Helping MNOs tackle the OTT problem

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We’ve seen a lot of speculation in the media on Facebook’s acquisition of WhatsApp for a historic $19 billion. Many have wondered what the drivers for the deal are, pointing at Facebook’s attempts to stay relevant as younger generations abandon the social network and flock to services such as WhatsApp and SnapChat.

Only a few days after the acquisition news, WhatsApp announced that it would launch a voice service in Q2 of this year, which sent shockwaves through the mobile network operator (MNO) community. These developments again put the problematic relationship between over-the-top (OTT) providers and MNOs under the microscope.

According to an Ovum forecast, MNOs’ revenues will reach $1.1 trillion globally in 2017. Yet traditional voice and messaging revenues will continue to decline, whereas mobile broadband revenues will increase at a CAGR of 15%.

OTT players’ messaging and voice services are putting mobile operators under huge pressure to find new ways to monetise data services and create more dynamic pricing models. There is an ever-increasing amount of data being pushed over mobile networks, but ARPU remains flat.

In an effort to tackle customer churn and lure new subscribers to their networks, MNOs are undercutting each other on price, which makes investments in infrastructure hugely challenging. To remain competitive, some operators are set to reduce the amount of data they offer in their tariffs and then either throttle the speed of connectivity or charge per MB consumed – all of which is going to make their customers unhappy.

As high-bandwidth mobile services – such as sharing video and pictures over WhatsApp – become widespread, the mobile part of the network connecting base stations to the core network becomes a major challenge. This part of the network needs to be robust enough to handle the evolving requirements of mobile users and ensure a consistent user experience.

Most mobile operators pride themselves on owning their network. They could tap into wholesale telecom players for much-needed additional reach and capacity, but to date few have done so because it goes against their nature. Operators have traditionally preferred investments in assets (capex) than leasing capacity from other players (opex).

The problem is exacerbated by network congestion in cities and we see this trend driving consolidation in the telecoms industry, as operators try to improve coverage and capacity by taking over competitors. Other operators have resorted to further building the network to get the fibre coverage they so desperately need, which is a slow and costly process.

While there have been attempts to ease the congestion through the deployment of microcells, we’re yet to see any considerable progress in this area. MNOs haven’t been able to justify the investment or to find a business model to make microcells a sustainable solution.

As WhatsApp’s multi-billion dollar deal with Facebook and move into the voice market have shown, OTT services are here to stay, whether operators like it or not. To meet the service level expectations of their data hungry customers, mobile operators should adopt a more pragmatic approach to their backhaul strategy. By making use of the existing backhaul infrastructure, they are able to boost coverage and ensure customer satisfaction – without the associated capex investments.

Previously featured on Capacity Magazine and Colt-Blog.

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