Many people in the telecoms industry complain about over-the-top (OTT) content providers sucking up their capacity and getting a free ride on their fibres or their spectrum.
To be honest, most of the complainers are at the consumer end of the business rather than in the wholesale business. But wholesale carriers themselves can sometimes have a difficult relationship with the OTTs.
Not so, says Andrew Kwok of Hutchison Global Communications (HGC), the international arm of the Hong Kong company that owns the Three-branded mobile operators around the world.
OTTs are providing an increasing share of the company’s business, says Kwok, who is director of its international and carrier business. “In 2015, based on revenue, 88% of my business came from traditional carrier business and only 12% was evolving business, including OTTs,” he says.
Just a year later, a year when the overall business had expanded, OTTs and the rest of the evolving sector increased its share to 19%. “In the same time our global business expanded but I do not want to give this a percentage. It’s too sensitive,” he says. “We increased our overall revenue. The original business is still expanding.”
More numbers: at the end of 2015 there were 30 OTT providers on HGC’s network. By this month, May 2017, there were over 70. Of those 70 or so, “more than half are from Asia,” says Kwok. “You can say around 60% on a revenue point of view are from Asia. The remaining are from the other parts of the world.”
And that’s how the OTT industry is changing, and why Kwok is leading HGC into some significant changes to accommodate the new requirements.
New commercial model
OTTs have already introduced “a big new environmental and commercial business model into the traditional telecoms arena”, he says. “I see that trend is not slowing down, but it is accelerating.”
It’s accelerating and changing, first, in terms of the number of players in the overall OTT market. In the past, says Kwok, the OTT business was characterised by large companies each of which “were inward-looking”. “That means they only focused on their own territory where they are based.”
Now the market is driving them to expand and become outward-looking, he says. We’re living in a globalised world and OTTs are responding to market pressure from their own customers. “That means, when you launch OTT services, you don’t only launch them in your own country or area,” says Kwok.
“For example, if I’m launching a content service in the Philippines, I would also like to offer the content to another 30-40 million citizens around the world.” It’s two-way pressure, though: “The user is also pushing them to do more globalisation. So first, I serve this content to Filipinos but I’m also going to serve the same content that the overseas Filipinos might want.”
Secondly, the development of online games is pushing this trend further. “If someone wants to play a game they go to a website, they go to a portal, and eventually some people round the world would like to join the game and play together with them.”
An OTT company that restricts its service to one region or country will lose business to others that have a more global attitude to marketing, he says.
Outward-looking
“They are shifting from inward-looking to outward-looking. Not only because of the business opportunity but also because of the urge of the market. It is a market demand that they have to fulfil. If they cannot do it, they will be squeezed out.”
And here we come to the other big change that Kwok sees in the OTT industry. In the past it was only the large OTT companies that had the resources to promote themselves and offer services in a global market. Now, there has been an upsurge in small and medium-sized OTT companies, and they too are shifting their focus from local to global.
“This is good news for international carriers.” But HGC handles the two tiers in different ways, he notes. The large, traditional – if that is the right term – OTTs work with HGC’s carrier team. They know what they want and share much expertise with telecoms companies. “They know what they’re talking about.”
Smaller companies work with HGC’s corporate team, the people who normally deal with enterprises. “The medium and smaller OTTs, because of their nature, don’t have that kind of expertise. I use my corporate team to give them a total solution.”
That may mean working in more areas than just telecoms technology and carrier economics. “We have enhanced our total solution capability, and we need to think about things we didn’t think about in the past – even topics such as company registration or getting licences,” he says.
“For example if someone comes to Hong Kong to launch an OTT business, and would like an MVNO licence, instead of them searching in the dark for three months, we can complete everything for them in one month. We cannot formally represent them – but we already take this into our responsibility. It is by default because we are moving from a traditional business to a solution-based business. The solution we offer is not only telecoms.”
Of course, HGC is enhancing its infrastructure at the same time. “That is normal, that is a given. Anyway, you have to do it.” But there are other areas the team has to deal with, such as “how do you software-define your network so as to map with the OTT company’s system”.
The definition of OTT companies is widening, too. “For example a cable TV operator in the past, now moving into IPTV, is moving to OTT-kind of model, so I call those OTT-alike,” he says. “Those people also need our integration and our total solutions.”
Customers want to talk about “service, content and reach, and they want to get in touch with eyeballs on mobile handsets”. “They want more fixed-line broadband.” So HGC is becoming more of a systems integrator? He agrees.
Mobile reach
Those mobile handsets are important, and HGC has an advantage because of – as well as the mobile partners it has built up over the years – the relationship with CK Hutchison’s Three operations worldwide. “Once they get onto our network they can access 11 mobile operations around the world. This is good for our business.”
Back to the larger OTTs. Many of them have started to invest in subsea cables. Why’s that? Kwok believes there is an opportunity here for carriers to work more closely with the OTTs on this front too.
The tendency of companies such as Facebook and Microsoft to invest in infrastructure varies widely across the world, he points out, according to regulations, market size and other factors. But it’s a definite trend and Kwok thinks that carriers should take it seriously.
Why are they doing it? At the moment the main need is to cut costs, he thinks. “If they own the network then they buy instead of leasing. In a cost saving point of view it makes sense.”
But subsea networks are still being designed traditionally, even when OTTs are the main investors. “We’re still talking about a traditional long-term design, very fundamental, very basic telecom infrastructure,” says Kwok. OTTs “have room to go into in deeper, build the network, design it”.
This gives carriers an opportunity, he says. Some of the larger OTTs “do have some specific demands for next generation networks”, and “this is a vacuum and both sides should sit down and talk about how they can engineer the network so that it can help the OTTs’ business”.
The carrier industry – subsea and terrestrial – have split into two groups over the issue of OTT investment in infrastructure, he says. “We should go and ask what are their physical requirements. ‘If I engineer this for you, will you bring along business?’”
In the past subsea carriers worked with a “very simple buy-and-sell or lease-and-serve relationship”, but there is an opportunity here for carriers to create new relationships. The international carriers “should be more aggressive in participating in this kind of discussion” with OTTs, he says.
New models might arise. Instead of those buy-and-sell or lease-and-serve models, why not a relationship similar to project finance, which would encourage carriers to build infrastructure that’s closer to what the OTTs want.
There are two reasons for this, he says. One, it would result in a tailor-made specific design. “Second, they want to have a much higher level of performance so they can win over the competition,” he says. “Instead of only buy or lease they give the carrier leverage to start without too big a burden. This is in the form of monetary benefit or in the form of service benefit”
That would enable carriers to help OTTs to “capture customers in the market, so that we can enjoy the cash flow from day one”.
