Telco-OTT dynamics & use cases

Extending the reach of telecom operators

voice & messaging services via the Internet
A Disruptive Analysis thought-leadership paper

Sponsored by

March 2012

Author: Dean Bubley

Contact: information@disruptive-analysis.com
Disruptive Analysis Ltd, March 2012
Sponsored by CounterPath Corporation.

Telco-OTT service dynamics & use-cases

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Introduction: Telco-OTT (Over-the-Top) services

The objective of this white paper is to present OTT is a viable alternative for telecom
operators. It will demonstrate that network providers threatened by competition, from both
peers and Internet companies, can themselves exploit the ubiquity of broadband
connections, smartphones or laptops, and downloadable apps.
Either by extending their existing services across the Internet, or by creating entirely new
experiences, operators are able to add to their brand, capabilities and revenue in a more
rapid and flexible manner than traditional telecom evolution has permitted.
At present, many operators have not yet recognised that this path is even a viable option:
OTT-type services are often seen as the enemy, rather than simply a valuable technique to
be exploited by all. And even if small teams within operators have grasped the notion, there
are often significant organisational barriers elsewhere in the company, which can hamper
achieving those aims.
This document will show that operator-branded OTT-type services:

Exploit the best fundamental industry standards like SIP, while using customised web
/ app technology to create unique differentiated experiences.
Allow faster time-to-market than multi-operator collaborative efforts for federated
services.
Reflect the wider trend of de-coupling network access from applications.
Enable a range of specific use-cases, such as fixed-mobile convergence, or unique
communications apps intended for travellers and expats.
Fit with core infrastructure systems, such as IMS, if desired.
Allow service providers to determine exactly how and when they wish to interoperate
services, and when they can derive extra value from keeping certain features onnet only.
Offer operators a roadmap from simple Internet extension of existing services,
through to a full innovation platform that could rival the best Internet-OTT
propositions, leveraging additional unique assets such as subscriber data, call history
and location.
Can integrate with both telco services and APIs, or permit mashups with web-based
applications. Pure walled-garden operator services are anachronistic modern
services will use various components to improve user experience for example
perhaps a map display, or Like or Tweet this buttons.
Enable a better fit with wider industry trends on the Future of Voice as the industry
struggles with the implications of peak telephony.

This paper gives a brief summary of the philosophy, trends and practicalities for Telco-OTT
service creation and deployment. The focus is on personal communications services like
telephony and messaging. More detail, especially on content and cloud OTT propositions
can be found in Disruptive Analysis new report on Telco-OTT Strategies & Case Studies1.
Note: This document has been commissioned by CounterPath, but represents the
independent & consistent viewpoint of Disruptive Analysis (as at time of publication).
Disruptive Analysis has retained full editorial control over the content and stance.

http://disruptive-analysis.com/telco-ott.htm

Disruptive Analysis Ltd, March 2012

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Background: what are OTT services anyway?

Its almost a clich.
Telcos must battle against the OTT players in order to survive.
It doesnt matter what product or concept is being pushed IMS, triple-play and IPTV,
VoLTE, mobile broadband policy management, unified communications services, RCS and
so on there is almost certainly a slide in any telecom presentation deck that mentions the
terms OTT and dumb pipe.
Disruptive Analysis has long campaigned against the term OTT, on the grounds that it is
both vague and often used in a demeaning or pejorative sense. For a concept that is so
widely used and vilified - there are surprisingly few good definitions.
The cynical answer is that OTT often tends to be used generically to refer to Internet
companies we dont really like, and which seem to be making lots of money, or generating
lots of traffic.
A lot of the antipathy stems from a 2005 speech by the then-CEO of SBC (now part of
AT&T), who famously commented Why should they be allowed to use my pipes? when
asked about companies such as Google, Skype, Vonage and similar Internet upstarts of that
era.
But really, a broad definition of the term OTT is simply:
Any application or service that can run over a generic data network connection, without
being directly sold or supported by that network operator.
The network in this instance is usually an access line used for broadband connectivity to
the public Internet, either fixed or mobile. Familiar companies such as Facebook, Google,
Skype and Netflix all exploit the wide adoption of broadband Internet access for connecting
PCs, smartphones, and increasingly other devices such as TVs and vehicles.
It is worth noting that not all OTT services require the public Internet. Enterprises have been
running various applications and capabilities including VoIP - over leased-lines and VPNs
for decades, without telco involvement or fear. A distributed IP-PBX is technically an OTT
application, as is SAP traffic or a Bloomberg data feed. So is RIMs BlackBerry email and
BBM messaging, both of which use dedicated data connections into carriers data centres.
The difference here is that these access services are usually priced more highly than
consumer-grade Internet access and also that operators dont really harbour much realistic
intent to sell such capabilities themselves. Except for IP-PBXs, most corporate OTT
applications do not cannibalise telco revenue streams.
For communications and content, however, their attitude is different. Skype competes with
operators own voice services, especially their high-margin international traffic. Some
operators used to charge for email services, before Gmail and Hotmail democratised it.
WhatsApp and Apple iMessage cannibalise SMS. Operators in-house IPTV services have to
offer much more than Hulu, Netflix or BBC iPlayer to be competitive and fee-bearing. And
services such as Facebook while different from telco services of today threaten to usurp
ownership of end-user contact lists and loyalty, just as the operators themselves hope to
start monetising identity services.

