November 2018

Implications of Over-The-Top (OTT) Services

Overview

Technological developments, especially the transition to the IP technology has implied the emergence of new services and business models operating over the Internet. The OTT content or service refers to such services that are offered as “data” over the public Internet that bypasses traditional medium. Traditional medium refers to the services that are offered by networks such as mobile or fixed line operators, satellite services or internet service providers that connects users to the Internet.

What are OTT Services?

The provision of OTT is of increasing importance in the rapidly evolving technology industry, and of great value for consumers and businesses. The OTT content can be audio, video, text or images, examples of OTT services are shown in the diagram below.

Consumer

There are many services that are provided free-of-cost to the end customer, consumer now has a choice. Consumers can stream videos of their choice, watch when they want instead of waiting for broadcaster’s plan, enhanced communication – not only text or images, videos and chatting with multiple parties. They can use these services irrespective of the operator or the device model. OTT is entering every industry. Customers can use them for their financial tracking, money management, health, transport, entertainment, news, shopping etc.

 

Network Operators

Traditional service providers – Mobile Network Operators (MNOs), ISPs, TV/Broadcasting etc. - are fighting back with OTT players by reducing charges to voice, messaging and data. In many regions, operators are already offering unlimited voice and messaging services. Most cases, “data” seems to be the only service that is providing revenue to the operators, not surprisingly, the “data” consumption is linked with OTT services. Traditional service providers are realising that fighting against OTT is no longer going to work and many are adopting partnerships with OTT players, such as, offering discrete packages to streaming or social media services over normal data packages. Many operators are, thus, expanding their business into other areas such as MNOs entering into TV/Cable and Broadband business. OTT services also drive more consumption of service provider’s services. Operators can add more value and revenue by partnering with OTT players instead of considering them as their foe.

 

Content Providers

OTT content providers escape from the high cost required to build the infrastructure and pay for the license fees that many traditional service providers must spend to build their networks. They also avoid the capital required by device vendors – for research, manufacturing, transporting and attracting end customers. The OTT service providers can deliver their services over any type of network and over any type of device as long as customers can connect to the Internet. For any popular or good service, OTT services can transcend any boundary – device, network or geographical region. Many OTT service providers can give their service as “free” but using customers’ information for advertisements, or one-time fees or a regular subscription such as Netflix. They have already challenged and are winning over basic services that are offered by traditional operators.

 

Net Neutrality and OTT

Net Neutrality is a principle that Internet service providers should treat all traffic on the Internet equally and should not discriminate traffic based on user or content or type of communication or equipment used. Throttling, blocking, reduced priority etc., are the tactics used by service providers to distinguish one traffic from another. It has been seen that traditional operators when partnering with certain OTT players are changing network behavior for their traffic – such as offering unlimited free streaming for Netflix but blocking or charging another streaming provider; providing some customers to free streaming service whereas charging others. This is a bigger challenge for OTT players. For example, an operator with larger customer base can offer free-service to one streaming provider, thereby customers will start choosing that streaming provider over other; other or new upcoming streaming providers will struggle to compete and may go out of their business; later the one providing free-streaming could be the only streaming provider and can use their dominance to start charging high prices to end customers.

 

What Can Regulators Do?

OTT is a challenge for regulators. If we compare like with like between traditional service providers and OTT players, we clearly see an imbalance in the regulation. Regulators have to step in and put regulation and rules and monitoring practices to see that OTT services are not treated unfairly by the service providers. The regulator’s role is to provide a “level playing field” – the idea being that services that have same functionality and compete with each other should all be subject to the same regulatory treatment. Regulators should assess the proportionality of services against social benefits and economic costs. The overall goal of a regulator is actually to have greater reliance on market forces such that the end customer gets a quality service at lower prices, with increased choice and innovation – these are increasingly being delivered by OTT than the traditional service providers. Many international regulators are struggling to come up with ideas on how to regulate such services. There is need to classify services that exactly match those provided by traditional operators versus services that add much more value to end consumers.