Liu, Chen-Hao; Huang, Kuang-Chiu
Conference Paper
The Hard Decision of Mobile Operators: A Dumb Pipe
or a Value-Added Service Provider
14th Asia-Pacific Regional Conference of the International Telecommunications Society (ITS):
"Mapping ICT into Transformation for the Next Information Society", Kyoto, Japan, 24th-27th
June, 2017
Provided in Cooperation with:
International Telecommunications Society (ITS)
Suggested Citation: Liu, Chen-Hao; Huang, Kuang-Chiu (2017) : The Hard Decision of Mobile
Operators: A Dumb Pipe or a Value-Added Service Provider, 14th Asia-Pacific Regional Conference of
the International Telecommunications Society (ITS): "Mapping ICT into Transformation for the Next
Information Society", Kyoto, Japan, 24th-27th June, 2017, International Telecommunications Society
(ITS), Calgary
This Version is available at:
https://hdl.handle.net/10419/168492
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The Hard Decision of Mobile Operators:
A Dumb Pipe or a Value-Added Service Provider
Kuang-Chiu Huang
1
, Chen-Hao Liu
2
Institute of Telecommunications Management, National Cheng Kung University, No.1,
University Road, Tainan City 701, Taiwan
Abstract
With progress of communication technologies, it enables rapid development of all
kinds of services over the Internet, and we call these services with a name as over the
top (OTT). The penetration rate of 4G has increased rapidly and also increased mobile
operator’s revenue. With the increase of digital convergence demand and other video
platforms appear, it can be predicted the level of complex and competition will rise in
whole market. The business expansion from scale of economies and the popularity of
flat rates all have provided some convenience for people to surf and enjoy OTT services
with no worry. However, the mobile Internet service providers (ISPs) have increase the
number of market penetration rate quickly and have to deal with huge mobile traffic
generated from OTT services. Video streaming accounts for 58 percentages in all
mobile data traffic from a recent survey and it indicates that OTT videos streaming
services convert mobile operators to be dumb pipes. If mobile operators have to
maintain quality of service, they need to invest more money to upgrade their
communication infrastructure.
Although voice of IP (VoIP) services provided by Facebook, line and Skype do not
consume huge amount of mobile bandwidth, it decreases mobile operator’s’ voice
revenues and average revenue per user (APRU) significantly. Moreover, the revenue of
SMS from mobile operators decline dramatically, too. Therefore, the paper addresses
whether mobile operators are capable facing the impact of OTT videos and VOIP, to
cope with emerging challenges from OTT services.
In Taiwan, all mobile operators have developed their OTT platforms, and some
mobile operators bundle their OTT services and mobile Internet service together to
1
Author. E-mail address: [email protected]w (K.-C. Huang), Assistant Professor, Department
of Transportation and Communication Management and Institute of Telecommunications Management,
National Cheng Kung University, Tainan City, 70101 Taiwan.
2
Corresponding author. E-mail address: k0939152880@hotmail.com.tw (C.-H. Liu), Master Student,
Institute of Telecommunications Management, National Cheng Kung University, Tainan City, 70101
Taiwan.
make more attractive for reducing churn rates and increase ARPU. In addition,
cooperation with content providers and mobile operators are necessities and large scale
of merger and acquisition (M&A) between AT&T and Time Warner to enrich their OTT
capacities also emerged.
This paper discusses different options of mobile operators to cope with OTT
challenges. 1. Mobile operators choose to be dumb pipes and upgrade their
infrastructures aggressively, and adopt strategic alliance with OTT service providers. 2.
Mobile operators aggregate contents to develop OTT platforms by themselves to
compete with other OTT services providers.
In addition, the paper also how do asymmetric regulations between BISPs and
OTT service operators affect the competition between mobile operators and OTT
service providers. One is network neutrality and the other is data protection of personal
privacy. Network neutrality has been discussed and debated for many years with
different kinds of interpretation, but restrictions of selling personal data for mobile
operators can produce more notable effect. OTT service provides can sell customer data
to make profits whether mobile operators can sell customer data with precise location
data.
In order to study the competition between mobile operators and OTT service
providers clearly, we propose, basing on mobile operator’s perspective, six options from
pure wholesale dumb pipe to fully bundle service provider.
1. Wholesale only. It means mobile operators won’t contact consumers directly,
and provides their spectrum and infrastructure to mobile virtual network
operators(MVNO).
2. Retail only. It means mobile operators focus on their mobile business (e.g.
voice business and mobile data business) and don’t get involving in developing their
OTT services.