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So, the ability of the public Internet to support OTT services is often seen as an existential
threat to traditional telecom companies, which often do not have the economics to support
full separation of network and service themselves.
Which are the most important Internet OTT players?
In telecoms, the term OTT tends to refer to two main groups of companies. For this paper,
we focus on communications providers typically those providing tools or mobile apps for
voice, messaging, video and social communications via the Internet. Facebook, Google
Voice, Skype and Twitter are well-known examples. Another common use of OTT is for
content and media firms such as Netflix, iTunes or BBC iPlayer, which is less-relevant here.
The list of companies that provide OTT communications services is ever-lengthening, with a
few global giants, plus particular country/regional leaders and a long tail of niche players
and also-rans. Some of the companies compete directly with telcos business models (eg
Skypes impact on international calls, or WhatsApp on SMS), while others such as Twitter
and Facebook essentially create new models for human interaction via networks.
In the VoIP arena, among the most important and influential with a mobile footprint as well
- are Skype (owned by Microsoft), Google Voice, Rebtel, Viber, Jajah (Telefonica),
Truphone, Vonage, fring, Nimbuzz and eBuddy. Many of those also do video
communications, along with additional players such as ooVoo and Apples Facetime. Many
of these also support messaging, but standalone services such as WhatsApp, Kakaotalk,
Kik, Pinger, BlackBerry Messenger, Apple iMessage, Facebook Messenger, QQ, MSN,
Yahoo! and Renren are generally more important.
Lastly, we have social networking, which is a catch-all term for new services based around
personal connections and interaction, often blending peoples status with events, groups,
pictures, friends and so forth. This is particularly disruptive for the telecoms industry, as it
massively extends the concept of the contact book. It goes beyond people you know
towards a much richer social directory of things you do, places youve been, pictures
youve taken, stuff you like, opinions you hold and so on.
Currently, the most important social networks are Facebook, Twitter, Google+ and LinkedIn,
with various regional specialists (eg Hyves, Orkut, vKontakte, Cyworld etc.) and niche
players (Tumblr and Pinterest for photo-blogs, Yammer for employees, FourSquare for geolocation check-ins and so on). Many mainstream websites also use social features for
example TripAdvisor or Amazon.
Too often, the telcos are caught in an uncomfortable position Clayton Christensens
Innovators Dilemma. Their old business model involves cross-subsidy of access and service
and still generates good margins and cashflow which they (and their investors) do not want
to relinquish. Yet newcomers dont need to follow suit, with the advent of fast open Internet
connections and capable devices, they can simply pursue the service element and even
create their own cross-subsidy in another direction, through advertising or other business
models, giving away content or communications for free.
What matters here is whether the operators themselves can play the same game as the
Internet-OTT players. The open Internet is here to stay; a hugely attractive platform for new
services and applications. Efforts to put up tollgates have low likelihood of success. So can
the operators use the same tactics, and reinvent themselves as Telco-OTT players?
Disruptive Analysis believes that the best answer for operators can be summed up with the
phrase If you cant beat em. Join em
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What does OTT mean for telecom operators?

