MSL723

Telecom Systems Management

Impact of OTT Services on the revenue of Telecom

Operators: A comparative Study

Submitted to: Prof. Mahim Sagar

Submitted by:
Group 7
Rahul Awtans – 2021SMT6679
Shriansh Srivastava – 2021SMT6588
Aryan Choudhary – 2022JTM2394
Ajay Singh – 2022JTM2400
Saurabh Kumar- 2022JTM2392

1. Definition and types of OTT services

Digital services that are offered through the internet, bypassing more conventional distribution
methods like cable or satellite TV providers or phone companies, are referred to as over the
top (OTT) services. The delivery of these services "over the top" of already-existing
infrastructure as opposed to through conventional distribution methods is referred to as "over
the top" in this context. Without a traditional subscription or a direct physical connection to a
network, OTT services enable consumers to view and enjoy digital material online.

There are three main types of OTT services:

1. Video Streaming: Users of these services can access online video content. Netflix, Hulu,
and Amazon Prime Video are a few of the well-known video streaming services. Users of
video streaming services have access to a huge library of content, with new movies and
popular TV episodes released on a regular basis.

2. Music Streaming: Users can listen to music online thanks to these services. Spotify,
Apple Music, and Pandora are a few of the well-known music streaming services. Users of
music streaming services can enjoy a customised listening experience with suggestions
based on their listening habits and history.

3. Messaging Services: Users can share files online, make voice and video chats, and send
messages using these apps. WhatsApp, Skype, and Viber are some of the more well-
known messaging services. Without paying exorbitant phone costs or utilising
conventional phone lines, users can communicate with friends and family who live
anywhere in the world.

2. Overview of the Telecom Industry & Its Revenue Sources

● The telecom sector is made up of businesses that offer voice or data transfer services
through telecommunication service providers. These businesses make it possible to
communicate on a worldwide scale over the phone, the airways, the internet, cables,
wireless technology, or wired methods. The technology infrastructure created by
telecom businesses enables the transmission of data in the form of speech, audio,
words, or video throughout the entire world.

● Telecommunication services offered by telecom companies are mainly of two types,

i.e. Wireless telecommunication services and diversified telecommunication services.
Diversified telecommunication is further categorized into alternative carriers and
Integrated telecommunication services.
 TYPES OF TELECOMMUNICATION SERVICES

Key activities for Revenue Generation

● Key activities of a business model are all those fundamental undertakings that a
company engages in with the intention of making a profit.

● VOICE: Voice communication, often known as telephony or voice

telecommunication, refers to sound transmission between individuals over a
distance using wired or wireless phones and other associated technology.
Various telecom service providers either use their own network infrastructure to
deliver voice telecommunication services, or they use the network infrastructure
of a network operator.
  DATA PROVISION:This encompasses all traffic including multimedia material
that occurs between distinct parties, such as clients, users, and services. To
help clients access data services more easily, telecom providers offer a wide
range of products and services. A select few of these services support access to
television, game, music, and internet services.

 MESSAGING:Message services, which encompass SMS and MMS services,

are another important telecom company operation. MMS is for multimedia
messaging service, while SMS stands for short message service. The cell phone
and several other gadgets can send and receive messages using both services.
SMS enables users to send and receive quick messages between mobile phone
devices in the form of text messages. The MMS service allows users to send
and receive multimedia communications, including text, images, videos, sound,
and music.

 BROADBAND SERVICES:Broadband internet connection services are also

provided by telecom companies.

REVENUE MODEL FOR TELECOM COMPANIES

  Income from fixed-data services:Such as IP, satellite, Integrated Services Digital
Network, etc.

 Retail fixed-voice service revenue:Comes from the sale of all services to end-users.
This includes voice-related long-distance and local services such as line
subscription/rental, calling charges, and fee-related to the connection.

 Mobile telecom services revenue:This includes income earned via mobile data
usages such as SMS, mobile data access, and mobile phone calls.
●
Mobility segment i.e. wireless and mobile subscription services: These
companies charge from big multinationals for premium services such as video-
conferencing and high-security private networks.

