17 October 2017
| James Pearce
OTTs have long been seen as a threat to the carrier landscape, but a shift to video brings opportunities for the wholesale community, writes James Pearce
You’ve heard the story before – how
over-the-top (OTT) service providers are the biggest threat to
the wholesale telecoms industry, and the telecommunications
industry in general, currently out there. It makes sense
– carriers have traditionally made money from voice
and messaging services but IP voice calling and OTT messaging
services have put untold pressures on this model.
According to a report from Research and Markets released
earlier this year, the global OTT services market is set to
grow at a compound annual growth rate of 17.1% over the next
decade to reach approximately $3.49 billion by 2025.
This has led to some notable responses from the industry.
We’re already seeing the likes of Verizon expand
its offering into OTT streaming content, while
AT&T’s mega-deal to buy Time Warner will no
doubt see the media giant’s traffic patterns
According to a McKinsey report, there are around 2.5 bilion
digital users globally aged 25-and-under. "What characterises
this group is the fact that they are "always on" and that they
show a different usage behaviour compared to that of the
traditional "analog" consumer," the report said. "On average,
these young digital users spend 315 minutes online each day
(versus 126 minutes for customers over 25 years)."
OTT players such as Skype, WhatsApp, Google Hangouts or
Tencent’s WeChat are eating into the conventional
operators’ traditional sources of revenue by
offering attractive communication services coupled with
diversified ancillary add-ons, which often rely on content
enhancement, for free. According to some of
McKinsey’s estimates, by 2018 the OTT
players’ share of messaging, fixed voice and
mobile voice delivered in an all-Internet Protocol (IP)
environment could be as high as 60, 50 and 25%
Market researcher Statista’s figures show us
that the cumulated annual revenues of the six large OTTs
– Google, Apple, Microsoft, Amazon, Facebook, Netflix
– are growing at a rate of 14% per year, while the
three largest European operators have shrunk their revenue by
2% over the same time frame.
The most common OTT use-case from this market is video
services, such as YouTube and Snapchat. And for the wholesale
carrier community, that is still where the biggest opportunity
Stephan Schröder, VP of internet and transport at
Deutsche Telekom ICSS, recently told Capacity that the answer
is for operators to find creative ways to work in a more
integrated fashion with the video community, presenting fresh
solutions that meet real needs."Carriers must become more
effective enablers for content delivery," he warns.
"As carriers we must work to optimise the delivery chain. We
must do this with efficiency but also with visibility and
quality. We must do this in different ways, for example
Cisco’s Visual Networking Index forecast
predicts of all IP traffic that will pass over networks in
2022, 82% of it will be video content. Given the same report
estimates annual global IP traffic will hit 3.3ZB in the same
year, that means around 2.7ZB will be video – more
than double current traffic of any kind (1.2ZB).
Future of bits
It would take more than 5 million years to watch the amount
of video that will cross global IP networks each month in 2021.
Every second, a million minutes of video content will cross the
network by 2021, Cisco claims.
It’s a trend that existing OTT service
providers, such as Google and Facebook, have been on for a
while. Google owns the world’s biggest video
platform YouTube, while Facebook launched services for video
uploading, and live broadcasting over the last few years.
"The future of bits is video and if you’re in
the business of carrying bits then you need to have a strategy
around how you do that well," claims Level 3 communications
product manager, CDN EMEA Rory McVicar. "It places different
considerations around the network – video is often
real time, it is often driven by interaction, so latency is a
big problem with video and you need a solution that delivers
quality of service.
"From a monetisation perspective you can’t
discount video because of the volume of data it will bring your
business. If, as a wholesale carrier, you take video out of
your model, it will affect you greatly.
"The opportunities for carriers is to become central to that
use case, which will become the core use-case for
telecommunications networks – media."
If video content is really going to make up 82% of all IP
services, then having the right infrastructure to support it
should be a key concern of the carrier community. But what does
that look like?
Level 3 breaks it down into two parts, according to McVicar
– a dedicated content delivery network (CDN) and a
service called Vyvx, an end-to-end digital video transmission
platform.It uses Level 3’s IP backbone to
"acquire, transmit and aggregate broadcast video content using
encoded transport streams to push over the backbone, replicate
and push out to different end points", he explains. "With OTT
being a network-driven distribution path we are addressing
content acquisition and distribution using Vyvx. For content
owners, more and more in the world of OTT, we are seeing one
channel or one programme ending up on multiple outlets."
Level 3’s numbers are impressive. It has seen
more than 50% growth on volume of video content delivered
year-on-year, with that trend expected to continue, McVicar
Level 3 isn’t the only company realising the
potential of OTT and video services. NTT Communications
recently said that it has also found a surging demand for
over-the-top (OTT) video services from providers such as
Netflix, Hulu and Amazon Prime is driving the need for point of
presence (PoP) instalments in smaller markets.
To avoid delays, many global corporations –
especially Internet-centric businesses in areas such as
e-commerce, gaming, social media and OTT – and even
large-scale government agencies are setting-up installations
closer to the edge.
NTT Com EVP Michael Wheeler says: "If data only resides in
big Tier-1 markets, there are hundreds of millions of users
around the world that are far away from that data.
"This is particularly important in Latin America, Asia and
Africa. If all the data in Asia was stored in Japan, Hong Kong
and Singapore, the negative impact on accessibility, latency
and efficiency for consumers would be significant."
The demands from the OTT content providers and the need for
strong relationships with the wholesale industry is also clear
– without international carriers providing reliable
pipes with strong international links, the key considerations
for the ed-user – quality of service – will
never be achieved.
This was outlined recently in a conversation I had with the
CEO of Kwese Play, an African content service that was recently
launched by Zimbabwe’s Econet Wireless, the parent
company of Liquid Telecom.
Speaking to Capacity at the Capacity Africa even, Ryan
Solovei said: "It’s a tough business and there are
many aspects to putting together a successful service. From a
technology side, you need to have a reliable network that
delivers this content. This is not the US or a European market
where you have lots of choices of CDNs at your
"So we’ve had to go out and build our own
content delivery network to support this. We were able to do
this through our partnership with Liquid, and that means we
have a reliable CDN that all of our content is delivered on. We
have a number of nodes across Africa – West Africa,
East Africa, and in the south – those are three key
points of presence that allow us to reliably deliver this
content to our customers."
The opportunity is made clearest by examples. Take Hutchison
Global Communications. OTTs are providing an increasing share
of the company’s business, says CEO Andrew
At the end of 2015 there were 30 OTT providers on
HGC’s network. By 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."
"In 2015, based on revenue, 88% of my business came from
traditional carrier business and only 12% was evolving
business, including OTTs," he recently told Capacity.
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% while the rest of the business continued to
Level 3’s McVicar concludes: "There will be a
tsunami of data hitting consumer networks, with higher bit
rates and different device types to support. Different
variables that haven’t really existed on a fixed
network architecture in the past.
"The key thing is the quality of service needs to be
transparent and entirely consistent with the fixed architecture
that we’ve experienced in the past.
You’ve got all this flux, all this opportunity and
all the technical challenges brought by such a seismic