The rest of this paper follows on from that assertion. It examines the quiet growth of accessindependent services offered by fixed and mobile telecom operators themselves. These are
telco services that at least in part travel over the public Internet rather than on-net over
the operators own infrastructure, or via service-level interconnection with another telcos
network.
Essentially, these are telcos own OTT services, which rely on generic Internet access
provided by any operator, typically with delivery of applications or content from a website or
via a smartphone/PC app.
Some services of this type are only available to those who also subscribe to that telcos
normal access in some fashion elsewhere. For others, they are completely de-coupled and
open to all.
And while there is a growing sense that such Telco-OTT services represent an important
part of the future of telecoms, in many ways they are already an established part of the
present industry. Indeed, Disruptive Analysis has been tracking such initiatives for more than
five years, although mostly for non-voice applications such as web content or corporate
security functions. However, if executed well, Telco-OTT communications services are now
set for huge growth, driven by a set of important catalysts occurring simultaneously.
Indeed, now seems an appropriate time to draw the broader picture to examine the trend
holistically. Few observers seem to have realised that separate developments in multiple
parts of the telecoms industry can be grouped together under the Telco-OTT banner. Areas
as diverse as VoIP, TV, web portals, cloud services and network offload are all
manifestations of the same thing operators delivering services over the public Internet
rather than just over their managed subscriber access connections.
The them and us distinction versus Internet-OTT players is already blurred it is
just being over-dramatised by vendors and telco executives for marketing or lobbying
reasons.
Although this paper focuses on communications (especially voice and messaging), it is also
important to recognise that other developments are occurring in parallel. It is useful to group
the telcos OTT services into four broad categories:

Communications, voice & social networking applications, which are the focus here.
Content, video and portals (eg IPTV TV anywhere apps, or general web portals
owned by telcos)
Security, cloud & enterprise services (eg open telco-run SaaS storefronts, or
managed network security offers)
Connectivity (eg femtocells, remote access, or Wi-Fi offered as an OTT-style service)

In fact, there are now even standards for broadband access (a euphemism for OTT
access) from 3GPP and others albeit often caveated with loaded terms such as untrusted
network. Even the GSMAs much-vaunted RCSe standard includes the ability to deliver
extended services over generic Internet connections to SIM-free devices such as PCs.
This is a radical departure from the strict delineation of borders between different operators
networks, and points to a future in which the traditional telecoms concepts of interconnection
and interoperability start to break down. The notion of ubiquity needs to be re-thought for
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an era of fast app development and the Cloud. Despite these small steps being made by
the telecoms establishment, they have yet to acknowledge the inevitable end-point of the
process.
But irrespective of the long term, to succeed in OTT services the telecom industry needs to
improve on a poor historic record in extending reach into areas such as content ownership
and production. It will also require significant improvement in software skills and user-facing
service innovation. There will also be substantial organisational challenges to overcome, as
there remains significant belief almost faith in vertical integration between access and
service. Operators need to re-learn how to compete on services, rather than rely on
collaboration, federation and interconnection.
The IT industry has long managed this type of hybrid co-opetition model, but its emergence
in telecoms may be long and painful. Unlike the computing sector, there is a much harder
perceived distinction between them and us, reflecting many telcos heritage as monopoly
providers or branches of government. Both culture and organisation need to change for
many companies, before this more fluid industry dynamic can be achieved.

Full-OTT, Semi-OTT & Outside-In OTT

As well as the four-way split between service categories, Disruptive Analysis also believes
that Telco-OTT services will evolve into three distinct tiers:

Full (or standalone) OTT, similar to todays Internet-OTT services

Semi-OTT services which extend existing in-house services
Outside-In OTT, where operators host their own private on-net services on the web,
rather than on their own infrastructure