3. Analysis of the Impact of OTT services on telecom operators

● The telecom operators today strive to provide seamless and high quality voice,data
and multimedia services in a multi-device,mobile environment.
● Traditionally,principal revenue streams for telecom operators have been voice and
messaging, development such as internet explosion and the emergence of cellular
mobile communication this proven as a new challenges to their revenue generating
model.
● OTT services providers deliver audio,video and other media over the internet and
bypass the traditional operator network since,OTT players do not require any
technology affiliation with network operator for providing such services.

THE RAPID UPTAKE OF OTT SERVICES HAD A HUGE IMPACT ON THE

TELECOM REVENUE AND SERVICES.THERE ARE VARIOUS FACTORS AND
TRENDS AS LISTED BELOW
Trends leads to factors which leads to adoption of OTT services due to which there is
impact on telecom operator, various trends are listed below.

Personalization and Customization

● Customize access to services and for a more personalized customer experience
are becoming increasingly important to users now customer demands that the
appropriate information and content be made available to him all the time.

Advancement in technology
● With time telecom technologies moved from initial GSM and CDMA technologies
to third and fourth generation technologies now end users has access to high
data rates.The popularity of OTT services like video call and multimedia service
like video on demand can be directly connected to increased data rates.

Messaging preferences
● Consumer tastes for messaging have quickly and permanently changed from
SMS and MMS services to OTT messaging service due to the availability of
advance features and net neutrality.The majority of OTT services use a
‘freemium’ business model where they provide consumer unlimited texting and
charge small fixed monthly fee.

Content distribution
● Service providers have been attempting to match the supply of content to
demand as customer customer demand for content has increased.At the same
 time they had to develop the capabilities to deliver this content to consumer
distributed across geographies.

IMPACT ON TELECOM REVENUE MODEL

● According to Informa’s World Cellular Revenue Forecasts 20187, global annual SMS revenues
will fall down from US$120 billion in 2013 to US$96.7 billion by 2018, due to increasing
adoption and use of Over-The-Top (OTT) messaging applications.

Comparison of cost to consumer for TSPs and OTT players Source

● Spirit DSP, in its report “The Future of Voice”8, has also studied the impact of OTT VoIP
applications on voice revenue. According to the report the overall global telco voice revenues
(including fixed subscriptions) will decline from $970.4 billion in 2012 to $799.6 billion by 2020.

4. Comparison of revenue generated from traditional telecom services vs

OTT services

According to McKinsey & Company, India recorded over $2 billion in revenue from OTT and
video services in 2020, a figure that was estimated to triple by 2026, at nearly $7 billion. The
revenue from subscriptions for over-the-top video platforms across India amounted to
approximately 54 billion Indian rupees in 2021, and it was expected to shoot up to
approximately 118 billion Indian rupees by 2024. Meanwhile, a new study from Juniper
Research stated that telecom operator voice revenue in India is likely to drop to $208 billion
by 2024 from $381 billion in 2019, as users continue to prefer more flexible and free OTT
services.

