Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
Many carriers see the proliferation of over-the-top (OTT) video services such as Netflix as a threat to their established IPTV business models. They fear that OTT will subvert their role in the pay-TV value chain and cannibalize revenue. We’ve found, however, that the opposite is just as likely to be true.
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At a global level, carriers are becoming keen on using the open Internet to offer their own OTT services, potentially to any consumer with a broadband connection, whether they are existing customers or not. In emerging markets, many carriers are launching their own OTT services, and Latin America is seeing very high levels of carrier activity in this space.
The latest announcement in the region comes from Mexico where América Móvil has extended the VOD/OTT Claro Video to its home market. Billed through fixed line carrier Telmex, the service offers a monthly subscription at a price that is almost a third cheaper than Netflix. As an operator-owned OTT, Claro Video has the significant advantage of being part of the same group that manages Infinitum, the number one broadband service in the country.
Also in Mexico, Grupo Salinas’ OTT video service, Totalmovie, has already become the main regional competitor to Netflix. Through the OTT, Grupo Salinas, which owns TV Azteca, FTTH operator Totalplay and co-owns mobile the carrier Iusacell, is offering video content not only in Mexico alongside Totalplay’s IPTV platform but also throughout Latin America by using a third-party carrier infrastructure. The addition of carrier billing, which enables customers to pay for Totalmovie’s content on their mobile bill, and Grupo Salinas’ partnership with Sony, which will start offering a Totalmovie app on connected TVs and Blu-ray players, only confirm the company’s commitment and high hopes for the OTT model.
We expect to see more Latin American carriers launching or expanding OTT services. Just to sum up some other recent developments:
- In Colombia, ETB has announced that it will shortly launch an OTT service to complement its upcoming IPTV deployment.
- In Chile, the OTT video and TV service Bazuca, owned by VTR, is expanding across Spanish-speaking Latin America.
- Telefónica is considering positioning OTT commercial offers in several countries, using either managed (IPTV), unmanaged video delivery (OTT) or both depending on each country’s infrastructure, competitive environment and carrier position.
This level of activity only proves that OTT has significant benefits for carriers. In América Móvil’s case, Claro Video provides an answer to a highly specific problem because it finally allows the carrier to enter the TV market, a move that was in theory precluded by regulators. Essentially, América Móvil is taking advantage of the regulatory delay in adapting to technological innovation, which results in a lack of regulatory understanding of what should be considered a TV service. In Grupo Salinas’ case, OTT is contributing to the monetization of the highly expensive, superfast network in its home market, while the company (like América Móvil) is becoming a content provider over the Internet in Latin America. In fact, through the OTT model, all carriers can benefit from using third party infrastructure for content delivery, thus, breaking the link between content delivery and network management.
Pricing is another important benefit of the OTT model. While IPTV remains a premium service requiring subscribers to purchase relatively expensive bundles, in more price-sensitive markets where there is still strong demand for online video, OTT is becoming an attractive option for users. Besides, OTT services are typically delivered over a wide range of screens and at different price points, including smartphones, tablets and gaming consoles, making them more accessible to different consumer profiles.
Nonetheless, using the open Internet for content delivery has its downsides. OTT’s main shortcoming is that the carrier is not in control of the quality of service (QoS). Especially in emerging markets, quality of service and network speeds vary widely from country to country, making it challenging to ensure the same quality of experience (QoE) that can be guaranteed through a managed IPTV network. Another challenge for carriers is securing in-demand content for OTT platforms. Without a doubt, content is king, but content is also costly. Unless they are backed by multimedia and broadcasting groups, carriers tend to be the weak link in the content production and delivery value chain. But that is a challenge with IPTV too.
All in all, we believe that if telcos are serious about developing a pay-TV offering that can resonate with the demand for multiple viewing platforms at different price levels, they need to seriously consider the opportunity of complementing IPTV platforms with OTT.
Daniele Tricarico is an analyst for Latin America at Pyramid Research
