How long can the CSP/OTT love-hate relationship continue?

While the OTT business model has forever changed the way in which the telco industry operates, what this means for the relationship between OTTs and CSPs remains to be seen.

Most in the industry would forgive the CSPs if they were to hold a bit of a grudge against the OTTs, after all, the likes of Google, Facebook and YouTube have all but destroyed the way in which these communications giants make money.

If you were too look back to the 90s and 00s, telcos were essentially printing cash through post- and pre-paid contract dictated by monthly minute and SMS allowances. But no more, the OTTs have forced these giants to modernise and evolve, seeking revenues from new streams. Providing connectivity is not going to be enough for cash-hungry investors.

One of the bigger pain points here which needs to be addressed is the relationship between the CSPs and the OTTs themselves; are they collaborators or competitors, partners or suppliers, friends or foes? For Patrick Donegan, Heavy Reading’s Chief Analyst, there is a balancing act currently in the works, and there isn’t exactly a concrete answer.

The OTTs were initially thought of as a threat, and they still are, but there has been a shift in attitudes in the industry where the OTTs can be viewed as partners and enablers of innovation. Take for example the recent partnership between AT&T and AWS which was announced in October. Here the pair have seemingly identified IoT is not a zero-sum game; bringing AWS into the equation does not take away from AT&T, in this case it enhances the team’s opportunities.

This is only one example, but is telling of a wider trend which could be seen over the course of 2016. The relationship between OTTs and CSPs is evolving from a competition to a collaboration. AWS has also partnered with Telstra, Facebook launched its Telecom Infra Project, as well as Google pausing its activities in the fibre segment. They are all examples of CSPs and OTTs becoming a bit friendlier.

The last one is an interesting one, not because of the PR-masterclass put on by Google when pausing the fibre business, but because it demonstrated a turn-around in attitude. Google Fibre was one of those projects which had the potential to shake the industry; if there was one business which has the brand credibility to crack such an important market as fibre it would be Google. However, success was not as quick as expected by the internet giant.

Now this isn’t necessary a bad thing; Google is used to riding rough waves, but maybe the team looked over at the success Facebook and AWS were experiencing through collaboration not competition, and realized it was the right strategy for the moment. The industry might have let out a sigh of relief (or maybe not), but having Google as a partner is seemingly a lot more favourable than having them as a competitor.

Whether Google decided fibre was too hard or collaboration was a better means is irrelevant. What is important is the relationship between OTTs and CSPs has evolved over the course of 2016 from competition to collaboration. For the moment, the two parties are friends, but how long that remains the case is unknown for the moment.

Some of Donegan’s research asked CSPs whether they thought a major OTT player would buy a tier one CSP in the future. There wasn’t one respondent who thought it wouldn’t happen eventually, and 25% thought it would definitively take place in the near future. Once an internet player decides to tread directly on the CSPs turf the relationship between the two could turn, and turn quickly. In short, as long as CSPs can make money off the success of the OTTs they are happy, but that won’t last forever.

Another point of contention which could be seen as a turning point is the regulation surrounding the internet players. The telco segment has been heavily regulated for some time, but despite the prominence of the OTT sector in the technology and telecom industries, they are largely unregulated. This has been a gnawing point for the telcos, and the regulators have been slow to react. Dumping telco regulation on the OTTs would not work, but if nothing is done and the OTTs continue to grow at the telcos expense, the friendliness between the parties could erode.

The lack of regulation of the OTTs, and a lack of clarity on future regulation for the telco, may also be seen to be impacting innovation. OTTs have huge freedoms to innovate, whereas the telcos are possibly unwilling to spend due to danger of wasted funds. And it’s not only the money being spent on innovation, it’s the talent as well. Internet players are more attractive to young pioneering engineers than the telcos because of this culture of invention and willingness to invest in new ideas.

The OTTs and CSPs are now on friendly terms, following a couple of years of awkward tension but how long this truce stands remains to be seen. Should regulators continue overlook the OTTs, talented youngsters continue to favour companies like Facebook or AirBnB or rumours surrounding an OTT acquisition of a CSP start to become a reality, the relationship could turn nasty, and turn nasty quickly.