5. Factors contributing to the growth of OTT services and their impact on

telecom operators
Increasing Demand for On-Demand Content : Consumers have increasingly shown a
preference for on-demand content, such as movies, TV shows, and music. OTT services
provide a convenient and flexible way to access a wide range of content, allowing users to
consume content at their own pace and on their preferred devices. This has driven the growth
of OTT services, as consumers seek more options for content consumption beyond traditional
broadcast or cable TV.
Availability of High-Speed Internet at very low cost: The availability of high-speed internet
has greatly facilitated the growth of OTT services. As internet infrastructure has improved and
become more accessible, it has enabled seamless streaming of high-quality video and audio
content. This has made it easier for consumers to access OTT services and has created a
conducive environment for their growth.
Expansion of Mobile Devices: The increase in the number of smartphones and other mobile
devices has significantly contributed to the growth of OTT services. Mobile devices have
become ubiquitous, and consumers now expect to be able to access content on their
smartphones or tablets wherever they go. This has led to the development of mobile apps for
OTT services, allowing users to consume content on the go, and has further fueled the growth
of OTT services.
Disruption of Traditional Business Models: OTT services have disrupted traditional
business models of telecom operators. Historically, telecom operators have relied on revenue
from voice calls, text messages, and data plans. However, with the rise of OTT services,
which often offer voice and messaging services over the internet, telecom operators have
seen a decline in revenue from these traditional services. This has forced telecom operators
to adapt their business models and find new revenue streams.
Regulatory Challenges: OTT services often operate outside the traditional regulatory
framework that governs telecom operators. This has created challenges for telecom
operators, as they are subject to regulatory requirements that OTT services may not be
subject to. This imbalance in regulatory requirements has sometimes resulted in an uneven
playing field for telecom operators, creating challenges for their growth and sustainability.
Impact on Telecom Operators: Telecom operators have been impacted by the disruption of
their traditional business models. With the decline in revenue from voice calls, text messages,
and data plans, telecom operators have had to find new revenue streams. Some have
invested in their own OTT services or partnered with existing OTT providers to offer bundled
services to their customers. The increased competition from OTT services has forced telecom
operators to invest in infrastructure upgrades to provide better internet speeds and quality of
service.

6. Strategies adopted by telecom operators to counter the impact of OTT

services on their revenue

In recent times, telecom companies have encountered a difficulty due to the surge of over-the-top
(OTT) services such as Skype, WhatsApp, and Viber that permit users to make voice and video calls
and send messages via the internet. This has resulted in a reduction in revenue from conventional
telecom services such as voice calls and text messaging. To address this issue, telecom operators
have adopted various strategies, including:

1. Introducing their own OTT services: A few telecom companies have launched their OTT
services, such as Vodafone's Vodafone Play or Airtel's Wynk, Jio Cinema to compete with
current OTT services.

2. Collaborating with existing OTT services: Certain telecom companies have collaborated
with present OTT services to provide bundled packages to their customers, such as free or
discounted access to such services when clients purchase specific data plans.

3. Presenting unique value-added services: Telecom operators have also introduced value-
added services such as IoT services, cloud storage, and content streaming services to
distinguish themselves from OTT services.

4. Concentrating on high-speed data services: Telecom operators have been concentrating on

providing high-speed data services such as 4G and 5G to entice customers who prefer to
utilize OTT services for communication.

The primary objective of these strategies is to hold onto customers and increase revenue by providing
services that are distinct and difficult to duplicate by OTT services.

7. Case studies of telecom operators that have successfully adapted to the rise of
OTT services

Case Study 1: Reliance Jio, India

Reliance Jio, an Indian telecom company, has successfully adapted to the rise of OTT
services. It launched in 2016, offering customers affordable high-speed data services and free
voice calls. This move attracted customers who were previously using OTT services for
communication. To further compete with OTT services, Jio developed its own suite of apps,
such as JioTV, JioCinema, and JioChat, which provide access to live TV, movies, and
messaging, respectively. Jio's aggressive pricing and introduction of its own OTT services
have enabled it to gain a significant market share in India's telecom industry.

Case Study 2: T-Mobile, USA

T-Mobile, a US-based telecom company, has also successfully adapted to the rise of OTT
services. It introduced "Binge On" in 2015, which allowed customers to stream video content
from select OTT providers without using their data allowance. T-Mobile also partnered with
music streaming services, such as Pandora and Spotify, to offer free streaming for certain
data plans. Additionally, T-Mobile developed its own OTT service, called TVision, which offers
live TV and on-demand content. T-Mobile's approach to partnering with and developing its
own OTT services has helped it retain customers and increase revenue, despite the rise of
OTT services.

Case Study 3: AT&T

AT&T: AT&T has partnered with DirecTV Now, a streaming service that offers a variety of live
TV channels, to attract customers who prefer OTT services. AT&T has also introduced its own
streaming service, called WatchTV, which is available to its unlimited data plan subscribers at
no additional cost.

