Complex Made Simple

Telcos facing $3bn loss threat from OTT players?

Advances in Internet-based communication technologies don’t stop bringing in challenges for the telecommunication industry. In the digital era, tools like WhatsApp, Facebook, Viber and Twitter have already eroded traditional profits of telecom operators for SMS and voice calls. And now there is a new threat that has already begun to eat away at the revenues of network operators.


OTT bypass is going to cost the global telecommunications industry more than $3 billion a year, according to the Communications Fraud Control Association.


Over-the-top content (OTT) players provide a service or product over the Internet at a lower cost by bypassing traditional distribution. Apps like WhatsApp, Viber, Skype and IMO have partly replaced long-distance providers.


OTT bypass takes place when OTT players terminate calls that began life as a standard PSTN (public switched telephone network) call from mobile phones or fixed lines. Callers dial a regular number on their phone but the call arrives within an OTT app on the recipient’s phone. Unlike OTT-to-OTT calls, which are legitimate competition for service providers, this diversion of the call costs network operators termination revenues and the caller is unaware that the call has been diverted.


OTT bypass is forecast to draw more than $1 million per month from the revenues of network operators worldwide.


“OTT companies are now actively selling termination minutes on the open market. This not only fools the recipient of the call into thinking they have received the call via OTT-to-OTT but also takes revenue from the service provider and taxes from the government,” says Andy Gent, CEO of Revector, a UK-based anti-fraud company.


“OTT companies are taking a short-term approach to revenue generation – money that is taken from the operators’ budgets will mean less revenue for network maintenance and poorer communications networks,” Gent adds.


While conducting tests in Pakistan last week, Revector discovered that more than 45 per cent of all calls were being terminated in this way from certain routes, which will significantly reduce operator revenues as this technique gets copied by other OTT applications.


“Our testing in Pakistan demonstrates the extent of the issue, which we have seen replicated in Asia, Africa and Europe. I commend the regulator and the various network service providers in Pakistan for taking this issue so seriously. This is a global problem for network service providers and unless they and regulators act immediately, they will see termination revenues tumble to virtually nothing as we have seen in other countries already,” Gent warns.


According to market research firm Technavio’s forecast, the global OTT market is expected grow at a CAGR of 18.4 per cent during 2014-2019.