The emergence of OTT players, sometimes coupled with device makers, has been the biggest disruption in the telco sector in the last decade. Ovum estimates that OTT players last year cost operators $23 billion in lost SMS revenues alone. This trend has created both threats and opportunities for the telco operators.
The OTT threat to telcos comes in two parts: a threat to revenue and a threat to customer relevance. Of these two, the threat to relevance is more fundamental. The ambition of the OTT players is to take the telcos' place in the customer's mind, relegating the telcos to a wholesale role. OTT players with wide portfolios of services can erode customer loyalty to the telco brands, and displace telco SMS (and to a lesser extent voice).
Cheap voice and SMS offers from the telcos cannot eliminate that threat all by themselves. OTT erosion of telco SMS revenues in South Korea, for example, was collateral damage in KakaoTalk's pursuit of the content services market.
The OTT opportunity for telcos also comes in two parts: the rising levels of monetizable traffic generated by these services, and the prospects for mutually beneficial partnerships between telco operators and OTT players.
These threats and opportunities can be addressed through two basic strategies: collaboration or competition. Knowing where to collaborate and where to compete will be crucial, and much depends on the internal capabilities and external conditions that the telcos face.
The first strategy is pure collaboration, where the telco focuses on its traditional telco engineering strengths and provides wholesale support for OTT players. This means more than just shifting packets for the OTT players. It should also involve strategic partnerships of the kind we have already seen, with OTT adding value to a telco subscription and OTT operators getting better access to the telco's customers.
A pure collaborate strategy will make most sense among telcos that lack the financial and management resources to build their own successful value-added services, or lack a large base of customers prepared to pay for such services. Their strategy in the voice and messaging markets will be defensive.