When you attend telecom conferences as part of your day job as I do, you are frequently subject to the biggest trending spook acronym in the industry: OTT. OTT stands for Over the Top, a rather awkward (in my opinion) denomination for market players who use the Internet (which stands ‘above’ the physical network of telecom operators, at least in the OSI stack) to offer services directly to the telecom operators’ customers.
I don’t like the acronym OTT, at least as it’s commonly used. For one thing, as my friend and fellow analyst Dean Bubley says, if content and application providers are Over the Top as seen from the network operator, does that mean that the network operators are Under the Bottom as seen from the content and application providers? More importantly though, using a (gross simplification of) a delivery mechanism to describe a type of players is dangerous. When Telefonica launches an app (called Tu Me) to enable VoIP and messaging on smartphones, it’s also delivering a service ‘Over the Top’. That is why I prefer to reserve the term for the delivery mechanism and distinguish as market players the Network Operators (Orange, AT&T, Telefonica…) and the Online Service Providers (Skype, Google, Dropbox…)
Terminology issues aside, there is no doubt that Online Service Providers (OSPs) are eating a part of the lunch that network operators had reserved for themselves. Not only the future lunch – this vague promise of new services that seems so hard to materialize – but also the current lunch of voice calls and text messaging. I often use the following representation during my speeches to illustrate exactly what is happening in the market. The interesting thing to point out here is that while the service revenues are shrinking, the core revenue base from access charges isn’t at threat: you need a physical network to deliver access, and Google Fiber oddities aside, that’s not something that OSPs want to get into.
It’s clearly excessive therefore, to suggest that Network Operators are dying or doomed. The fundamentals of the network are not threatened and contribute the largest revenue stream to their model. However, Network Operators dreamed themselves as Service Providers in the years before they understood Internet was the vector for service disintermediation. Since then they’ve been struggling to figure out a way to grow service revenues again, especially with the slow pace of innovation in their own organisations.
Assuming (as I do) they can’t match the agility of the OSPs they are facing, what’s the way out? There are essentially three I can see:
Focus on access only: this means become a very lean access only operation. It’s a viable strategy, but hard to imagine for organisations that today have more headcount in service that they have in network,
Become gatekeepers: this implies, with regulatory backing that the Network Operators could repeal Net Neutrality and charge for access to their networks. It’s unlikely to happen, and perhaps most importantly, there’s no guarantee that in a model where each service delivery set-up is a transaction the Network Operators would have the upper hand.
Focus on differentiated services: in this approach, Network Operators would only deliver those services that offered them a clear differentiator against Online Service Providers. Instead of competing with the OTT threat, they would complement the OTT offering with services that they could deliver better than OSPs because these services would leverage competitive advantages that the Network Operators have.
There's no doubt in my mind that the third path is the one that Network Operators who find the first path unpalatable should pursue. They need to stake out limited service territories and become the best in these areas. Let the OSPs deliver the rest. These areas should be around services that there will be demand for (obviously) but also where the Network Operators have a competitive advantage.
That's when intimacy comes into play. The one thing that OSPs cannot get and will not get is customer intimacy. Think about it for a second: who has ever been in contact with Google or Facebook or Twitter as organisations? Virtually none of their users. And when you have to get in touch, you generally get either no response or (if you're actually buying a premium service) a less than useful response (for example English language customer support worldwide...)
Network Operators on the other hand know where their customers live, they can get in touch with them, they can create intimacy if they want to. Unfortunately over the last couple of decades they have been doing their utmost to get further and further away from consumers. Intimacy has a human cost that they've been trying to shed.
I think that's a massive mistake and one they will need to think about long and hard if they want to stay relevant beyond offering access products in the future. Intimacy may be the key success factor of any future Network Operator service strategy as the single component of the customer relationship that cannot be replicated by OSPs based on the other side of the world. Google recent purchased NEST, a company that has a technological advance in home automation. But who in their right mind would turn to impersonal Google to give them the keys to their homes? For something that precious to you, you need human interaction, you need to know that if something goes wrong, you can turn to someone who is not a machine and has a voice.
You need intimacy.