Full OTT
Often, when people refer to telcos developing and launching OTT Services, there is an
assumption that this always means operators creating ambitious, totally standalone Skypetype services, or running completely open social networks or web portals, accessible to
anyone with an Internet connection.
Yet while that is certainly a critical area for operators going forward, many are more cautious
about stepping into the wider world of content or communications services, wary of the
execution risks, software expertise required, brand impact and cultural dislocation to hit
"Internet speeds". There is also wariness of any services that could suffer from lower quality
or availability because of the vagaries of the Internet.
Disruptive Analysis expects to see full OTT services from telcos in some market segments
and small niches, but for larger-scale communications/messaging services they will probably
be binary either a massive success, or outright failure, depending on whether they
manage to go viral or not. Even then, longevity is not guaranteed, and monetisation may be
through sale/spin-off rather than organic revenue growth. As such, they may be outside the
risk profile desired by some telcos, at least in the near term.
Some operators appear to have reached the point at which Full OTT services are practical
propositions. This usually involves setting up a standalone digital unit with executive
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sponsorship and minimal interference from the traditional network business. Telefonica and
SK Telecom are among the leaders here. Other operators may restrict their full-OTT offers to
individual niche services (eg T-Mobile Bobsled), or corporate-type services which are easier
to monetise (eg Cloud SaaS).

Figure 1: Todays on-net & Internet OTT services vs Telco-OTT options

Source: Disruptive Analysis

Semi-OTT services
A key intermediate step is what might be termed a "semi-OTT" approach. This involves
extending an existing access-based, network-resident service out over the Internet, typically
to existing customers, but when they are using different devices or in different places.
There are numerous sub-types of proposition here - PC vs. smartphone apps, full VoIP vs.
"dial-through", Wi-Fi vs. 3G connections, consumer vs. business, roamers vs. domestic and
so forth. Some are driven by fixed operators, some by mobile, some by hybrid providers.
They may exploit the core network, application servers, identity platforms and/or billing
systems already in place at the operator. A description of some of the key use-cases is given
later in this document. Some examples of this type of approach include Rogers One
Number service, Telefonicas O2 Connect and Mobilys RoamTalk.

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Inside-out OTT
We are also starting to see the emergence of a third Telco-OTT model, where operators
start putting even their subscriber-only services on the public Internet, rather than using
dedicated internal infrastructure such as IMS or SDP.
Examples of this approach are already seen with some telcos SaaS and online-storage
offers, which are only available to access customers, but which are delivered via a normal
web browser from the open Internet. In the future, this approach may even be replicated by
operators wishing to exploit thin infrastructure deployments or truly web-centric
propositions, rather than relying on their own service platforms and telecom industry
standards.
It should be noted that this is subtly different to outsourced/managed/private cloud
provision of services by a telcos vendors, which will typically have a dedicated connection,
rather than using the same unmanaged Internet connection as general web services.
However, in the future that distinction may blur, particularly if it becomes feasible to offer
(Net Neutrality permitting) managed-QoS connections for Internet-based services.

Key use-cases for Semi-OTT VoIP & messaging

While full-OTT approaches clearly enable the broadest variety of innovative communications
concepts in the longer term, there are relatively few obvious winners for telcos thus far. In
addition, it seems likely that competing directly with Skype or WhatsApp, or innovating in
social networking, will take some considerable time to gain scale and to develop a working
revenue model. It is likely that taking on Facebook directly will be tough, although the growth
of new players such as Tumblr, Yammer and Pinterest seem to suggest there remains scope
for differentiation.
By contrast, there are signs that the semi-OTT versions of voice and messaging tend to fit
mostly into a few key categories. While there is a good range of theoretical options here as
well, there seem to be a few lower-risk use cases which add value to an operators other
services platforms and investments. Potentially, such services can either be monetised
directly (eg as an add-on to an existing service), or can improve market share / reduce churn
of existing paid services, through differentiation.
Some of the broad categories that are attracting most attention include:

Travellers & expats

Device-shifting: PC or tablet secondary single number access to mobile services
Corporate BYOD
LTE Voice

Travellers & expats

Various OTT-based solutions are being aimed by telcos at people travelling away from their
domestic markets, or living overseas. While there are some fully-open OTT examples, it
appears that there is a lot to be gained by linking with existing operator systems and
services particularly for outbound travellers.

