Paul David (pictured) is the new Chief Commercial Officer of Revector, but unlike many of the disruptive players he encounters, Paul is a telecoms veteran. He has worked around the world, for such diverse operators as PCCW, Colt, Cable & Wireless and Kcom. Paul called me recently to warn about a new and growing problem for telcos… to which nobody has yet offered a solution. And that problem will get worse each year, because it is caused by the rising popularity of disruptive OTT players in the communications market. Though Revector is not ready to go public yet, their customers have become aware of increasing volumes of OTT bypass traffic – where part of a call is carried by an OTT provider and terminates on the customer’s smartphone. The result is a reduction in traditional traffic, a lowering of revenues, a rise in data traffic, and a rise in capital costs. In short, OTT bypass represents a perfect storm for traditional network operators and their business model. So what exactly is OTT bypass, why does it pose such a threat, and how should operators respond?
What is OTT bypass?
We are all familiar with the idea of bypass, and are aware of how fraudsters use technology like simboxes to create opportunities to undercut telcos and provide cheaper services to retail customers. End users are probably unaware of how the call is routed, and the impact on the quality of the service. The services are mostly unlawful, and it is up to fraud managers to detect and block them. Sometimes fraud managers work with a country’s law enforcement agencies to prosecute the fraudsters responsible.
We are also familiar with OTT communications services, where somebody uses software from providers like Viber, Google Messenger, or Skype, to speak and text their friends via their fixed-line ISP or their mobile data subscription, instead of paying a traditional usage charge. Though a few countries have tried to criminalize VoIP, these OTT services are generally legal. You might think of them as ‘bypassing’ the network provider, but the customer does not think like that. Referring to them as ‘bypass’ is overkill, because we already describe them as ‘over the top’. If I have Viber installed on my handset, and you have it on yours, then nobody is misled about what is happening. We both pay our bills to a telco that provides us with limited or unlimited data usage. We know that if we talk to each other, this is going over the top of the data network. So nobody is cheating anybody, and no customer is being misled.
OTT bypass is a hybrid of the illegal bypass model with the legal OTT model. Consider a scenario where the call originates on the A-party’s traditionally networked device, but terminates on the B-party’s device via the OTT software it runs. The person who originates the call may think they are paying for a call to an ordinary telephone number, but what they get is quite different. And because smartphones are portable computers, it may not be that obvious to the recipient that there is a difference between answering a traditional call and receiving a call which has come to them via OTT bypass.
Consider it this way: suppose you pay 15 dollars monthly subscription to a mobile phone network, where obviously you expect to be able to receive an unlimited number of traditional calls at no extra charge. You also pay an additional 10 dollars for a limited data plan. Would you be happy if somebody called your mobile number, but you received it like it was an OTT call, and thus consumed some of your data allowance?
The reason why OTT bypass is occurring is because OTT providers are offering to terminate traditional calls to their subscribers as an alternative to ordinary call termination. Let us imagine a hypothetical but realistic scenario. Suppose the OTT provider has a million subscribers in a particular country, named Oatieland (geddit?). The OTT provider can offer a deal to an international carrier, saying they will terminate calls to all mobile phones in Oatieland for 5 cents less than any rival. They can make this incredibly good offer because it costs them nothing to terminate the calls to their one million OTT service subscribers. Even if Oatieland has another million mobile phone customers who do not have OTT software installed, it suits the OTT provider to pay a regular price to another network who will terminate those calls. As a result, the OTT provider earns a profit whilst driving down the prices paid to traditional networks, effectively undermining their competition.
Why does OTT bypass pose such a threat?
When the carrier services team in an international telco receives a deal like that offered by the Oatieland OTT provider, they may find it too good to ignore. After all, Oatieland OTT is 5 cents cheaper than everyone else, and all the calls will still get connected. However, what goes around also comes around. The international telco gets a lower price, but the OTT providers in their country can also undercut and take away their terminating traffic.
Unless carriers devise a strategy to counter OTT bypass, they face a future where they are all caught in a vicious downward circle. The operator drives down costs by doing OTT termination deals. Their rivals respond in kind. They each make less and less from terminating calls, because more and more traffic is being terminated by the OTT providers. This would be a disaster for traditional carriers.
Whilst voice and SMS revenues may be in decline, nobody wants to speed their demise. At the same time, the big challenge faced by the industry is paying for the investment in data networks to match the growth in data traffic. It makes no sense for carriers to give a profitable reward to OTT providers for speeding the migration of traffic to those data networks!
