Q&A: What’s the economic impact of ‘over-the-top’ (OTT) players?

shutterstock_522013744_600x310Over-the-top (OTT) services such as Skype and WhatsApp are among today’s most popular communications services, and their providers are among the information and communication technology (ICT) sector’s most innovative and profitable companies. Network operators and OTT players, despite having quite different business models, sometimes find themselves in competition in fields where they provide equivalent services. This has given rise to a long-running debate around whether or not this competition is on a level playing field.

ITU-T Study Group 3 (SG3) is leading ITU’s analysis of the ‘economic impacts of OTT’, encouraging ICT stakeholders to coalesce around a common understanding of the new industry dynamics introduced by OTT services.

To learn more about the aims of this work, ITU sent some questions to the leader of SG3’s Rapporteur Group on OTT, Ahmed Said, Head of Economic Affairs at the National Telecom Regulatory Authority of Egypt. The answers below were prepared with the support of Associate Rapporteur, Abraão Balbino e Silva, Competition Superintendent at the National Telecommunications Agency of Brazil (Anatel).

Could you give our readers a brief introduction to the concept of OTT as well as what type of services are typically provided over-the-top?

As yet there is no widely accepted definition of OTT. It is important that this is addressed by ITU, given that the definition will affect the scope of ITU’s analysis of OTT. Our current discussions consider OTT to be any Internet application that may substitute or supplement traditional telecommunication services, from voice calls and text messaging to video and broadcast services.

Is it still common for network operators to argue that OTT service providers are at an unfair advantage in that they do not share in the cost of the infrastructure that carries OTT traffic?

We need to approach this question from two angles. OTT services are well appreciated by end-users and this drives demand for data. While the operator is responsible for investment in the network infrastructure that carries OTT traffic, this OTT traffic also contributes to increased revenue for operators. In analyzing the impact of OTT on the business of network operators, it is important to acknowledge that declining demand for traditional voice and text messaging services is counterbalanced by increasing demand for data.

The popularity of OTT services translates into more traffic running over operators’ networks. Surely this is good for operators’ business?

Yes, definitely. The relationship of network operators and OTT players is one of interdependence. OTT players need a reliable high-speed network, and network operators need good applications to stimulate demand for data traffic.

Where would OTT services be considered supplementary to operator-provided services and where would they be seen as in competition?

Traditional voice and text messaging services compete with OTT-provided voice and text. Supplementary services would include the sharing of content and social networking.

It is said that OTT services are not subject to the same regulation as operator-provided services. How is this the case, and what are the implications for market competition?

Are network operators and OTT players on a level playing field when it comes to competition? Do they target the same customers? Do they have access to the same markets? Essentially, we are asking if they are operating in the same market, playing the same game. We do not yet have definitive answers to these questions. As such, we do not yet have a definitive answer to the question of whether or not network operators and OTT players should fall under the same regulatory framework.

What would be the competitive advantage held by network operators, considering that they operate the infrastructure fundamental to the provision of OTT as well as traditional services?

It is important not to view OTT players as network operators’ main competitor. Network operators aim to provide secure, reliable, high-speed networks that deliver services valued by end-users. Network operators will gain competitive advantage by investing in the expansion and improvement of their networks, helping OTT players to reach new customers and deliver high-quality services.

This debate seems quite binary, with network operators pitted against OTT players. Is this really an accurate reflection of the state of play in the market? Is the relationship always one of competition or do we also see productive collaboration?

If a network operator’s main business is voice, that operator will face strong competition from OTT voice services. However, if a network operator’s main business is data service provision, that operator will view OTT players as collaborators. The situation today is that most network operators’ main revenue stream comes from voice and text messaging services. A win-win collaboration model will emerge only if network operators’ main revenue stream shifts towards data service provision. Governments could play an important role in encouraging this transition by creating an enabling environment for the deployment of data networks, ensuring an appropriate level of regulation and applying measures that enable competition on a level playing field.

Where is SG3 concentrating its attention and what are the aims of this study?

SG3 is evaluating the impact of OTT on network operators with a view to brokering the international agreement of standards able to assist the creation of a win-win situation for network operators and OTT players. We are developing standards that promote fair competition, consumer protection, dynamic innovation, sustainable investment and infrastructure development, and accessible and affordable international services.

Ahmed Said

Ahmed SaidAhmed Said is the Head of Economic Affairs at the National Telecom Regulatory Authority (NTRA) of Egypt. He has previously worked at Mobinil (First mobile network operator in Egypt), TheWayOut (Regional ISP head quartered in Egypt) and General Dynamics (U.S. based Corporation). Mr. Said has represented the Egyptian administration in several conferences including the WTO GSR, ITU Telecom indicators, IGF, ICANN and Arab Tariff Group (Arab League), and was appointed as a Chariman of ITU-T SG3 RG ARB. Mr. Said is currently a Vice-Chairman of ITU-T SG3.

Abraão Balbino e Silva

Abraao 2Abraão Balbino e Silva is Competition Superintendent of Brazil’s National Telecommunications Agency – Anatel. He has over 15 years of experience in the ICT industry, and is currently responsible for the Economic Regulation of the telecommunications sector in Brazil, including the competition policy, prices, costs and the monitoring of the economic issues involved. He is a Vice-Chairman of  ITU-T SG3. 

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