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The main objective is for telcos to reclaim lost competitive ground versus calling cards or
Skype, or blunt some of the more excessive roaming charges forced by high inbound
wholesale prices - ideally while also protecting some level of IDD termination revenues and
brand loyalty.
There is a mix of Wi-Fi telephony and call-through/call-back, although limited use of cellular
VoIP so far. Even open-OTT propositions for overseas workers or expats can benefit from
some linkage with domestic propositions for example, cheaper calls to on net family
members at home, than for calls to other networks.

Single-number fixed/remote access to mobile services

The deployment of softphones is the clearest sign that some telcos are embracing the OTT
services business model. Both consumer- and corporate-facing operators are pitching their
remote access VoIP, messaging and unified communications apps.
This allows users to combine fixed and mobile use-cases for telephony, exploit non-cellular
devices such as laptops or tablets via Wi-Fi, send SMS from the web or desktop and so
forth. Some may add in video, social network integration or other features.
However, there is still understandable reticence to drive anything that might risk
cannibalising operators existing revenue streams, even if there is an even greater risk that
Internet-OTT players cannibalise them further and faster. In Disruptive Analysis view, the
operators that will win in the long term are those that pick their fights well and one key
skill will be willingness to risk tactical cannibalisation for strategic benefit.

Figure 2: Voice & messaging service extension on a Semi-OTT basis

Source: Disruptive Analysis

There is already quite a long heritage in operators offering various forms of remote access
to core telco resources, through the use of softphones or on-device apps. Many telcos
hosted-PBX/UC services for enterprises, for example, feature softphones that can be used
on PCs connected from remote locations.
BT offered a smartphone OTT VoIP service as far back as 2006, as part of its original
Enterprise FMC proposition, albeit with minimal success. On the consumer side, Austrian
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operator Mobilkom launched its A1-over-IP OTT-style service in 2007. More recent
examples have come from companies such as Megafon in Russia, and Optimus in Portugal.
It now appears that Telco-OTT Voice & Messaging Extension services are becoming more
polished, exploiting better smartphones, HTML5 browser apps, better UI designs on
touchscreens & faster processors, improved SMS integration, faster & more prevalent
broadband and Wi-Fi, and so on. They are now much more tailored to the expectations of
the app generation.
The latest one to emerge is Rogers' OneNumber Service in Canada, The Rogers desktop
solution is hooked into an existing IMS core network and uses an existing mobile number to
provide consumers with single-number identity.
It offers various capabilities, such as the ability to hand off calls from one device to another,
transition from voice to video calls, send SMS from the desktop and link into Google and
Yahoo email accounts.
It is noteworthy that Rogers has gone for a proprietary OTT extension to IMS, apparently
recognising that the faster time-to-market and customisation options add more value and
competitive differentiation than (say) GSMAs standardised RCS profile.
Interestingly, PC-based calls are free, rather than being tied to the users normal allocation
of minutes. In Disruptive Analysis view, this is a wise move although it seems like it might
cannibalise Rogers paid call minutes, in fact it is cleverly designed to keep the user on net
(even if it is for free) rather than defecting to Skype or other platforms. In essence this is a
sort of reverse freemium model the operator is offering a paid service with some free
extras, in contrast to the normal Internet-OTT approach off a free baseline with a few paid
supplements.
[Note: this solution is based on CounterPaths software, sponsors of this paper].

Corporate BYOD
A growing number of firms are adopting the philosophy of BYOD (bring your own device),
where employees use their own smartphones or tablets typically connected via a mix of
different service providers.
If telcos want to continue to offer managed/hosted messaging, collaboration and UC
platforms for enterprises, they will also need to work generically with an app and a data
connection from any telco.

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Figure 3: Bring your own device will drive need for Telco-OTT

Source: Disruptive Analysis

LTE voice
This is potentially the largest but also most controversial Telco-OTT use case. Operators
that need a 4G VoIP solution, but remain uncertain about the IMS/VoLTE approach, are
starting to consider full OTT-style alternatives.
This is a complex area, and will depend on various implementation details (eg frequency
bands and coverage) as well as regulatory issues. It may appeal especially in markets with
LTE wholesale providers, where the retail operators may not wish to re-use the network
operators core for applications.

