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Telcos missing out on massive OTT profit opportunity, claims research

Mobile comms consultancy Northstream reckons European telcos are missing out on over €2 billion in potential profits that could come from effectively partnering with Internet players generally referred to as OTTs.

Scott Bicheno

September 24, 2014

3 Min Read
Telcos missing out on massive OTT profit opportunity, claims research
Telekom Austria has a few more euros in its trolley

UPDATED 09:00 25 Sep 2014*

Mobile comms consultancy Northstream reckons European telcos are missing out on over €2 billion in potential profits that could come from effectively partnering with Internet players generally referred to as OTTs.

The research was commissioned by BSS outfit AsiaInfo, which has been helping China Telecom and China Unicom with their OTT collaborations via its Veris O2P platform, and is in the process of introducing it to Europe. AsiaInfo wanted to get a sense of the market opportunity in Europe that could be enabled by collaboration platforms, rather than piecemeal, individual arrangements.

Northstream’s modelling focused on 60 operators across 16 Western European countries, and calculated that the current ad hoc approach to OTT partnership is likely to yield around €160 million in gross profit over the next three years. But if they use an open collaboration platform, the resulting increase in what they’re able to offer, combined with anticipated greater efficiency, jumps that gross profit figure to an estimated €2.2 billion over three years.

The justification for this dramatic claim comes from the scalability the platform model aims to provide. Right now the main driver for telcos partnering with OTTs is defensive – they’re worried about the consequences of not associating themselves with the likes of Facebook, Skype, etc. This means that they partner with a small number of the best-known OTTs mainly so they don’t look out of touch to their subscribers. But the OTTs are fully aware of the strength of their negotiating position, resulting in lean margins for the telco.

Northstream believes the solution to this lies in partnering with the long-tail of smaller OTT players, many of which have relatively niche offerings. But setting up hundreds of OTT deals covering a wide variety of scenarios would be labour intensive if done manually – hence the platform model.

“Our modelling shows that the potential lies in the operators’ ability to achieve the economies of scale required,” said Bengt Nordström, CEO of Northstream. “As long as a manual or case-by-case model is adopted costs remain high and growth remains limited.”

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“We know from earlier research that 90% of operators recognise the need to partner with the OTT community, but many are sceptical about the business case – particularly the costs involved and the revenue return,” said Andy Tiller, VP of Product Marketing at AsiaInfo. “What this new research from Northstream shows is that deploying an open collaboration platform can unlock a net revenue stream that is far bigger and more profitable than many had imagined.”

These are bold claims, untested outside of China, but AsiaInfo has published a white paper outlining the research on a page dedicated to this topic here, to allow some degree of peer review. Its Veris O2P platform has been used by China Telecom since 2011, but is currently being trialled by an unnamed European operator. When the products of that collaboration become public we will have a better idea of how effective the OTT platform model is.

*Second paragraph updated to read “China Telecom” instead of “China Mobile”, as previously published.

About the Author(s)

Scott Bicheno

As the Editorial Director of Telecoms.com, Scott oversees all editorial activity on the site and also manages the Telecoms.com Intelligence arm, which focuses on analysis and bespoke content.
Scott has been covering the mobile phone and broader technology industries for over ten years. Prior to Telecoms.com Scott was the primary smartphone specialist at industry analyst Strategy Analytics’. Before that Scott was a technology journalist, covering the PC and telecoms sectors from a business perspective.
Follow him @scottbicheno

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