OTT (Over The Top) SmartPhone Apps such as Line / WhatsApp / Viber / WeChat can potentially change the advantage on operator scale, as it can be implemented across operators. Traditionally, scale was generated by subscribers within a network. The bigger the subscriber base, the more attractive an operator becomes due to cheaper on-net calling on a wider subscriber circle.
It is evident from the Figure below that, with OTT Apps, scale is generated across operators on subscribers using the OTT platform. OTTs are operator agnostic as the application resides in the handset and not the operator. Telco operator scale in this case becomes far less relevant as compared to the scale of OTT adoption. Subscribers can seamlessly message / call across data networks.Subscribers in this sense are no longer as pre disposed to choose the operator with the largest subscriber base.
An Airtel Subscriber in Delhi in this instance can send a WhatsApp/Viber/WeChat message / Voice Call to a Idea Cellular subscriber or even offshore to a Singtel / Vodafone UK subscriber (assuming they have the OTT application) at no incremental cost beyond the 3G /4G / Wi-Fi data plan fee.
How is this an Advantage to Reliance Jio Infocomm / Videocon / MTS / Uninor ?
Smaller operators that are typically net interconnection fee out-payers are able to save on interconnection expenses with the use of OTT. Connecting an SMS /voice minute in the past from one operator to another operator was a costly exercise as the originating operator had to pay interconnection to the second player. With OTT, messages and calls are delivered via the web and as such given the absence of a circuit connection, there is no interconnection fee. Subscribers can then send as many messages as they want across operators (even internationally) without any incremental/variable cost outside of the data package that they take up. This is why the next big battleground in Indian Telecom Sector will be the issue of Interconnect fees.
Voice / SMS migration to OTT services could be net negative for incumbent telcos if they are not able to price data properly. The negative effects of OTT can be felt by both big and small players alike if data pricing is incorrect so as to entice substitution / arbitrage. However, as illustrated above, the use of OTTs do serve to potentially alter the economics of the business, possibly favorably in the case of the smaller player by removing the variable fee component related to network interconnection.