Every operator is different

One of the most important aspects of Telco-OTT is its ability to foster true differentiation in
operator services. Despite the frequent emphasis on telecoms collaboration and federation
of interoperable services, the awkward truth is that standardised too often means lowestcommon denominator. Disruptive Analysis believes that operators need to configure various
service parameters individually to maximise value, as well as offering additional unique
capabilities.
For example, it might be desirable to interconnect voice services between telcos (as is the
case with phone calls today), but restrict video communications to on-net subscribers as a
premium service. Or, perhaps more subtly, a telco might want to offer a basic level of video
interoperability, but reserve HD images and stereo audio for favoured customers only.
There are numerous other possible examples of customisation in voice services that might
add value without interconnection to other carriers:

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Local-language concierge services.

The ability to extend mobile numbers and services to fixed-style devices via the
Internet and PCs or TVs.
The ability to extend fixed numbers and services to handsets, via downloadable apps
and data connections.
The UI or UE is much more customisable to a specific operators preferences, for
example with aspects like "friend invitation" and presence.
Operator-specific partnerships with Internet-OTT players
Hybrid combinations of VoLTE with OTT-style services, or the use of OTT-type
products as a substitute for VoLTE on LTE networks.
Adoption of specific codecs or other audio/video enhancement techniques (eg
Skypes open-sourced SILK codec, the G.722 standard or advanced noise
suppression algorithms)
Support of particular devices or ecosystems, such as Wi-Fi-only tablets, or
enterprises wanting to extend VoIP/UC to employees exploiting bring your own
device rules
Local interpretations of the Future of Voice philosophy, for example in decomposing
todays telephony services to create new value-added voice applications based on
user context, or cloud-based mashups.
Recognition of particular preferences for numbering, identity or interconnect rules.
For example, a Middle-Eastern telco might want to use email or password/PIN as a
login, as many users keep mobile phone numbers strictly private. (This is one of the
factors that has made RIMs BBM so successful)
Easier fit with local regulations. So for example, outside the US, a PC-to-mobile call
switching concept might encounter problems from regulators, as interconnect fees
depend on whether termination is on a fixed or mobile device / number. Other
regional variations will reflect Net Neutrality rules, emergency calling, lawful intercept
and so on.

In Disruptive Analysis view, the limitations of the old federation model of standards and
roaming/interconnect equate to slow time-to-market and the risk of just creating new lowest
common-denominator products. The increased tendency of operators to outsource networks
and other functions, or share infrastructure, presents further risks of hollowing out telcos
and reducing their business agility. (That threat is called under the floor by Disruptive
Analysis). Given the current greater sense of urgency about the threats of voice revenue
decline, and substitution by alternative modes of communication. (Peak Telecoms), OTT
approaches have ever-greater relevance.
Avoiding protracted rounds of negotiation between local operators for services like
RCS/RCSe is essential. Using an OTT philosophy, a telco has the choice to start with PCs,
smartphones, featurephones, Wi-Fi or anything else, depending on its local conditions and
can get started without waiting for the standards bodies to catch up.
Most importantly, OTT approaches avoid the need to extend IMS features right down to the
device something that remains a problem, more than 5 years after Disruptive Analysis first
pointed out the difficulties of creating IMS-capable phones. This means that services are
usable on non-SIM devices, competitors' phones and so on. The application (and supporting
enablers like identity management) are not hard-coded into the OS or chipset, and can be
easily removed or updated or debugged.

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The decline of service federation

Telco-OTT strategies point to an evolution of the federation philosophy that service
providers have traditionally espoused. Historically, the telecoms industry has provided its
core services such as telephony or SMS messaging based on the following model:

Silo infrastructure (each telco runs its own core network and application servers /
switches), plus
Interconnection (each operator connects to the others via NNI network-network
interop)

