Distribution of the numerical value between Telcos and OTT

Abstract

The economy of the 21st century is digital and has great potential for growth and value creation. To meet the growing bandwidth needs and keep up the pace, telecom operators (telcos) are investing heavily in their infrastructure, despite the fact that their profits have been shrinking since the "Over The Top" (OTT) applications’ boom. The content providers occupy nowadays the royal place in the hearts of the users and capture most of the digital value, at the expenses of the operators. Yesterday’s giants, the irreplaceable access providers to the Internet, are in a precarious situation and sound the alarm: they are caught between the need to invest and the decline in their revenues. How can they better capture the value created by their investments and continue with the explosion of the data?

Since the telcos’ platform is a two-sided market, having two distinct user groups, (Internet users on one side and OTT on the other side), and because the Internet users’ side cannot absorb any extra cost, the operators can claim fees to the other side of the market, namely the OTT’s. Therefore, modifications in the business model of the telcos must be considered, in a two-sided network approach. As convincing arguments, the telcos can, on one hand negotiate their essential access, and on the other hand, take advantage of the OTT’s elasticity, due to the aggressive competition coming from the Asian platforms. If cost sharing and continual integration between telcos and content providers are not considered, both parties may lose.