The Impact of Over the Top Service Providers on the Global Mobile Telecom Industry: a Quantified Analysis and Recommendations for Recovery
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The impact of Over The Top service providers on the Global Mobile Telecom Industry: A quantified analysis and recommendations for recovery Ahmed Awwad Faculty of Science and Engineering, Anglia Ruskin University, Cambridge Campus, East Rd, Cambridge CB1 1PT, United Kingdom. [email protected] Key words: Mobile Network Operators (MNO), Over the top (OTT), Telecom industry revenue decrease, telecom operator’s revenue growth strategies. This work is licensed under Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) ABSTRACT Telecom industry is significantly evolving all over the analysis of global MNOs` revenue over the last globe than ever. Mobile users’ number is increasing decade. Additionally, the research aims to compile, remarkably. Telecom operators are investing to get evaluate, and analyse set of former proposed more users connected and to improve user strategies for MNOs to overcome the OTTs` impact. experience, however, they are facing various Methods –Referring to available open source raw challenges. Decrease of main revenue streams of data collected from GSMA and official voice calls, SMS (Short Message Service) and LDC telecommunications regulatory authorities (Long distance calls) with a significant increase in data worldwide, the research develops a statistical model traffic. In contrary, with free cost, OTT (Over the based on regression and extrapolation to analyse the top) providers such as WhatsApp and Facebook global MNOs` revenue trend. communication services rendered over networks that Findings – This study reveals a hidden revenue loss built and owned by MNOs. Recently, OTT services for global telecommunications industry represented gradually substituting the traditional MNOs` services in all MNOs all over the world. The study corelates and became ubiquitous with the help of the the hidden revenue loss to OTTs evolution. The underlying data services provided by MNOs. The study finds out that SMS is the most impacted OTTs` services massive penetration into telecom traditional service of MNOs and predicted that it will industry is driving the MNOs to reconsider their vanish at quarter 4 of 2022. strategies and revenue sources. Recommendations – MNOs to apply 4 different Objective – The research objective is to critically strategies varying from competing to partnering with evaluate the impact of OTT providers on MNOs. OTTs based on the services overlapping level and With the empirical evidences, the research explores a OTT size. MNOs need to target OPEX and CAPEX quantified impact of OTTs on MNOs main revenue reductions and develop their own multi-functional streams, and breakdown this impact to highlight customer-oriented OTT application. effect`s significance. Followed by a statistical trend ARUMSCRPV2 I Introduction I.I Background Last decade has witnessed a revolutionary development of global mobile telecommunications industry while playing the crucial role in empowering people, triggering positive change in business processes and in the global economy with 4.1 $ trillion contribution in GDP (Gross Domestic Product) at 2019 as per GSMA (2020a). Mobile users’ numbers are increasing significantly day by day and generating tremendous increase in network’s load and traffic. Pursuant to GSMA (2020b), the unique number of mobile subscribers has reached 5.2 billion at April 2020, meanwhile Worldometers (2020) reported 7.77 billion world population during the same month, that means out of 7.77 , 5.2 are mobile users, with a users` penetration rate reaches 66.9 % of mobile telecom industry represented in MNOs (Mobile Network Operators) around the world, notwithstanding, the MNOs` revenues are declining. The barriers to entry to telecommunications market have been lowered due to the widespread adoption of mobile internet access (Fritz et al. 2011), specifically with the 4G (4th Generation) mobile technology advancements in telecom industry, OTTs (Over The Top) have entered the market (Legere 2018). OTTs refers to the mobile data services that carried over the MNOs` networks (Minges and Kelly 2018). Those OTTs make use of MNOs’ infrastructure and internet capacity rather than creating their own networks (Valipour and Hosseini 2017). Furthermore, OTTs have succeeded to shift the users from using MNOs` services towards OTTs (Esmailzadeh 2016). Whilst incumbent MNOs battling to churn those users back, OTT providers steadily keep growing their customer bases and revenues (Infopulse 2019). The user`s shift to OTTs caused a decline in traditional services offered by MNOs including domestic voice calls, text messages and long-distance calls, accompanied with a disruptive data traffic increase (Minges