This federation model is a historical accident, arising from the original technology used for
the PSTN copper lines, and physical electrical switches. There needed to be local,
physical exchanges, close enough to homes for the signal to work and for the circuits to be
switched. Each company operated its own network, and the services were inherent
capabilities of the infrastructure. Over time these were replaced by digital exchanges, and
then soft-switches, allowing fewer nodes and more centralisation of the intelligence
functions. Many operators have now moved (at least in part) to VoIP systems running
packetised voice, over broadband lines, back to a central application server or sometimes
IMS core.
The service has therefore started to be de-coupled from the access network provision
anyway, irrespective of the OTT trend. We have also had regulators separate some aspects
of infrastructure ownership from service provision, albeit with different levels of commitment
and success around the world.
A similar path has evolved in the mobile industry, where each operator maintains its own
core network (with elements such as the HLR or HSS subscriber databases), as well as softswitches where the call-control function is abstracted from the media handling (ie
transmitting the actual voice channels). SMS evolved with dedicated switching centres,
again deployed one-per-operator. At present, most mobile voice is still transmitted in
analogue form, rather than packetised as VoIP.
Now, on both mobile and fixed networks, we are moving to a wholly IP world. Whether it is
full IMS and VoLTE, or simpler NGN-type implementations, we will see a slow but steady
migration to VoIP as the basis for both vanilla telephony services and more advanced and
valuable voice 2.0 concepts.
Voice 2.0 essentially means moving beyond the strict 100-year old format of the phone call
person A calls person B for X minutes. Instead, voice communications takes on many
forms, embedded in applications (eg in-game chat), used as an interface to the cloud (for
example, Apples Siri voice recognition-and-response), or reinvented as a more social tool.
In future, voice applications will allow more natural ways to use speech, with different flows
and user-interaction models, improved use of contextual information and so forth. These
themes are explored in the events and articles from http://www.futureofcomms.com/ , run
jointly by Disruptive Analysis and Martin Geddes Consulting.
So, more than ever, we need to question whether there is a need for a hard link between
owning the physical access network (copper, fibre or airwaves), and the company providing
the communications services that run over it. Even if they are provided by the same
company most of the time, there may be instances where it makes more sense to have them
separated. Add to this the OTT trend described above, and the momentum becomes
unstoppable.
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Increasingly, it is possible to get almost the same quality for decoupled services as for those
that are vertically integrated. And as we have seen with numerous examples of Internetderived applications and services, it seems that the trade-offs balance out mostly on the side
of flexibility (and, usually, lower costs). For most people, Skype or its peers are good
enough, especially for certain use-cases such as long international calls, although other
telephony applications. And in a sense, mobile roaming occurs where the domestic
operator has no real control over the quality of the visited infrastructure yet the prices
charged are the highest.
Either way, we seem certain to move away from the traditional access + service linkage in
some fashion.

Figure 4: OTT & wholesale telephony will obsolete the federation model

Source: Disruptive Analysis

Conclusions
The classic rationale for maintaining a hard link between an operators access network, and
its service portfolio is around QoS. Vertical integration has enabled these to be tightly
coupled, with network capacity being optimised and prioritised for demanding services
such as voice telephony. Many in the industry cite quality as the ultimate argument against
OTT services winning out.
But Disruptive Analysis feels that the value of network QoS is overstated, and that in the
eyes of the customer, other factors contribute significantly to the overall perception of service
quality or desirability. QoE (quality of experience) trumps simple QoS. Furthermore, we are
reaching the pointing the evolution of broadband Internet access that good enough QoS is
typical for many OTT services anyway.
We are also seeing new alternatives for speech communication on mobile devices,
incorporating video, social functions, application integration and coolness or virality. The
one-size-fits-all approach to mobile telephony is going to start to erode and fragment, aided
by the growth of smartphones and fast data networks.

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The same fragmentation is occurring in messaging (from SMS to numerous other platforms
with subtly-different characteristics), as well as aspirational telco domains such as video
communications, location-based services and content delivery. Customers are able to find
the application(s) which precisely fit their needs and price/quality points, even if they dont
have the same level of ubiquity and interoperability seen in the traditional telco world.