OTT bypass will also be a problem for many governments that tax international call termination. Unlike a simbox fraudster, the OTT provider need not break any law. That is because no rule prevents OTT traffic being handled just like… OTT traffic. Law enforcement agencies in the country probably will not know how the call originated, and even if they do, the OTT service is legal whether handling national or international comms. OTT bypass might also pose a problem for law enforcement where they have the technology to perform surveillance on traditional calls, but not on OTT comms.
Worst of all, OTT bypass can be bad for ordinary customers. Some customers may benefit from lower prices – if carriers pass on the benefit of lower wholesale charges. But other customers are already being cheated.
The originating party may expect a certain quality of service when dialing an international telephone number. When making the call, the customer is consciously choosing not to use Skype or Viber. However, the OTT leg of the call is now being forced upon the customer, at a lower quality, just so the phone company and the OTT provider can increase their profits. This takes place without the customer knowing what has changed, or consenting to it.
Furthermore, the terminating user finds their data allowance is being consumed. Are they happy that they now have to pay to receive calls on their mobile phone? If Oatieland OTT corners the market, and handles all the traffic from certain countries, the recipient has only the stark choice between paying to receive calls from their overseas relatives, or uninstalling the OTT app.
The threat of OTT bypass will be driven by the rising popularity of smartphones. Global smartphone penetration is predicted to rise from less than 10 percent in 2011 to over 36 percent by 2018. Penetration will continue to accelerate as cheaper handsets become available.
The problem is also exacerbated by a chink found in the armor of most telcos. OTT bypass is an issue that many operators will find hard to identify, and even harder to counter. Though they work in a fast-moving environment, telcos notoriously struggle to change the allocation of responsibilities to address new risks. The issue of OTT bypass falls into no man’s land per most organization charts.
To illustrate the problem with OTT bypass, consider the early days of simbox fraud. Those who were around will know that telcos sometimes were slow to identify the problem of simboxes being used to terminate grey traffic, especially if the fraudster paid their bill. That is because nobody knew they should be detecting and responding to the problem, but somebody else in the telco was happy to sign-up new ‘customers’ who were generating large volumes of new mobile traffic! People only saw pieces of the overall puzzle, and the pieces they saw were generally positive, not negative. So whilst Cheatbagcom was paying hefty bills for the 200 SIMs they had just purchased, nobody sat down and realized there were overloading a single mobile antenna. In the worst case scenario, the sales function would congratulate themselves for signing a great new customer, whilst the network team would spend money on increasing network capacity to cope with the undesirable traffic which had been routed around an international gateway.
The risk of OTT bypass is also amplified by the danger of telcos taking a piecemeal view. They do deals with OTT providers to get lower costs on termination. They lose the termination of traffic to OTT providers. Revenues collapse, data network costs rise… but who is responsible for a strategy to respond? Who even has the responsibility for measuring the scale of the problem?
Sometimes slow-witted telcos are saved by governments and regulators. Even if the telco is badly run, the need to comply with the law forces them to deal with painful issues, like simbox fraud. But the telcos will receive no help from governments or regulators in this instance. OTT bypass is not against the law. Worse still, some public servants will welcome OTT bypass because it appears to lower costs for end users.
How should operators respond to OTT bypass?
When Paul called me, I soon realized I had no answer to this question. Governments could try to criminalize OTT services, but that would be incredibly negative and unpopular. Telcos cannot arbitrarily block OTT services. The OTT service is not illegal, but blocking it might be. Informed customers are increasingly conscious of net neutrality, and there are grave risks with ‘protecting’ customers from certain kinds of cheap and popular services if the customers do not feel the need to be protected.
So what can operators do to counter OTT bypass? Paul told me that Revector has been working with their customers to develop both the technology, and a complementary legal strategy, that will discourage the growth of OTT bypass whilst promoting the benefits of traditionally-routed calls. But to learn what Paul has in mind, you will need to read my follow-up article, which I will publish next week!
It’s quite ironic that this article at the time of publication was on the front page together with ‘What We Should Learn from Airbnb and Uber’… ;-)
To cover this subject fully, I would need to rewrite my presentation from April RAG meeting as a response to this article about OTT bypass, but to keep it as short as possible, I will just try to summarise my opinion around this matter, as follows.
Technologically-aware people, especially in (developed) countries with good connectivity, have been using video and voice calling on their PCs for more than a decade (whereas online chat / instant messaging, starting with the likes of IRC and predecessors, for 30 years or so) and on their smartphones for over 5 years.
