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India telcos chart revenue growth with cloud and OTT services

Telcos in India are eyeing new revenue streams from cloud and content services, but whether they can successfully monetise the offerings remains to be seen

Indian telecoms providers have been doubling down on cloud and over-the-top (OTT) services as revenues from connectivity start dwindling.

Whether it is Vi offering managed cloud services, Jio delivering cloud connectivity capabilities or Airtel’s OTT bundles, almost every telco player in India is shifting gears beyond conventional communication pipes.

Prachir Singh, senior research analyst at Counterpoint Research, attributed the shift to declining average revenues per user (ARPU) of operators, claiming OTT and content services are just ways to improve ARPU.

“This diversification, and discovery, of new revenue areas is an imperative now,” said Singh. “At the end of the day, telcos need to consolidate and improve their ARPU, so they have to be in this game.”

Indian telcos are also looking at delivering 5G applications to bolster their coffers in areas such as smart healthcare, connected cars, industry 4.0 and drone-based agricultural monitoring, according to Pulkit Pandey, principal analyst at Gartner.

However, this path to new revenue models is not a new one, said Sumit Chowdhury, who has been at the helm of many telcos, including president and CIO of Reliance Jio and CIO of Reliance Communications.

Chowdhury, now founder of Gaia, a software-as-a-service (SaaS) platform for enterprise process automation, noted that telcos have been tapping new revenue streams for more than two decades. “Even with 3G, when the internet and cloud were at their infancy, telcos started with offerings like caller tunes and content services,” he said. “That used to be what OTT is today, and what’s happening today is just a different way of cutting the pie.”

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John Strand, CEO of Strand Consult, who has been consulting on marketing strategies for telcos, echoed that observation, noting that around 2000 in Europe, South Korea and Japan, telcos had already started providing music streaming services over 3G networks.

But telcos can take these paths only because they own and know the customer, as well as run datacentres, which enables them to offer cloud and OTT services or partner with hyperscalers, said Chowdhury.

That advantage, Strand contends, will increase the value of a customer and make it more difficult for them to switch to another operator. “It’s about making the product more sticky,” he said.

But in India, which has some of the world’s toughest net neutrality regulations, Strand said investment and innovation in new revenue streams could be limited.

Roslyn Layton, visiting researcher at Aalborg University’s department of electronic systems in Denmark, concurred, adding that India’s net neutrality rules, for one, had not helped Indian apps become global platforms.

“Differentiated offers are exactly how users can find new innovation and services,” she said. “This is how Europe’s top app, Spotify, by partnering with mobile operators, became known.”

Old game, new challenges

But whether or not telcos can profit from and monetise their revenue streams from OTT and cloud services remains to be seen.

“Subscriptions can plateau after the free phase is over,” said Singh. “When Jio brought in 4G and free plans, there was a lot of interest from users. But what really decides the stability of any service is how customers react once monetisation starts. That’s where telcos will have to find a good value proposition, be it for retail customers or for small and medium-sized enterprises.”

A senior leader from a leading telco singled out the challenge they face with the lack of expertise in software development.

“Telcos are traditionally not known for building or hiring software expertise,” they said. “They are good at operational talent, but they need to spruce up on cloud development and software talent now.”

In addition, Singh noted that telcos often do not have captive capabilities, with Jio partnering Saavn, a local online music streaming service, and Airtel teaming up with another player in the music space.

“At the end of the day, the shift from 4G to 5G will invigorate networks, but monetising them would be where services will come in,” he said.

“This will be quite challenging as customers today have a number of choices. They may choose OTT services on a platform or use a bundled offering from a telco. How a telco’s position trumps the third-party subscription model is something that remains to be seen.”

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