and Kelly 2018) and (Cisco 2018). That resulted into a declining trend of MNO’s traditional revenue streams (SMS and voice) (Cisco 2018), while OTTs are developing with an extensive increase in revenues (Ouyang et al. 2018) and (Sujata et al. 2015). On the other hand, this enormous increase in data traffic is forcing the MNOs` investment directions towards expanding their network`s capacity to accommodate the increase in traffic while maintaining good level of customer experience (Czarnecki and Dietze 2017). In this challenging situation, MNOs have to revise their strategies to keep competing with OTTs, as these OTT service providers increasingly substituting traditional telecommunications services due to their alternative offered services (Trask 2018). I.II Problem statement The 66.9 % penetration rate of telecommunications industry reflects its value and urge to explore its major opportunities and potential threats in order to keep this industry flourishing. Mobile telecommunications industry is confronting several challenges in this disruptive decade. Immense surge in mobile networks` data traffic due to the proliferation of smartphones penetration and the emergence of data-based applications (Cisco 2018), which necessitates the MNOs` networks expansion in order to sustain the quality of the increased traffic (Czarnecki and Dietze 2017). In spite of the massive subscribers’ numbers increase and data outgrowth, the revenue growth rates and the ARPU (Average Revenue Per User) MNOs` trends are declining (GSMA 2020b), which means, MNOs are not able to monetize their investments. Meffert and Mohr (2017) predicted 15 to 30 % revenue loss, if MNOs will only expand and modernize their network without additional recovery strategies. The content and services offered by OTT providers in today`s world like Facebook, Whatsapp, Spotify and Netflix became part of every day’s life of billions of people all over the world, those services rapidly acknowledged by tech- savvy millennials who were born mainly from 1980`s to 2000`s (Krämer and Jalajel 2019). This whopping rise of gargantuan OTTs have absorbed a large fraction of MNOs` services traffic (Krstevski and Mancheski 2016) and might have resulted into massive reduction in MNOs` revenues (Sujata et al. 2015). The traditional voice and May 20, 2021: Preprint submitted to ArXiv Page 2 of 28 ARUMSCRPV2 messaging traffic of MNOs have been replaced by data traffic, which is generated from using the OTT applications in which customer can access premium functionalities with a subscription fees to OTTs however the basic features are with no cost. Users are still paying for data consumption usage to the MNOs but OTTs using freemium model at which they utilize the MNOs networks without paying to them, so they generate high revenues (Minges and Kelly 2019). Core services of MNOs are shrinking, as a result of the traditional transport and access business becomes negative, which may fail to achieve the broadband goals (Knoben 2015). In 2017 MNOs have generated 1.3 trillion Euro compared to 402 billion Euro from OTTs, however the OTT growth by a CAGR (Compound annual growth rate) 2012-2017 of 17.3%, MNOs only 2.6% (Knoben 2015). MNOs` ARPU is driven down with the rise of OTT services` popularity. As shown at Figure 1 (amended from GSMA 2020b), the mobile user’s number is enormously growing, unlikely, the ARPU is decreasing, which means MNOs are not able to monetize the increased numbers in subscribers. Even though the subscriber’s number increased by 83% comparing 2009 to 2019, the revenue has only increased by 32.67% and ARPU has fallen down to $ 13.56 at 2019 compared to $ 22.39 at 2009. Knoben (2015) warned that revenues from core MNOs access and transport services are declining, and urged MNOs to look for new sources of income Figure 1. MNOs subscriber’s vs APRU trend (amended from GSMA 2020b) while the OTTs are stepping inside the value chain and causing a fierce competition, the MNOs current investments in ultra-fat reliable infrastructure may fail to achieve the policy goals. This protrude an earnest issue happening with the MNOs. MNOs are rethinking their business models and attempting to reinsert back the traditional telecom services into the current telecommunications equation (Athow 2015). This challenge engenders a substantial pressure on MNOs to recoup the revenue loss if it is relevant to OTTs, and to review their stagnant strategies in order to monetize their ongoing investments (EIU 2018). Recapping the problem; the mobile users’ numbers are significantly increasing. Despite this increase, the revenue growth rate and ARPU are falling. Which means MNOs are not able to monetize their investments that includes infrastructure expansion to accommodate the traffic increase generated from the increased mobile users’ numbers. Disability of MNOs to monetize