As Consumer Interest in OTT Services Grows, Telecom Industry Scrambles to React

Data services will propel a 2 percent growth rate for the global telecom market even as the voice market flattens, said the report. “Steady growth” of 4 percent in fixed data services over the period will be led by strong demand for broadband, Ethernet, and high-speed fiber connectivity, said the researcher. “While mobile voice revenues are declining, this sector will be sustained by strong growth in data and other services," said analyst Courtney Munroe.

The Americas will remain the largest telecom services market through 2022 but weakening growth will shrink its market share from 38 percent this year to 36 percent by 2022, said the firm. Asia/Pacific will see a share expansion in telecom services during the period, from 32 to 34 percent, it said, and will be the fastest growing region “due to the thirst for data services,” said analyst Eric Owen. Spending on fixed data services is expected to grow 6 percent in the region, Owen said.

To push past single-digit growth rates, the maturing telecom services market will have to make changes on the supply side with “innovative strategies,” said analyst Denise Lund. "Establishing and growing a base of connections has never been more challenging, yet it is critical to communications service providers that want to claim a stake in the future revenue growth opportunities.”

An ABI Research report cited pressure OTT services are putting on traditional pay-TV operators, with global OTT subscribership forecast to reach 400 million this year. The worldwide OTT video market is expected to grow at a 10 percent CAGR to generate $51.4 billion in 2022.

Pay-TV operators in North America and Europe have jumped into the OTT market to improve churn by providing less-expensive video service and no-contract offerings, noted ABI, citing AT&T's DirecTV Now, Dish Network’s Sling TV and Sky’s Now TV among MVPDs offering both streams and linear channels via the internet. Virtual MVPD services, starting as low as $10 per month, and customized packages, “are attracting cost-sensitive customers,” said analyst Khin Sandi Lynn. Dish’s Sling has more than 2 million subscribers since it launched two years ago and DirecTV Now has pulled in 1.2 million subscribers within a year of launch, “offsetting the subscriber loss of its satellite TV platform,” said Lynn.

Basic MVPD packages are inexpensive, but live sports packages and customization features contribute a higher average revenue per user than other subscription OTT services, said Lynn, citing Hulu and YouTube livestreaming packages launched last year. “As competition intensifies, content and quality of service are crucial to win the OTT war.” OTT video services will continue to put more pressure on pay-TV services, especially in developed markets with high broadband and pay-TV penetration, said ABI.

A Parks Associates survey said 6 percent of U.S. broadband households are “highly likely” to subscribe to an online pay-TV service within the next 12 months, doubling the number subscribing today. Last year, said Parks, a survey showed 14 percent of non-pay-TV households were planning to subscribe to a video service in the next 12 months, and more than 60 percent planned to subscribe to an online pay-TV service, either stand-alone or as part of a service bundle. “Consumers are showing a willingness to test alternate pay-TV offerings," said analyst Brett Sappington.

Some 78 percent of broadband households subscribe to a pay-TV service, and 5 percent of pay-TV households subscribe to an online pay-TV service, said Sappington, citing Sling TV, DirecTV Now, PlayStation Vue, YouTube TV, Hulu with Live TV and fuboTV. "While OTT gives subscribers the opportunity to pick and choose single services, it is easier for them to manage a single bundle.” Such convenience will continue to drive interest in online pay-TV services, "provided they hit the right price point and deliver the desired content channels," he said.