3. Wholesale and retail together. But mobile operators do provide OTT services.
4. Wholesale, retail and strategic alliance with OTT service providers. Mobile
operator do develop their own OTT services but take strategic alliance with other OTT
service providers and bundle those services together.
5. Wholesale, retail, and develop their owned OTT platforms. Mobile operators
can produce contents by themselves or purchase copyright from channel operators and
other content providers.
6. The last option is to combine all of above five options.
This study adopts cost-benefit analysis to compare total cost and benefit and assess
profitability of each option, because cost-benefit analysis can provide quantitative
number to aid for analyzing each option and obtaining a clear picture for input and
output.
The research outcome not only can depict the competition between mobile
operators and OTT service providers clearly but also offers a valuable reference for
NRAs, mobile operators and OTT service providers about how to regulate and how to
compete with difference scenarios and options.
Keywords: OTT, mobile operators, competition, asymmetric regulations, business
strategy, options.
1. Introduction
With progress of information and communication technologies (ICT), it enables
rapid development transition of all kinds of services from analog to digital over the
Internet, and these services have a set name as over the top (OTT). The penetration
rate of the fourth generation (4G) has increased quickly and also enhanced mobile
operator revenues. With the development of digital convergence from streaming music
and video, on-line games, social network, and sharing economic model from AirBNB
and Uber, the impacts of OTT has been unleashed and the trend would change the old
business model and force broad Internet service providers (BISPs) make some hard
decisions. The business expansion from scale of economies and the popularity of flat
rates all have provided some convenience for people to surf and enjoy OTT services
with no worry of unaffordable bill of mobile data charges. However, the mobile Internet
service providers (MISPs) have increased market penetration rates quickly and need to
deal with huge mobile traffic generated from OTT services. Video streaming accounts
for 58 percentages in all mobile data traffic from a recent survey and it indicates that
OTT videos streaming services convert mobile operators to be dumb pipes. If mobile
operators have to maintain quality of service, they need to invest more money to
upgrade their communication infrastructure.
Although voice of IP (VoIP) services provided by Facebook, Line and Skype do
not consume huge amount of mobile bandwidth, they have decreased mobile operator’s’
voice revenues and average revenue per user (APRU) significantly. Moreover, the
revenue of SMS from mobile operators decline dramatically, too. Therefore, the paper
addresses whether mobile operators are capable to confront the impacts of OTT videos
and VOIP, to cope with emerging challenges from OTT services. In Taiwan, all mobile
operators have developed their OTT platforms, and some mobile operators bundle their
OTT services and mobile Internet service together to make more attractive for reducing
churn rates and increase ARPU. In addition, cooperation with content providers and
mobile operators are necessities and large scale of merger and acquisition (M&A)
between AT&T and Time Warner to enrich their OTT capacities also emerged.
This paper discusses different options of mobile operators to deal with OTT
challenges. 1. Mobile operators choose to be dumb pipes and upgrade their
infrastructures aggressively, and adopt strategic alliance with OTT service providers. 2.
Mobile operators aggregate contents to develop OTT platforms by themselves to
compete with other OTT services providers. In addition, the paper also how do
asymmetric regulations between BISPs and OTT service operators affect the
competition between mobile operators and OTT service providers. One is network
neutrality and the other is data protection of personal privacy. Network neutrality has
been discussed and debated for many years with different kinds of interpretation, but
restrictions of selling personal data for mobile operators can produce more notable
effect. OTT service provides can sell customer data to make profits whether mobile
operators can sell customer data with precise location data.
2. Literature Review
The first part of literature review discusses user behavior change, it causes mobile
operators have to confront the challenge from OTT services. The second part is
domestic and foreign mobile operators’ strategies, we can analysis their strategies and
think how to help mobile operators in this study. Besides, definition and implement
scenarios of cost benefit analysis and sensitivity analysis are introduced in the last part
referring to related precedent cases.
2.1 User Behavior Change
According to the institute for information industry report, user’s behavior of
watching video has been changing. Most of users have used smart phones to watched
OTT videos. With progress of high speed 4G technology, video’s demand and
dependence of users is getting higher. The institute for information industry issues
questionnaires for using smart phones and 4G Internet users. There are more than 70%
of the users have used mobile devices to watch online streaming videos, and compared
with 2014, the proportion increased from 69.9% to 75.7%. We can see the ratio
increased significantly.
