OTT_BypassFraud

OTT_BypassFraud

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  30 October 2016 Communicationsdisruption has benefits, but at what cost? The competition brought by OTT market players has resulted from disruptive technology.The mobile telecom market has had to adapt and adjust to a new playing field, which some believe is not level, while others consider the result to be a greater good for consumers.There arises a huge challenge for regulators: Should OTT applications be characterized as telecom services (voice or data) or telecom infrastructure? And ought they be subject to further regulation and taxation? Moreover, market liberalization has not only resulted from the issuance of additional MNO licenses by governments in world markets, for de facto market liberalization has occurred from the actions of OTT players and states’ benevolent attitudes toward them, with regard to regulatory classification and taxation. Regulators are caught in the crosshairs as they try to maintain competitive balance and total access to information, while also trying to preserve investor value, private and government revenue generation, and adherence to general law. The added competition from OTT application providers, Bypass Fraud and OTT impact on ICT investments Thomas W. Wilson III (Part 1 of a 3 part series) Introduction The future is now with regard to how mobile telecom operators (MNO) react to the onslaught of freemium services which shift revenues from the operators to the so called OTT (over the top) service providers. It is difficult to over-state the dramatic impact the OTT service have on MNO revenues. Why? Simply stated, MNO investment costs, required to meet increased broadband demand, are increasing at the same time that margins on MNO voice and SMS revenues are declining as users shift to OTT services. Additional revenue from mobile data plans are insufficient to fuel the necessary future infrastructure investments. Stated another way, the OTTs use MNO facilities without paying a fair share of infrastructure costs or other industry taxes and fees. Market research company Ovum estimated that the telecom operators will suffer losses of around 386 Billion USD from 2012 to 2018.This trend is only going to grow with the continued growth of application- based voice and messaging platforms. Popular applications, and especially the most famous social media applications are proliferating greatly as the Internet expands its reach globally.This exposes the MNOs’ networks to greater loads while revenues continue to be siphoned elsewhere, primarily to the OTT’s.The increased pressure on the networks comes not just fromYouTube and Facebook — there is an explosion of applications such as BBM, Chat On, KakaoTalk, What’s App,Vibro,Tango, Instagram,Vine, We Chat, Snapchat,Yahoo, Google +, Pinterest, Skype (direct peer to peer, application which works differently than most of the others), Num Buzz, Line,Vine, Linked In, Fring, Netflix, Hulu, Amazon, Google Hangouts,Viber andTwitter.That list continues to grow. There is another, very significant threat from the OTT sector, known as OTT bypass fraud, which is transcendental in scale and if not abated in some measure, could be cataclysmic to the business model of MNOs. Prior to OTT Bypass, the OTT’s disrupted the access side of the network; however now the terminating side of the network is under peril. Many applications are tying subscribers to their GSM mobile numbers, which is a simple and convenient way to build databases that can be sold to wholesale networks, to terminate calls to their apps on their user smart phones.This is the main difference betweenVoice apps that use phone numbers (such as WhatsApp) and OTT-to-OTT voice services, such as Skype.The OTT bypass redirects calls made to a mobile number on an operator network onto data networks where the calls terminate (if the app is open on the called party’s smart phone) on the freemium application of the smart phone.This process circumvents the usual termination of calls on the MNO’s network and deprives the MNO’s of their usual termination revenue.Yet the operators continue to bear the cost of the network investment, together with spectrum, licenses, excise taxes and other fees and taxes.This situation is clearly unsustainable. Market research company Ovum estimated that the telecom operators will suffer losses of around 386 Billion USD from 2012 to 2018.This trend is only going to grow with the continued growth of application-based voice and messaging platforms”
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  INTERNATIONAL teletimes 31October 2016 Shift inRevenues to the OTT’s while Costs stay with the Operators Parameters Telcos OTT Players License Costs Yes – < Many Millions No - $0 Spectrum Costs Yes – < Billions USD No - $0 Rev Share 8% AGR N/A - $0 Universal Service Fund 5% AGR No - $0 CorporateTaxes 34% LocalTax Structure but rare Customer Care Required Not Required QoS Requirements Tightly Managed Best Effort Only Security Mandatory Not Mandatory/elective Cross Platforms - Joyn Can be Done Not Possible (current apps like Skype,Viber, WhatsApp, and a cast of hundreds, as well as industry- wide efforts such as WebRTC, RCS and others) allows users to communicate more efficiently and more cost effectively.This OTT activity created initial benefits for MNOs by driving increased data usage, which, if effectively priced, improved revenues although with certain inherent risk. Some users received flat-rate unlimited data packages. The standard 80 – 20 rule tended to apply, where 20% of users created 80% of data traffic, and this was usually over unlimited data plans. Larger revenues and market share potentially mitigated financial risk, at least when these pricing plans were launched. “Operators will remain the dominant force in mobile voice but will be significantly weakened as OTTVoIP services continue to grow.” – OTT communication services worldwide: forecasts 2013– 2018 Operators in many countries have struggled, while data traffic spiked enormously from mounting messaging, gaming, video, and voice traffic over the same data networks, and, principally, OTT providers were not assisting with regard to investment in infrastructure, which is so critical towards successful deployment of broadband programs. Many operators that were slower to adapt suffered. Regulation in some markets demanded operators to stay with pricing that did not properly monetize data usage, and a resultant decrease in revenue efficiencies occurred. Impact of Smartphone and OTT Services The use of ubiquitous technologies greatly altered the basic means of either sending a message or making a voice call.The free costs, the convenience of access, as well as the unique novelty of application converted many users from traditional SMS.The prime catalyst has been and is the smartphone: eMarketer estimated the number of smartphones as of end 2015 at 1.5 billion. Seventy per cent (70%) of the world’s population will own smartphones by 2020 (Ericsson 2014). Costs for entry-level smartphones continue to decline, and global vendors are focusing on developing markets with burgeoning populations yearning for mobile services. Lower-cost smartphones sold in developing countries can greatly alter market forces in the industry.The second catalyst for change was the ability for users to send free over data networks rather than paying operators per SMS.Voice usage follows similarly, although slightly less radically. “More than half of smartphone owners worldwide are already active users of OTT messaging apps.” – Future Comms and Media, 2014 The impact of OTT’s with regard to normal peer to peer or OTT bypass against the operators is very large. In an attempt for an apples to apples comparison, below are listed some of the costs and revenues that are shifted from one sector to another: The advent of the smartphone has essentially created an entire cottage industry with regard to how people speak to and message each other as well as message each other.This new ecosystem is highly dependent upon the Internet, bandwidth requirements, and operating systems for smartphones, such as Google’s Android, Apple’s iOS, and Microsoft’s Windows platform. The second part in this series will be published in the next month and will discuss the technical side of By-pass fraud in more detail, and address alternative approaches and potential results/outputs by addressing the issue. Operators in many countries have struggled, while data traffic spiked enormously from mounting messaging, gaming, video, and voice traffic over the same data networks, and, principally, OTT providers were not assisting with regard to investment in infrastructure, which is so critical towards successful deployment of broadband programs”