The secular shift in technology, mobility, social computing and analytics have led to changing consumer behaviour. Some companies have understood it, acted on it and in due course created huge value for their shareholders. Most important point is when these companies are creating values for their shareholders; they are disrupting the existing traditional business models.

Beauty of their business models are being “Asset Light”, they have not invested in the Telecom Network, Banking System. They don’t have pressure of capital expenditure on Network; Non-Performing Assets (NPA’s) and to some extent about government regulations and still on riding over the top (OTT) of these underlying businesses they have come up with unique products and services with highly personalized customer experience at very attractive price points.

Long time, I have been thinking of writing my views on the impact of over the top (OTT) player’s entry and their impact on traditional business models. I have chosen two domains in my circle of competence for the initial analysis, one is obviously my favourite “Telecom” and other is banking. Apart from their relevance to economy, there are many similarities between these domains in terms of operations (B2B – Wholesale, B2C – Retail), their convergence for end users in day today life (e-commerce),  CRM, Campaigns etc. and particularly both domains are impacted by the OTT. They are facing similar challenges posed by new breeds of OTT players on their business models.

Instead of writing my views at length, I will try to put it in terms of question and answers so that it would be easy to contextualize & keeping focus on discussion points. Also later in next posts, I can take up any particular point for further detailing. Overall theme would be around OTT players, their impact on the Banking and Telecom and high level options to counter these threats.

What are the over the top (OTT) players and what kinds of challenges they are posing to Banking and Telecom Companies?

There are too many details available on internet about the OTT companies; hence I would like to highlight their product, services in context of our topic.

OTT companies:

Over the top are the companies who have not created & invested in core operations of banking or telecom industry but they are riding “over the top” of the banking or telecom system. Customers, the payment platform is of banks (in case of banking) & wire-line, wireless Network is of communication service providers (In case of Telecom). All these OTT players have created is application using these network and information to provide convenience to end customer at attractive price point. These unique solutions address particular challenge & offer convenience to customer in their day today life.

Few OTT companies in banking are,

• Apple pay – provide convenient payment on e-commerce
• Ali pay, Paypal – Mobile to Mobile payments substituting cash

Few OTT companies in Telecom are,

• WhatsApp, Skype & many other VOIP (Voice over Internet protocol) messaging companies – Voice calls & messaging over IP (using data services)

Others are not specifically Telecom OTT’s but their services impact the telecom companies in terms of revenue.

• Netflix, YouTube etc. – Video content providers
• Facebook  – Social site
• Tweeter – Micro blogging site

Challenges posed by these OTT players in Telecom & Banking 

Telecom:

• VOIP services are potential threat to mobile operator’s voice and text messaging revenue. (I will not go in details of losses, approx. figures etc. as those estimates are easily available on internet).
• Netflix and other content providers cannibalizing telecom operator’s revenue from IPTV/Cable Service.
• These bandwidth hungry applications (video content providers), putting pressure on the Capex (Capital Expenditure) requirement of Telecom companies in terms of more investment in network capacity.

Banks:

• OTT players challenge banks dominant position in “Retail payment business” area. Payment technologies are evolving at an unprecedented speed, contact less cards, on-line payments, mobile payment are all becoming more prevalent.

In my view, for Banking and Telecom, currently challenge is not about surviving; it is rather about thriving and maintaining the profit margins. but if not addressed now with correct strategy then it will become future challenge.

At-least in telecom, I partially agree that heavy consumers of video content can put a strain on the operator’s P&L statement since network resources can be disproportionally consumed by video streaming without a tangible revenue offset. So, unless mobile operators embrace and monetize OTT mobile video, it will remain a threat to their current business models. However, mobile video & IP chat services are few most compelling reasons for users to adopt smartphones and upgrade to high-performance service networks like 3G or 4G (LTE). So it’s also true that services and products offered by OTT providers are creating demand for Internet.

It remains to analyse the costing of data to telecom operator (Capex – rolling out new network infrastructure, buying spectrum etc. & Opex – Network operations, spectrum fee to government, IT operations etc.) required to provide high bandwidth to broadband / mobile internet customer holistically. In my view, no telecom providers would go in loss and provide data services to its customers. Hence, the point here is telecom operators trying to get additional high margin revenue which is currently enjoyed by the OTT. OTT’s are profiting with their unique services riding on telecom network without investing in network, spectrum (Capex) & associated headache of operations.

Getting into OTT business model is not that easy for telecom companies, and needs complete new strategy and may be DNA change of traditional organization. This discussion/answer leads to second question,

What are the options to Telecom service providers and banks to counter the OTT?

Telecom
Without any specific business strategy, following crowd will not yield required results. All service providers’ needs to analyze their own strengths, weakness in context of their own organization and also in the market they operate. Broadly, I can think of three options for Telecom companies,

1. Utility player: become utility player by providing the voice & internet services to their customers – Low margin business.
2. Utility player with differentiation: Invest in network and become the telecom operator with best in class network service – with better network quality, operator can demand premium from end customer & (in future) OTT player also.
3. Full-fledged communication service provider with presence across value chain:  Invest in complete ecosystem (Content, Apps – value added services & Network) and being differentiator. (Investment in Big data, Analytics and DNA change of organization is required here).

Second option provides the opportunity to monetize the network (M2M services) and provide few value added services without being presence in complete eco-system.

All these three options can become my next topic of discussions 🙂

Banks

In my view, solution for banks technically would be easy but execution needs changing the culture of the banking organization and it’s little more difficult as compare to telecom companies where employees are traditionally more adaptive to new technologies.

Currently banks have competition from OTT in payment solutions area and immediate impact is on that business line. Share of payment solution is small compare to other non-interest income & interest income, but its importance in terms convenience, future growth (e-commerce) is huge. Also applying cost benefits of technology in other areas will change the cost of doing business for banks & real benefit lies in applying it to other areas.

Required ingredients to have this digital shift is already with leading banks like,

• Customers
• Advanced technology in the form of data warehouse and
• Analytics leading to a better understanding of retail consumer behaviour.

All that is required is to create “Apps” to stitch together the sales, credit and operating processes thereby creating a better customer experience. If cultural shift within organization is little slow then options should be explored to collaborate with leading OTT players, Payment solution companies or telecom companies, but ultimately all banks would need “Digital Strategy” & Execution of it.

Over the top (OTT), Telecom or Banking, The future seems to be very interesting for all of these companies. I’m very curious to see how it unfolds.