2.2 Domestic and foreign mobile operators’ strategies
Blocking OTT
When mobile operators confront the challenge from OTT operators, the first
strategy is operators can adopt a short term strategy wherein they can decide to deny
users the access to the OTT services. However, it is a short term strategy and has a high
dependency on net neutrality policies in a given country; moreover it is detrimental to
the business as it will limit the revenue-generation possibilities for the operator through
increased data usage. It should be noted that the strategy only work if all the operators
adopts same strategy simultaneously. Example:
A. In South Korea, after being pressurized by CSPs KT and SK Telecom, the
national regulator sanctioned the blocking of Kakao Talk Service. Telecom companies
in many countries have either blocked Skype or slowed down the speed of Skype traffic
however users can get access to the blocked content using VPNs. Finally, KT and SK
Telecom charges Kakao to let users use this service but this strategy had aroused protest
from Korea people, they think it has already violated the internet neutrality.
B. In UAE, Etisalat (mobile operator) has blocked the Skype and other VoIP
services for using their network and decreasing their revenue, blocking OTT strategy
has been possible only because of UAE is a highly regulated market and Etisalat has the
support of telecom regulator.
Bundling with OTT
Bundling of services is another strategy which can be followed. Many operators
are resorting to this strategy wherein they are bundling offers in such a way that the lure
of financial saving by using OTT services becomes less enticing. For example in case of
SMS services, they are trying to extract a base revenue from users in the form of a fixed
free for the SMS package and then charging data based on actual usage. Thus by
bundling data or voice package with SMS plan, at an affordable price operators can
maximize their revenues and at the same time reduce the threat of OTT services.
However, this would only help the operator retain some level of customer loyalty for a
short time period. Content bundling is another innovative way of operator to bundle the
data intensive OTTs like Video apps (Netflix) with their normal voice subscription plans
to encourage the customer for using these apps thus driving the increased data usage or
decreased churn rate. Example:
A. After a failed attempt to block Skype, European mobile operator TeliaSonera
offers Skype with select data plans. Many Indian telcos such as Tata Docomo, RCom,
Airtel among others have plans specifically for whatsapp, Facebook, saavn services.
B. Taiwan mobile operator T-star offers a new tariff which bundle with OTT
operator i-QIY. It can be subscribed with lower price. T-star offers this strategy planning
to decrease churn rate and increase new subscribers.
Partnering with OTT
Partnering with the opponent can be a good strategy when it is difficult to beat
them at their game. Many Mobile operators are already adopting this strategy wherein
they are partnering with the OTT players and benefit from their traffic. The strategy has
enabled the operators to keep the traffic and gain a share of the revenues. Mobile
operators also cooperate in their consumer information, money and technology.
However, the operator has limited or almost no control on the direction as well as
quality of the services offered through these partnership deals. This may adversely
affect their relationship with their customers. Examples:
A. DiGi telecommunications, a Malaysian mobile service provider, has partnered
with WhatsApp provider as a result of which the DiGi customers can get unlimited
access to WhatsApp service for a fixed fee. Same strategy has also been adopted by 3
Hong Kong, a mobile network operator and broadband service provider in Hong Kong
and by reliance Communications in India.
B. Aircel partnered with Nimbuzz and promoted their partnership, in the state of
Jammu and Kashmir wherein the Aircel via SMS informed and encouraged its
subscribes to download Nimbuzz application whereby 40 MB of data usage would be
transferred for free to those subscribers who would download and activate the
application within a time span of 24 hours.
Developing their Own Services
Another long term strategy which can be adopted by mobile operators would be to
introduce its own OTT service. This will enable them to have full control over the
service and interact with more consumers. However, the investment required for such an
approach is quite high and the approach is risky for mobile operators as they do not
have the necessary skills to launch such services. Example:
A. T-Mobile USA has launched Bobsled, Telefonica Digital has introduced Tu
Me service both of which offer free voice and texts. Orange have also launched their
own branded OTT communication services namely Libon. Similarly, Comcast has
started providing web access to its films and TV shows in order to compete with
Netflix.
B. AT&T mergers with Time Warner, this acquisition makes both of them more
influential. AT&T wants to make use of Time Warner’s content to expand their OTT
video platform, like CNN and HBO.
2.3 Cost-Benefit Analysis
Cost-benefit analysis is a technique that provides a systematic and consistent
procedure for evaluating the best approach for the adoption and practice in terms of
benefits in labour, time and cost savings. CBA is also defined as a systematic process
for evaluating and comparing costs and benefits from different decision, policies and
projects. Processes of cost benefit analysis are standardized by Weimer and Vining in
2015. First, define more specific impact categories in terms of goal and decide which
costs and benefits should be counted. Items of cost and revenue are delineated in details
in this step. Next, quantify or monetize these items. Treatment of non-monetized cost
and benefits, for example devoted opportunity cost or users’ willingness to pay, is to
describe reasons of non-monetized, impacts and limitation. As to treatment of
uncertainty and risk, sensitivity analysis and Monte Carlo analysis are applied to
observe relationship of manipulated parameters and results (Campbell & Brown, 2003).