Since the arrival of iOS and Android, the wider population has been using apps allowing OTT texting and picture messaging, the other types of legal bypass.
Those who came to July RAG meeting know how I call OTT: progress.
…and from the previous one what I call taxes (the ones similar in essence to excise duty) on international calls: extortion.
The users of OTT services are in most, if not all cases, fully aware that they eat up data allowance.
The leading OTT providers are unlikely to use SIMboxes for their ‘out’ calls.
Services allowing these ‘out’ calls from apps to telephone numbers abroad enable people in richer countries to stay in touch (at lower expense) with their families, friends or business contacts living in less developed parts of the world or who may simply be unable to use computers and/or smartphones for affordability or other reasons.
Quality of service is not a huge issue as you would not expect it to be perfect if you pay next to nothing. However, with increase in bandwidth this problem goes away.
For example, from my own experience, mobile to mobile OTT video calls in the UK look pretty well even if travelling, as long as there are no gaps in 3G/4G coverage.
From consumer’s perspective, governments should rather encourage than block the use of OTT services.
Yes, it means that there is a risk of mobile operators becoming just ISPs with time, but I think this subject has been discussed on CommsRisk / TalkRA quite a few times already…
Onwards and upwards!
[ Any views or opinions expressed in this comment are those of the author only and do not necessarily represent his employer’s position. ]
Bartek, I feel as strongly about free markets as you do, but I think the Revector team are raising a valid issue that relates to transparency in markets. If you paid for a voice call thinking it would terminate like other voice calls, and then were told that half the call was equivalent to you using Skype (for free) wouldn’t you feel a bit cheated? Or what if you discover that your relatives in a foreign country are making an expensive international call, but it’s being terminated on your mobile handset like it’s a Viber call – wouldn’t you be annoyed that your relative paid for a proper international call, and that you’re also paying to receive it because it consumed part of your data allowance?
Note that I’m not doing what other people do, and calling everything bypass in a bid to hype things up. We can argue about terminology but I don’t think it makes sense to use the word ‘bypass’ when talking about an ordinary OTT service. That’s like saying a train is a ‘bypass’ to using a road. We don’t typically use the word like that. Normally we use the word ‘bypass’ to indicate we originally planned to take one route, then we took a different route to go around some obstacle – hence why we talk about heart bypass operations. We don’t use the word to refer to an entirely separate mode of travel.
I’ve used the phrase ‘OTT bypass’ to refer to calls that originate as a traditional voice call and terminate as an OTT service, thus bypassing international gateways and terminating fees. This deserves to be called a ‘bypass’ because the goal was to avoid particular points on the typical route. This isn’t like the examples you give. In your examples, the customers at both ends know what is going on. And they have a choice – they could make a traditional call OR they could use an OTT service. In the OTT bypass scenario, however, the customer does not have a choice, because a carrier has decided to enter into a deal so calls terminate like an OTT service, whether the customer wants that or not. The originating customer is not informed this is happening. Hence, this is not how a free market should behave, because instead of increasing choice, carriers will be reducing the choice of customers – it may not be possible for a customer to make a traditionally terminated voice call to some countries without first changing their carrier. And free markets are based on customers making informed decisions, but in this scenario the carriers have not informed customers that their call will terminate as OTT. In other words, that would be like you calling me on my mobile number, not realizing that you are paying in full for a call that looks to me like you Skyped me at my Skype address.
In short, I think we’re talking about two different things. You’re talking about OTT, and Revector have made it clear that they are fine with OTT. OTT services are legal, valid and desirable, and telcos shouldn’t try to mess with OTT services for cynical commercial reasons. But I’m talking about something distinct, which I’ve called OTT bypass because it’s a bypass operation that uses OTT. This may be legal, but it has the potential to be harmful and exploitative to customers if they don’t understand what OTT bypass is, and how it differs from a traditional voice call. And it’s also harmful to telcos, if it leads to an unmanageable race to migrate traffic from voice networks to data networks. The industry needs to understand what OTT bypass is, and find ways to mitigate the risks, not just for its own sake, but for the sake of customers too.
Thanks for the clarification Eric. I must have focussed too much on my presentation and not enough on your article. ;-)
I fully support narrowing the definition of OTT bypass to just the sale of termination on the app without customers’ knowledge.
The question is if calling party, operators and called party would all need to be aware of how the call is routed in order to make it a legal one?
Transparency is key. An informed decision would need to be made by the customer. Viber is indeed failing to allow that.
