Jul 05, 2016
Samia's article first appeared in RCRWireless News.
OTT services have shown strong adoption across Latin America, which is changing the competitive dynamic for telecom operators across the region.
Telecommunications operators have long ruled the market in Latin America, and the situation in the past has been described as near monopolistic. However, over the past few years, a new breed of competitor has emerged to put pressure on the traditional operators' business models: over-the-top players.
OTT is defined as a value-added service or any application or service that runs over an operator's generic data network. The main OTT services can be grouped into four categories:
1. Video Streaming and Download Services
OTT video has gotten the bulk of the recent attention in Latin America. Subscription video-on-demand by providers such as Netflix, Movistar, Clarovideo and an increasing number of country-specific providers are capturing a large share of the video market. There is expected to be a huge increase in the uptake of OTT video services in Latin America over the next five years, with regional revenues more than doubling, reaching $2.91 billion by 2020, according to Digital TV Research.
2. Voice-Over-IP Services
These services, which include Skype and others, are used heavily throughout Latin America as an alternative to international calling services from the traditional telecom operators.
3. Instant Messaging Services
Whatsapp, in particular, has seen strong adoption in Latin America, eroding paid messaging services from telecom operators. As an example of this trend, when the service was introduced in Costa Rica, the result was a constant drop in text message usage for incumbent operators to the point that the average Costa Rican user went from sending 382 messages per month in 2009, to only 19 messages per month in 2015, according to a report from the Organization for Economic Co-operation and Development. This country-specific example is indicative of the general trend throughout Latin America.
4. Social Networking
Facebook especially has been dominating the Latin America market.
Operators, who have owned the ecosystem to date, are feeling the heat from these OTT competitors; however, those who react are those who have the backbone and can leverage their size and volume. Others can't, as their existing infrastructure and back-office systems limit them in the services and packages they can offer. As such, many are seeing erosion of their customer base and their revenues.
The OTT market in Latin America is still nascent, but is expected to grow drastically, generating around $1.84 billion in revenue by 2018, compared to $510 million in 2014. This is more than a 262% increase within four years according to Ooyala. Mexico, Brazil and Colombia – the three largest countries by population – are leading the market in terms of revenues and platforms.
But in order to explain the true growth potential of the OTT services in Latin America, it's good to take a look at the overall market situation. The population, including the Caribbean, is 634 million people and there are approximately 750 million mobile connections, making the region – with an average penetration rate of 122% – one of the world's largest mobile markets by volume.
However, the key success for growth remains in mobile broadband penetration. In this respect, only 10% of the population has a broadband subscription, although this rate is growing continuously. According to the GSMA, 57% of the population has access to mobile broadband coverage, but do not subscribe to it. Part of this can be attributed to the huge income inequality in the region. The cost of telephony ownership is an average of 17% of income for the bottom 40% of the population, according to the GSMA.
However, as easy as it is to look at the market as a whole and see similarities, using the same business approach across the market can often be a mistake. Latin America is characterized by more than two dozen countries with major differences in specific political, economic and social aspects, as well as differing customs and habits.
The success of OTT services depends on their ability to serve the needs of these different markets with cost-effective, easy-to-use local services and content. And while they will compete with the incumbent providers, the success of OTT providers also depends directly on the existence and quality of local telecommunications networks and infrastructure operated by those same providers, on the improvement of broadband speed, and on low-cost (even perhaps free) access to high-speed internet connectivity. Massive smart device adoption is also a key factor.
Over the past few years, several Latin American operators have reported a decrease in revenue growth or shrinkage in net profit. They understand that they need to develop new strategies and different business models to be part of the increasing revenue potential coming from these OTT services. They recognize the opportunity to increase their data services offerings, as data traffic per minute is increasing rapidly through the use of file sharing, video, audio and social networking. In response, many operators have created unprecedented initiatives, offering new bundled services or even developing their own OTT services. The basis of these new offerings requires flexible OSS platforms to create interesting and unique offerings that are specific to a local market.
As a result of the increased number of services that are being marketed to them, customers have become more sensitive to the level of service that they receive and have become more demanding to the point where they will and do change providers if they do not receive the service quality and offering they need. As a result, operators are increasingly concerned about customer experience and are working to improve its quality through new capabilities such advanced analytics to design targeted strategies.
A final important aspect of the digital transformation process lies in the regulatory challenges. Does the convergence of services offered by OTT require regulatory changes? This is a common underlying problem across the world that needs to be addressed.
OTT in Latin America is still in its early stages, but OTT services are ready to explode and the entrance of new players is shaking up existing business models. The proliferation of new services is gradually pushing consumers to be more demanding, which will help close the connectivity gap in the region. Operators will have to face the new wave of challenges with creativity and flexibility, and adapt to the conditions of the evolving market ecosystem with innovative new services.
For more information on how you can overcome the OTT pressures in Latin America, please email us at firstname.lastname@example.org
Samia Bounaira was the General Manager of the Caribbean and Latin America (CALA) markets. In her role, she spearheaded Excelacom's international expansion and drives growth in CALA markets.More about Samia
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