Telecom network operators in China are desperately trying to find a way to gain from the fast-growing over-the-top (OTT) internet applications. Operators are losing revenue due to those services, but at the same time are compelled to invest heavily on the networks to handle the growing data traffic. So, what should they do?
Well, China Telecom Corp. (00728.HK), for one, seems to have found an answer. The company is now taking the lead by opening up its network traffic user base as well as billing gateway to more than a hundred app developers to enable them to reach out to its customers.
According to a statement posted on its website, China Telecom has introduced an integrated platform and signed contracts with internet giants such as Tencent Holdings (00700.HK), Baidu.com (BIDU.US) and Alibaba Group Holdings.
The integrated platform represents a key initiative from China Telecom to transform itself from a traditional telecommunications network operator to a so-called intelligent pipeline with a focus on bandwidth management.
Under the agreement, China Telecom will open up its basic network services and engage in data traffic cooperation, breaking away from its traditional network operator mindset. Internet companies can tap the infrastructure to get faster connection, or for bulk purchase of internet data traffic to promote their applications to users on a free data usage basis.
As internet usage emerges as the major revenue source given the rising popularity of smartphones and tablet computers, telecom companies would be expected to rake in huge profit from selling data packages. However, mobile data usage is very expensive when compared with traditional voice services, posing a challenge. Many Chinese hold back on mobile internet surfing to avoid a bill shock. That creates a major obstacle for firms to push new 4G offerings to the mass market.
But now with the open platform of China Telecom, internet service providers can lure customers to use their applications with free data traffic offering, which should remove the psychological hurdle for users to try new services on their phones.
Internet firms can also track their service popularity as well as get to know the user profile better. In return, China Telecom will get paid by the internet firms for those dedicated services, on top of charging standard monthly fees from users.
China Unicom (Hong Kong) (00762.HK) is thinking along the same line too. The company is said to be in talks with Tencent for a tailored service plan for WeChat instant messaging users.
From instant messages to music to mobile video, OTT services have become hugely popular in recent years. But those providers have been criticized by telecom operators for taking a free ride on their networks without paying them, and blaming such services for dragging down overall network quality.
An OTT application is basically any app or service that provides a product over the Internet and bypasses traditional distribution. With cheaper services and disrupting traditional billing models, the OTT applications have caused much heartburn among traditional telecoms firms.
Now, with a new business model in place at telecom operators, internet companies can pay for better network capacity from operators to promote their apps, as well as access users directly.
Operators can focus on managing their networks and preventing data traffic jams while getting properly rewarded for their costly capacity and infrastructure investments.
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