I would imagine the question during installation (or as a pop-up later) to be something along the lines of: “Would you like to receive incoming calls via Viber? Please note that it will use up XXX kB per minute from your data allowance and may be of lower quality than calls received via traditional mobile voice route.”
Only then would it be seen as legal? Otherwise customers could (and should!) feel cheated and Viber could (and should!) end up in trouble.
Possibly also, when dialling out, the caller would need to get a whisper that “this call will be delivered via Viber”. Interestingly, this could work in Viber’s favour if they were able to provide good quality, as it would create awareness of the (potentially) cheaper alternative they are offering.
Unfortunately, Viber-In option is enabled by default and clicking ‘Learn More’ doesn’t really explain how it works. Users should knowingly opt in, with Viber proactively informing them what it means, rather than opt out, which currently they need to find amongst settings, not even knowing the true impact of not switching it off.
In other words, I do agree with you Eric.
The current owners, Rakuten, might have a lot of explaining to do if regulators look more closely at what Viber is doing. They can argue that they are basically providing a service ‘similar to VoLTE’, but there is one very important difference – the latter will not eat up data allowance!
Hi Bartek, OTT bypass does not break any laws or regulations that I know of, but obviously I don’t know every law and regulation for every country in the world.
Keep in mind that the network operators are also responsible for OTT bypass, as well as the OTT providers. For operators, this is a case where the right hand may not know what the left hand is doing. An operator’s carrier services team may sign a deal with an OTT provider because they want their traffic to be terminated more cheaply, by re-routing some of that traffic so it ends up being carried to the B party’s OTT app. That is good for keeping their costs down – but what goes around comes around, and they will lose terminating revenues when rivals do the same to them.
In a way, the operators are most to blame. They have the contract and the relationship with the originating customer. They may chase the short-term ‘win’ of cheaper termination. But if the operators reward their carrier services team for behaviour like this, whilst having no strategy to mitigate the impact of OTT bypass, they will find themselves in a downward spiral, racing to give a greater share of dwindling revenues to the companies that most exploit them: the OTT providers.
Instead of thinking of this problem as operator vs. OTT provider, we should also think of tensions within the operator. Not everybody thinks beyond the short term. Not everybody cares about the user. That is why OTT bypass is so dangerous. Operators might pursue a tactical reduction in their operating costs, even though it leads to higher strategic costs for their data network, and will damage customer relations.
Hello again Eric,
It would need to be the consumers asking Viber for refunds if they ran out of data allowance and had to purchase an extra add-on.
(We don’t want mobile operators to be blamed again!)
In the UK, ‘Consumer Contracts Regulations 2013′ introduced additional rights that seem to be solving this issue from customers’ perspective (my understanding is that it was based on an EU directive, so it may be similar in other European countries).
Even if a situation like this, where Viber app does not ask users to expressly consent to opt in, is not stipulated as a definite example, I hope that consumer rights groups and courts of law would support my interpretation.
The ‘Implementing Guidance’ for the above legislation provided by the Department for Business, Innovation & Skills contains the following information on page 4:
“Consumers will not be liable for costs which they have not been told,
pre-contract, that they must bear.”
I am not a lawyer, but it seems to be quite a strong basis for a case against Viber.
All the above relates to Viber-in on the receiving side.
In terms of the calling side it may be more difficult to build a case, as it’s services not goods we are talking about. Otherwise we could use Sales of Goods Act 1979, which stipulates that they have to be:
– as described,
– of satisfactory quality,
– fit for purpose.
Viber app termination might not be meeting these conditions.
Let’s see how the situation develops.
As usual, it’s been great to exchange some comments and opinions with you Eric.
Enjoy the bank holiday weekend.
All the best,
[ Any views or opinions expressed in this comment are those of the author only and do not necessarily represent his employer’s position. ]
I am working with a large GSM operator in Pakistan with over 34 Million subscribers as Director Revenue Assurance and Fraud Management. We are facing the same challenge as all the mobile operators i.e., cut down in the revenues on account of OTT.
I have different view. OTT is a reality and artificial barriers will not help. Whatapp, Viber and apps have already made inroads to the lowest end market all over. So why not take it as an opportunity than a threat. In most of the countries, it is not illegal.
The CMOs should start thinking about monetizing this platform instead of spending money to block it. I can see that CMOs may become only shopping malls, where OTTs have their shops; opened selling different products. The CMOs may therefore become access providers only with no core networks in existing form.
So let us take them along and make money for all.