8. Consumer role in the growth of OTT services

● The entertainment industry has evolved especially after the internet boom and became
one of the important sector for revenue generation. The biggest player in this change
have been the OTT player and they have given the exclusive content to customer
which they were never used to.

● In the rapidly changing world of media in the last five years, technology was
undoubtedly the driving force behind people live diversity. The nationwide lockdown
situation is proven as a sudden growth in online viewing percentage.
 ● The availability of content on smart phones has aided the growth of OTT services in
semi urban and rural areas.
● Competitive casting strategy by OTT operator leads to a growth in OTT services.
● Nowadays there is very high smartphone penetration rate among consumer and the
availability of inexpensive high quality internet connections which makes easier for
consumer to access any content anywhere.

Smartphone penetration and mobile data consumption in India

Smartphone penetration in india has increased from 13% to 58% between 2014 to
2020.Mobile data consumption PB per month has increased from 94PB to 1869PB from 2014
to 2020.

Growth in online video viewer in india from 2018-2023

As per KPMG online video viewer in india will grow from 300 million in december 2018 to 550
million in year 2023.In the year 2019 online video viewer will remain 325 million.
9. Regulatory challenges faced by telecom operators due to the rise of OTT
services

1. Country of Jurisdiction : OTT services export data. Call details and user
demographics are collected. Cross-border data transmission poses issues. First, it
raises questions about the territorial execution of data protection regulations, making
governments unsure whether their citizens' data is properly protected abroad. Second,
because evidentiary data may be in another nation, this technology makes it difficult for
law enforcement to investigate and get evidence in criminal and taxation matters. Other
OTTs may refuse cooperation.
2. Security and Privacy: TSPs must preserve communication privacy and prevent
message interception. The license agreement prohibits licensees from using mass
encryption technology in its network and requires network security.
3. Pricing Regulation: Price control applies to dominant operators who may misuse their
market dominance and engage in anti-competitive practices. This legislation does not
apply to OTT service providers, who may have comparable market power that may be
abused.
4. Taxing Regulations: Without restrictions, OTT players may use new, adaptable, and
agile business models that are more efficient. OTT service providers only pay taxes to
their home nation, unlike telecom operators/network companies who must pay taxes in
every country they operate in.
5. Quality of Service (QoS): Instead of guaranteeing QoS, OTT service providers
criticize network providers. Others claim that OTT players enhance the customer
experience by asking about user experience at the conclusion of VoIP conversations
and investing in data compression and service quality. OTT QoS relies on telecom
QoS. Former is sold as is with customer choice. Expectations from consumers and
legislation govern the latter.
6. Interconnection Regulations : Many operators worry about the market share and
strength of large OTT service providers who will draw content instead of operators.
carriers allege that by creating demand for bandwidth, OTT service providers incur
(next-generation) infrastructure investment costs, but their "interconnection" contracts
with telecom carriers do not fairly share these costs.
7. Data Protection and Privacy : Most governments require operators to preserve and
secure data and allow law enforcement to intercept browser history, online
transactions, e-mail, and messaging exchanges. Operators are highly regulated for
data security and privacy, whereas OTTs are mostly self-regulated. OTT providers
have little regulations. Only user data security and privacy issues restrict their
operations. OTT communication options lack encryption. This suggests that attackers
may readily eavesdrop on OTT services. (such as VoIP conversation and IM services).
Unencrypted VoIP and IM networks can enable theft of identities and fraud.
 10. Future prospects of the telecom industry in the face of increasing
competition from OTT services:

Joining forces with OTT: There is a proverb that reads, "If you can't beat 'em, join 'em."
Therefore, when it is challenging to defeat the opposition at their own game, teaming up with
them might be a viable tactic. This tactic, wherein telecom carriers collaborate with OTT firms
in order to profit from their traffic, is already widely used. Here are a few illustrations:
 