Figure 5: Voice is becoming more than just a synonym for telephony

Source: Disruptive Analysis

So operators are now deciding to enter the OTT fray as well. They are slowly moving
towards segmenting their services between those (not just voice) that need maximum quality
and predictability, versus those for which pragmatism and best efforts are sufficient.
In Disruptive Analysis view, Telco-OTT services offer carriers numerous benefits, enabling
them to:

Expand their user-base reach to the scale of the multi-billion person web, especially
for new services, in the same fashion as Google or its peers.
Use the Internets ubiquity as a way of improving existing access subscribers
experience when they are off-net, for example helping them access their TV or
voice services, from PCs or mobile devices connected via other networks.
Offer outside-in services to their access customer base, using the cost and
simplicity advantages of using the public Internet to host and deliver telco
applications in the cloud, rather than running them in-house.
Exploit the latest software and web development techniques (such as agile
approaches), as well as third-party APIs and scalable platforms. Ideally, operators
should be able to blend the notions of carrier class and Internet velocity to create
robust, swiftly-evolving services and capabilities.
Reposition themselves in the eyes of investors, regulators and partners. At the
moment, most telcos are valued as low-return utility-style companies. By comparison
with Internet peers, it may be possible to derive shareholder value from OTT services
even in advance of substantive revenue and cashflows.
Establish themselves in pole position for future market consolidation, as the
vertically-integrated model of network & access combinations starts to collapse,
leaving a few large-scale global providers of voice and messaging services. As well

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as a few Internet-derived players, there is scope for a handful of traditional operators

to survive as well.
Done well, such new Telco-OTT services have a chance to rival or beat Internet-OTT
alternatives, at least in certain cases. Operators can leverage their knowledge of networks,
distribution channels, devices, billing and customer-care. But although collaboration or
federation has its place, they also need to act individually and promote their own innovations
to any user or from any location, even outside their own access base.
Even leaving aside the true open philosophy of telcos delivering pure OTT apps to the
Internet at large, the use of other telcos access networks is already enabling operators to
add value to their existing on-net access and service subscribers today, for example when
connecting away from home.
Operators have many choices to make about the extend of their OTT ambitions; certainly,
not all will be able to innovate at the same levels of speed and brilliance as many Internet
players. It will take time to undertake corporate reorganisations, and adapt culture and
processes to meet those challenges. But even in the short term, initial steps are feasible,
especially using OTT techniques to extend existing services out over the Internet.
In summary, Disruptive Analysis believes that Telco-OTT services are not just tactical
temptations, but fundamental to operators maintaining relevance and profitability as the
industry reshapes itself. Market transitions wait for nobody.

About Disruptive Analysis

Disruptive Analysis is a technology-focused advisory firm focused on the mobile and wireless industry. Founded
by analyst Dean Bubley, it provides critical commentary and consulting support to telecoms/IT vendors,
operators, regulators, users, investors and intermediaries. Disruptive Analysis focuses on communications and
information technology industry trends, particularly in areas with complex value chains, rapid technical/market
evolution, or labyrinthine business relationships. Currently, the company is focusing on mobile broadband,
operator business models, the Future of Voice, smartphones, Internet/operator ecosystems and the role of
governments in next-generation networks.
Disruptive Analysis attempts to predict - and validate - the future direction and profit potential of technology
markets - based on consideration of many more "angles" than is typical among industry analysts. It takes into
account new products and technologies, changing distribution channels, customer trends, investor sentiment and
macroeconomic status. Where appropriate, it takes a contrarian stance rather than support consensus or industry
momentum. Disruptive Analysis' motto is "Don't Assume".
For more detail on Disruptive Analysis publications and consulting / advisory services, please contact
information@disruptive-analysis.com . For details about Future of Voice workshops & the Telco-OTT
report, see www.futureofcomms.com and disruptive-analysis.com/telco-ott.htm
Website: www.disruptive-analysis.com
Blog: disruptivewireless.blogspot.com
Twitter: @disruptivedean / @DApremium Quora: Dean-Bubley

Intellectual Property Rights / Disclaimer

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electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, Disruptive Analysis Ltd.
Every reasonable effort has been made to verify research undertaken during the work on this document. Findings, conclusions and
recommendations are based on information gathered in good faith from both primary and secondary sources, whose accuracy it is not always
possible to guarantee. Disruptive Analysis Ltd. disclaims all warranties as to the accuracy, completeness or adequacy of such information. As
such no liability whatever can be accepted for actions taken based on any information that may subsequently prove to be incorrect. The opinions
expressed here are subject to change without notice.

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