that connected anyone, anywhere, across multiple media already existed, there would be no need for OTT players.
In the mobile landscape, these apps have emerged to deliver services users want but that traditional mobile network operators (MNOs) were not prepared to offer. As overlay services, however, OTT providers face significant challenges: building a strong brand, ensuring wide coverage and handset compatibility, maintaining directory and presence services, handling interoperability, and finding viable monetisation models.
Those challenges can ultimately only be fully addressed by MNOs, because they control the essential pieces: network coverage, billing relationships, regulatory compliance, and access to handset integration.
I founded a company around a mobile recording application to serve a clear opportunity in the financial markets. At the time, mobile networks weren’t prioritising this space. I eventually sold the business to an MNO because they could deliver a seamless, scalable global service and monetise it effectively. They recognised the opportunity and understood they didn’t need to reinvent the wheel.
We are seeing partnerships between OTT players and MNOs that I believe are driven by operators’ desire to learn more about the market.
MNOs still dominate voice and SMS, and as prices fall and coverage improves, their leading position is likely to continue. The rollout of IMS and Voice over LTE (VoLTE) will further enable seamless Wi‑Fi calling, extend coverage and increase effective capacity while lowering per-call costs. This evolution also creates a mutually beneficial relationship with handset manufacturers as Wi‑Fi calling becomes integrated directly into device dialers.
But voice and SMS are only part of what customers want. WhatsApp, Viber and Skype demonstrate demand for richer phonebooks and directory services with presence indicators, enhanced messaging including chat and file sharing, and richer calling with video and media sharing.
MNOs’ greatest fear is being reduced to “dumb pipes” as communication services migrate up the stack and OTT players own the customer relationship. For that to happen, however, operators would need to make a series of poor strategic decisions—because they still hold most of the cards. The barriers to becoming an MNO are enormous; by contrast, creating Rich Communication Services (RCS) is relatively easy.
Google’s move into carrier services through partnerships with Sprint and T‑Mobile in the USA is part of a broader strategy to provide a full mobile offering. Even Google, with vast resources, would not attempt to build a national or global wireless network from scratch.
So what are the options for MNOs? Broadly, they can buy and build their own services, or partner with OTT providers.
Some MNOs are partnering with OTT players, largely to understand and learn from the market. But this approach carries an inherent tension: both parties want to own the customer experience, making them uneasy allies. Often the OTT partner ends up as the visible customer interface, while the MNO risks being relegated to a commoditised connectivity provider. That perceived loss of value can make many stakeholders within MNOs reluctant to fully back such partnerships.
We are entering a highly disruptive era for global communications. Consumer-driven innovation is also reshaping enterprise IT as employees increasingly bypass rigid corporate systems with consumer-grade tools.
Market polarisation is likely. Tier 2 operators without the resources to develop their own rich communications platforms will be pushed toward partnerships. If value-sharing in those partnerships is structured correctly—illustrated by Google’s tie-ups with Sprint and T‑Mobile—smaller operators could meaningfully challenge larger players.
Tier 1 networks, eager to retain value, will need to buy or build their own platforms. Historically, MNOs have struggled with this mainly because of internal inertia. Consider WhatsApp: when Facebook acquired the company for $19 billion, WhatsApp had roughly 55 employees. That small, agile team generated enormous value because they were unburdened by heavy corporate structures.
Examples like T‑Mobile’s short-lived acquisition of Bobsled and Telefónica’s Tu Me experiment show how large operators often fail to integrate innovative acquisitions quickly and effectively. Heavy-handed corporate processes can erode the very entrepreneurial value those buys were meant to capture.
Tier 1 operators need to rethink how they foster, adopt and deploy innovation. OTT players move at a lightning pace—how can traditional MNOs get close? Looking outside the industry may help. The global banking sector faces similar pressures from agile fintech challengers and is responding by creating technology incubators to tap innovative talent without stifling creativity. While the outcomes of those incubators are still evolving, the approach has merit for operators seeking speed and flexibility.
Cloud platforms can also give MNOs the speed to market they require. The main obstacle is internal resistance. Long-standing custodians of infrastructure and data within MNOs often generate fear, uncertainty and doubt to defend legacy approaches. That conservative mindset must be set aside if operators are to move faster.
Companies such as Jibe, backed by Vodafone Ventures, are interesting because they provide an open communications platform that connects standards-based telco services with OTT platforms. Innovative firms like Nexmo represent another emerging model for bridging operators and app-based services.
The GSMA’s Joyn initiative aims to accredit Rich Communication Service providers like Jibe and encourage collaboration among members to develop interoperable services that can compete with OTT players. Past MNO collaborations have often struggled, but the growing threat from OTTs may make cooperation more compelling this time around.
The final and largest challenge is global scale. OTT apps can deploy global services quickly and with minimal overhead. Even the largest global network operators remain largely siloed by national markets, which limits their ability to compete on a worldwide basis. The MNO that solves that problem will have a decisive advantage.
Do you see OTT services as an opportunity for MNOs? Let us know in the comments.