Over The Top Services – What Are They and Why Are They So Important ?

In Australia smartphone messaging apps and other OTT services which we all use on a daily basis, such as WhatsApp, Skype and Viber are increasingly making the major carriers nervous and they should be.

Telstra, Optus and Vodafone Australia are reported to be displeased at the ongoing growth of OTT service providers, as they chip away at the traditional SMS and calling revenue of the national carriers.

With dipping voice and SMS revenues, increased costs of maintaining aging infrastructure and the fact that OTT services don’t pay the carriers any fees for tapping into their networks, the Telecom industry is going to face some interesting challenges in the coming years.

Are the national carriers supportive of OTT services?

Some carriers such as Optus are trying to strong-arm emerging technologies by urging Australian regulators to make changes to existing regulations, allowing them to charge OTT services such as Skype and WhatsApp.

By charging OTT services for the use of their networks, Australian carriers are hoping to recoup the costs of infrastructure investment and cut back on the amount of annual spending which they currently budget for.

Australian Teleco’s are cautioning that the amount of investment which they annually spend on improving and updating their infrastructure networks could be significantly reduced unless they are given the right to begin charging OTT providers, which utilise their existing networks.

In Australia even though OTT services are gaining in popularity, especially amongst millennials, SMS remains a cash cow for the phone companies, although greatly reduced from their glory years.

What does this mean for Australian consumers?

Consumers are still slugged with a high charge for each SMS they send, compared to the relatively low cost to transmit the data across the network.

In fact, the amount which users are charged per SMS was subjected to a 2015 ACCC review back in May of this year, with the proposal put forward that there should be significant reductions in the charge passed onto consumers.

SMS termination charges are on the carriers end much lower than they would have us to believe, with a new set of service charges estimated to be brought in by all providers in the early months of next year.

Australia’s national carriers Telstra, Vodafone and Optus protest that most SMS traffic through their networks is bundled within plan packages and that the recommendation of the ACCC is unnecessary.

Naturally they would say that as it’s common industry knowledge that the carriers are smarting due to the prevalence of OTT messaging services and as each year passes, the reduction in their ability to generate revenue continues to decrease.

The Australian Telco’s are forced to play catchup

Telstra, Optus and Vodafone which operate 4G networks in Australia have in the past few years been forced to play catchup and invest in their network infrastructure, to cater for the increasing consumer demand for mobile broadband services.

With an increasingly competitive marketplace and new MVNOs entering every few months, along with OTT service providers gaining in popularity, traditional business models used to generate revenue are going to continue to fall under increasing strain.

Customers are spoilt for choice with so many different competitive prepaid plans which are currently on the market, and without locked in periods, if a user is not happy they will move onto a different provider.

A case study of this was Vodafone Australia a few years ago which had terrible network connectivity problems and even worse customer service. Instead of honestly and efficiently dealing with the problem, customer support was lacking, the brand was damaged and users in large numbers left the carrier.

Examples of OTT service providers in Australia

OTT services such as WhatsApp and Netflix continue to draw in large numbers of users which download and view content on demand in the case of streaming video providers and send and receive audio calls from services such as WhatsApp.

These OTT services use large amounts of data which are sent and received across the Telstra, Optus and Vodafone networks. While the 3G networks can be strained at times, with the increasing investment in 4G network infrastructure, this should be a thing of the past.

With more capable infrastructure comes more streaming products and services, which the carriers can offer their users as either a part of or as up-sells to their prepaid and postpaid plans.

Thanks to both HSPA and LTE technologies, upgrades to the carriers networks enable subscribers to view streaming content on demand, with there being fewer drop-outs and connectivity issues.

However, despite generous data caps, consumers are still trending towards using home WiFi and free hotspots for the majority of their streaming and downloading, rather than using their mobile data allowances.

In Summary

OTT use in Australia is only set to grow even more in the coming years as further capacity on the existing 4G network is expanded and mobile carriers invest in future infrastructure which will support 5G.

It is estimated that the number of SVOD users in Australia will grow by an increased factor of 17 between now and 2019, which means that by that time there will be almost 5 million users in Australia of OTT and SVOD services.

Standard OTT services such as live streaming, video on demand and downloaded media will expand significantly, as Australian’s move away from traditional media sources and access more of their content from mobile smartphones and tablet devices.

Neil Aitken

Having worked in 3 countries for 4 telcos on both voice and data products, Neil is in a position to give you the inside track. Get beyond the marketing messages to the best plan for you.