 Viber's partnership with Axis in Indonesia: As part of a migration strategy to help
customers learn about and feel comfortable purchasing data bundles from their
mobile provider, Axis, an Indonesian telecom operator, has partnered with Viber
to allow its customers to purchase a Viber data service rather than a full data
plan.
 Due to a partnership between DiGi Telecommunications and WhatsApp, a
Malaysian mobile service provider, DiGi subscribers now get unlimited access to
the service for a set charge. The same approach has also been used by reliance
Communications in India and 3 Hong Kong, a mobile network operator and
internet service provider in Hong Kong.
 In the state of Jammu & Kashmir, Aircel partnered with Nimbuzz and promoted
their partnership. Through SMS, Aircel apprised and urged its subscribers to
download the Nimbuzz application, with the promise of a free 40 MB of data
usage for those who did so within a 24-hour window.
 
These methods have helped operators sustain traffic and boost earnings. However, these
partnership arrangements provide the operator little control over service breadth and quality.
Client relationships may deteriorate. They can only benefit from the deal if their partner brand
is popular. MNOs would also lose importance. They would force MNOs to minimize network
OPEX and CAPEX by using "off deck" application transport.

Creating their Own Services: Telecom carriers may also create their own OTT service in the
long run. This will allow them to interact with other telecom initiatives and maintain service
control. The operator may hire or develop the necessary knowledge. Even if it takes longer,
the CSP may manage the consumer connection, expand into surrounding areas, and reach
more customers. They may employ network management, consumer information, customer
service, and distribution channels to differentiate their OTT services from competitors. CSPs
lack the skills to provide such services, making such a plan risky.
T-Mobile USA's Bobsled and Telefonica Digital's Tu Me provide free calls and texts. Orange
launched Libon, an OTT communication service. Comcast, like Netflix, offers movies and TV
programmes online. The GSM Association actively promotes IP-based communications
technology and trademark Joyn. (GSMA). Member businesses should use it to innovate and
deploy new services including chat, photo sharing, and file transfer that compete with third-
party OTT services. Like SMS and phone technology, the GSMA covers all Joyn-enabled
operators, which may help this effort. All communication companies would provide Joyn
services.
References:

 "Understanding Over-The-Top Video Services: A Comprehensive Survey" by Y. Li, M. Ma,

and A. Swaminathan. IEEE Communications Surveys & Tutorials, 2018.
https://ieeexplore.ieee.org/abstract/document/8254383

 "Over-the-top (OTT) Video: Market Dynamics and Policy Challenges" by J. Bauer, J. Gó mez-
Barroso, and R. P. Ribeiro. Telecommunications Policy, 2015.
https://www.sciencedirect.com/science/article/pii/S0308596115000486

 "Towards a Comprehensive Understanding of OTT Video Services: A Technical and

Business Perspective" by M. Alreshoodi, M. Baker, and A. Al-Askar. Journal of Network and
Computer Applications, 2019.
https://www.sciencedirect.com/science/article/pii/S1084804518304148

 "A Survey on the Technology and Business of Over-The-Top (OTT) Video Streaming" by M.
Shahid, J. J. Rodrigues, and J. Korhonen. IEEE Communications Surveys & Tutorials, 2020.
https://ieeexplore.ieee.org/abstract/document/8882066

 "Over-The-Top Video Streaming Services: The Future of Television" by S. R. Alharbi and M.

Z. Shakir. International Journal of Computer Science and Information Security, 2017.
https://arxiv.org/abs/1702.00533


https://www.researchgate.net/publication/276175550_Impact_of_Over_the_Top_OTT_Se
rvices_on_Telecom_Service_Providers

 https://www.researchgate.net/publication/360889303_GROWTH_OFOVER-THE-
TOP_OTT_VIDEOSERVICES_IN_INDIA

 https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-
insights/overwhelming-ott-telcos-growth-strategy-in-a-digital-world

 https://telecom.economictimes.indiatimes.com/news/telcos-voice-revenue-to-drop-45-
by-2024-under-a-growing-ott-challenge-study/731

 https://www.statista.com/statistics/1231740/ott-and-video-revenue-india/