The Next Battleground: OTT Mobile Video

Written by Iain Gillott, May 21, 2015 

Posted with permission from iGR 

Like most tech industries, wireless grows in phases, each characterized by a particular technology or marketing scheme.  In the U.S., the original growth in the industry (back in the early 90s) was started when the operators offered subsidized handsets.  Then we moved to the SMS phase, where it seemed every startup had some new solution for texting.  In the run up to the current LTE building competition ("I have more covered POPs than you." "My LTE speeds are faster." etc.), we have seen competition around laptop data modems, PDAs, smartphones and tablets (of course), unlimited data rate plans and push-to-talk, among other things.

With significant capital investment still going into LTE networks, the North American mobile operators have generally built robust networks. (We can debate who has the better LTE network ad infinitum.)  The same is true in other regions of the world, while other places are still deploying their initial build outs.  At the same time, demand for bandwidth is obviously increasing, driven mostly by the demand for video.  Simply put, video uses more mobile bandwidth and with big-screen smartphones and tablets, consumers are likely to consume more video.  We have seen this trend both anecdotally and in our survey statistics.

The latest trend - one that we believe will be the basis of the next phase of competition - is mobile video content delivery.  Note that we are not saying that consumers will be able to access video from their mobile devices; as we know from our research, this already happens today. The most popular devices to watch Netflix on are tablets and smartphones.  Getting video over an LTE network today is not an issue.

But OTT video services and content are accessed independently of the mobile operator involvement (generally - there are a few exceptions).  So the consumer is accessing their Hulu account and content over an LTE connection simply because they can.  The mobile operator is not part of this transaction (other than providing data service) and the content generally has to traverse the entire mobile network (RAN and EPC) to reach the consumer.  This is not very efficient.

New competition is starting to come in the form of the mobile operators working with the OTT content providers, as well as potentially offering their own video service.  There are already examples of mobile operators hosting OTT video servers in their networks to reduce the transport costs and improve the customer experience.  And operators have announced partnerships with OTT service providers.  Plus there have been numerous stories of Verizon Wireless' plans to offer its own mobile video service later this year. (Buying AOL assists this with intelligent ad placement and delivery).  Partnerships are happening now and will become more common. In the next year, not having relationships with OTT video providers will be a competitive disadvantage for a mobile operator.

All of this, of course, assumes that the mobile operator has a robust LTE network that can handle the load.  As my son pointed out last night at dinner, Netflix is where most teenagers get their TV programming (his view) and that binge viewing is normal.  My son can easily burn through 15 - 20 GB per month on Netflix.  And while he may be at the extreme end now, the norm is moving closer to his usage pattern all the time.

For mobile operators that invested in LTE early - and continue to do so today - the video delivery challenge presents a massive competitive advantage opportunity.  I am not underestimating the challenge of meeting the demand for video from a network perspective, but for those operators that have the LTE reach and capacity, the next few years will be very interesting.  All of this will be done under the Net Neutrality rules, of course (or for as long as they last in the face of numerous court challenges), but there is little doubt that the OTT providers and the larger mobile operators are going to become friends, one way or another.  And for mobile operators offering their own video content services, the old saying of "keep your friends close but your enemies closer" will be very true.