By Bengt Nordstrom, Co-Founder and CEO of independent telecoms business consultancy Northstream

Over the past decade, telcos have faced tough competition and disruption from OTT players who’ve launched cloud-based voice and messaging services to rival the telcos’ own.

While these services have eroded telcos’ traditional voice and messaging revenues, they’ve also bolstered the telcos’ primary business today - data.

Now a new challenge to operators is gathering pace: Under-The-Top (UTT) disruption.

These are new initiatives and technologies aimed at operators’ core business of connectivity.

A UTT initiative can stem from anywhere, but the prevalent trend is for technology giants like Google and Facebook to test out new connectivity-related business models and trial new technologies.

How much of a threat are these UTTs to operators’ core business?

Do they threaten operators’ very existence: or are they merely a wake-up call to encourage operators to get back to work?

UTT disruptions generally fall into three categories of connectivity.

The first, pipefication, covers initiatives which disrupt the established sales channel and risk weakening or breaking the relationship between telcos and users.

From a device perspective, the obvious example of this is Apple and its SIM and eSIM offerings for its iPad products: the Apple-made SIM supports wireless services from multiple operators, which the user then selects from an on-screen menu, removing the need to install a SIM provided by the carrier itself.

From a network perspective, “Wi-Fi first” MVNOs are growing in popularity as Wi-Fi hotspots increase. Likewise, embedded cellular connectivity in IoT devices – everything from an e-book to a connected car – affects the telco-end user relationship as connectivity gradually becomes an inherent part of products.

End users expect these devices and products to “just work”, regardless of the access technology or provider.

However, this trend towards Wi-Fi preference isn’t new.

According to Cisco’s Visual Networking Index 2016, 60 percent of all global traffic from mobile-connected devices was offloaded to a fixed network using either Wi-Fi or femtocells.

Wi-Fi offloading benefits telcos, and Wi-Fi first MVNOs will still have to purchase wholesale connectivity from telcos.

In this sense, pipefication initiatives don’t directly threaten telcos’ core business: they might, however, affect business models.

The second category is replacement – that is, initiatives that alter how businesses, consumers or things get connected, which in turn impacts how and by whom networks are built and operated.

Google is experimenting with Google Fiber for broadband, and also Project Loon, which uses a network of balloons to extend coverage in rural areas.

Global communications provider OneWeb and aroespace company SpaceX are separately planning to launch satellites into orbit to deliver high-speed internet.

Meanwhile, Facebook is testing solar-powered planes to deliver internet access to remote areas.

These connectivity replacement UTTs, which are focused on connecting people in rural, hard-to-reach places, could be complementary to telcos’ existing networks.

On the other hand, a UTT that can provide broadband in urban areas at a cheaper rate than the average telco could be genuinely disruptive.

How can telcos respond to replacement? They must keep prices down.

When it comes to the IoT, LPWAN and mesh network providers today offer low-cost, low-power connectivity alternatives to cellular IoT networks.

However, despite the growing hype surrounding the likes of Sigfox and LoRa, the IoT only represents a small amount of revenue for telcos.

Based on Northstream’s own analysis, the IoT will likely contribute less than five percent of their overall revenue in the next few years.

Finally, initiatives around the the third connectivity category, democratisation, may lower the barriers for entry into the connectivity business.

They are often related to network infrastructure, like Facebook’s OpenCellular wireless access platform, which could drive down equipment prices for telcos - but which might also make it easier for new players to build their own infrastructure.

In addition, open-source NFV/SDN initiatives are re-designing how network services are deployed and operated.

The Linux Foundation’s ONAP and OPNFV programmes, the Open Compute Project (OCP), as well as operators’ own work on SDN, in partnership with Google, are reimagining everything from the telco hardware to how networks and services are orchestrated.

While there’s a sense of co-operation between telcos, vendors and new players, there’s also the concern of competition.

That said, the forays into the connectivity landscape by internet giants are likely to be exploratory only, and are an attempt to influence operators and put pressure on them to provide cheaper and faster connectivity.

In general, UTT initiatives will only pose a threat to those operators who don’t adapt to the changing connectivity landscape, at a time when it is increasingly important to focus on providing high-quality, fair-value connectivity services.

No amount of differentiated OTT offerings will compensate for a less-than-stellar mobile broadband experience, or justify extravagant data price tags either.

For those telcos who stay up-to-date on the new developments and latest changes in the connectivity landscape, and who also focus on providing connectivity services which meet and exceed the expectations of consumers, the UTT initiatives of Google, Facebook and others are not a serious and credible threat.

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