Predictions of the cost of OTT substitution soar 750% in 27 months

Written by on January 16, 2017 in Billing & Payments, Guest Blog with 0 Comments

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TelecomAsia ran an article on January 11th 2017 on a report from Juniper saying that OTT substitution will cost operators $104 billion this year. Juniper says that the impact of OTT substitution will be the equivalent to 12% of operators’ service revenues.

No real surprise there. Voice, messaging and text are all pretty much now commoditised. SMS is on the sidelines for telco. WhatsApp now generates more than 3 times the traffic of SMS.

I wanted to share this article with a colleague and did a search. What came up was a similar article, only this time from October 2014, that told me that OTTs would cost telcos $14bn in 2014. (TelecomAsia article – October 2014 – OTT Players to Cost Telcos 14bn this year). This article also discussed a research survey from Juniper and said this €14bn figure was a 26% increase from 2013.

Take a moment to digest these numbers and the rate of increase. In October 2014 OTT substitution is costing telcos €14bn a year. Fast forward just 27 months to January 2017 and the OTT substitution cost has gone up to $104bn for the year. Or put another way – the OTT substitution cost to telcos has increased by 750% in 27 months to $104 billion for 2017. That’s an increase of 28% each month.

That’s a crazy increase. The research is from the same company (Juniper) so we’re not comparing analysis from two competing research houses. Messaging and voice are going the way of the OTTs. What’s next – data?

In the same spirit of ‘happy new year, get back to work’ Light Reading ran an article on January 9th with the headline “In 2017, Cost Per Bit Exceeds Revenues“. This article covered an interview with CIMI Corp. CEO Tom Nolle and covered research carried out with leading carriers. The main message is that 2017 “is the year when most telecom network operators will see their revenue-per-bit fall below their cost-per-bit”.

These two articles really highlight the need for change from the traditional ways of doing business. On the BSS side, it’s fair to say that the days of the large-scale digital transformation deals from the mega vendors are numbered. With the OTTs eating into telcos’ revenue at the rate they are, telcos do not have the luxury of time to wait for large and hugely expensive 3-5 year transformation projects to come to fruition. With the cost / revenue tipping point being reached CapEx will be under stress and the overall cost of such huge mega vendor transformation projects will come under increased scrutiny.

We all know that telcos are undergoing a change to sell more digital services (content, etc) to their customers to get as large a percentage of the customers’ digital spend as possible. Relating to moving to digital for BSS, Ovum has just published a report on digital transformation (December 2016). In this they said:

“However, as pressure mounts for CSPs to quickly launch digital services, we can instead expect CSPs to roll out more BSS to support digital service launches in 2017. Ovum’s 2017 ICT Enterprise Insights survey revealed that more than 50% of CIOs plan to increase the number of revenue management systems and more than 60% plan to increase the number of customer management systems in the next 12–18 months. Although this seems contradictory to the rationalization that consolidation is required in the early stages of a transformation, it is important to note that auditing systems and undergoing a BSS transformation are lengthy processes that take years to complete.

Instead, CSPs will deploy separate BSS stacks with the sole purpose of supporting their digital services. In the short term, this will enable them to be active digital service providers, while in the long term, this will help them move forward with their digital transformation. As CSPs launch these digital stacks, they will seek out BSS solutions that can be quickly deployed and can provide them with the necessary components to support digital services.”

This fast track approach to digital was discussed by my colleague, Barry Marron in DisruptiveViews in December 2016. The recent reports on how much revenues telcos are losing to OTTs (and the rate of increase) and the cost per bit / revenue per bit tipping point are not good news for traditional telco models. While this is rather obvious, this news may just add some focus on the speed and cost of digital transformation and act as a catalyst for telcos to look at how quickly and cost effectively they are undertaking their digital journeys.

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Martin Morgan

About the Author

About the Author: With 25 years’ experience in mobile communications software, Martin has worked in mobile billing software since the early days of the industry. As such he’s been around long enough to have had numerous articles published. He has spoken at many conferences. He’s served on the boards of software companies and trade associations. At Openet Martin is responsible for marketing thought leadership and demand creation. .

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