The last step is applying economic benefit assessment index such as Net Profit Value
(NPV), Internal Rate of Return (IRR), Benefit-Cost Ratio to calculate present value and
select the best option.
In 1970, the concept and quantification theory of CBA was introduced in Taiwan.
With maturity of concepts and techniques, CBA was implemented in the decision
making process of several fields including agriculture industry, environment protecting
and transportation and etc. And since democratization, economy liberalization and
economic growth in Taiwan in 1990s, the government began to emphasize on how to
utilize limited resources on account of maximization (Kuo, 2007). CBA is now valued
in both public departments and private enterprises for evaluation of strategy decision
and assessment of finance allocation.
Nowadays CBA is widely used to appraise investment plans. There are two cases
applying in media industry. New Zealand government commissioned independent
spectrum strategy consultant institute ‘Free to Air ’ in 2005 to proceed in DTT
development research implementing cost benefit analysis (Lin, 2008). ‘High quality
television development plan’, which was executed by Bureau of Audiovisual and Music
Industry Development (MOC), estimated budget distribution and expected benefit
including domestic broadcasting benefit and oversea sale benefit to discuss whether
proposed plan generate economic profit.
Net Present Value
Net Present Value (NPV) is a measure applied in capital budget to evaluate a
project's potential return on investment. Time value of money is considered in NPV
using discount rate to estimate cash inflow and outflow for each period. The function is
as follows:
∑
R
t
−C
t
(1+i)
n
−C
0
n
t=0
′Rt ′ means revenue generated before year ‘t’, ′Ct ′represents investment in year ‘t’,
‘i’ is discount rate, C0 is initial capital invested in the project.
The study adopts NPC as economic revenue evaluation index. Generally, the
decision maker chooses the strategy with positive NPV. In this study, we select the best
strategy with highest NPV value. As to evaluation of uncertain factors, the study adopt
sensitivity analysis to figure out which variable parameters lead to more significant
influence on cost and benefit items.
3. Research Method
Strategy Analysis of Mobile Operators
In order to study the competition between mobile operators and OTT service
providers clearly, we propose, basing on mobile operator’s perspective, six options from
pure wholesale dumb pipe to fully bundle service provider.
1. Wholesale only. It means mobile operators won’t contact consumers directly, and
provides their spectrum and infrastructure to mobile virtual network operators
(MVNO).
2. Retail only. It means mobile operators focus on their mobile business (e.g. voice
business and mobile data business) and don’t get involving in developing their
OTT services.
3. Wholesale and retail together. But mobile operators do provide OTT services.
4. Wholesale, retail and strategic alliance with OTT service providers. Mobile
operator do develop their own OTT services but take strategic alliance with other
OTT service providers and bundle those services together.
5. Wholesale, retail, and develop their owned OTT platforms. Mobile operators can
produce contents by themselves or purchase copyright from channel operators and
other content providers.
6. The last option is to combine all of above five options.
Wholesale + Retail +Develop their OTT video
service
Dumb Pipe
Value-Added
Service Provider
Wholesale only
Retail only
Wholesale + Retail
Wholesale + Retail + Bundle with OTT service
Wholesale + Retail + Bundle with OTT service + Develop their own
OTT video service
Figure1. The figure of strategy
This study adopts cost-benefit analysis to compare total cost and benefit and assess
profitability of each option, because cost-benefit analysis can provide quantitative
number to aid for analyzing each option and obtaining a clear picture for input and
output.
The research outcome not only can depict the competition between mobile
operators and OTT service providers clearly but also offers a valuable reference for
NRAs, mobile operators and OTT service providers about how to regulate and how to
compete with difference scenarios and options.
Table1. The item of cost benefit analysis
Table2. Variable parameter table
Item
Strategy1
Strategy2
Strategy3
Strategy4
Strategy5
Strategy6
Wholesale Benefit
Retail Benefit
Bundle OTT Service Benefit
OTT Video Platform’s
Advertisement Benefit
Subscription Benefit
Bundle OTT Service Cost
Develop OTT Platform Cost
Content Coding Cost
Rent Cost for Cloud and Bandwidth
OTT Platform Content Cost
Content Purchase Cost
Spectrum Cost
Spectrum Bidding Cost
Spectrum Using Cost
Parameter
Parameter Abbreviation
Original Churn Rate
OCR
New Churn Rate
NCR
Total Customers
TC
Number of Viewing per Month
N_VM
Number of Own OTT Platform Subscribers
NS_OTT
Price Difference in Bundling OTT service
PD_BOS
Number of Choosing Bundling OTT Service Tariff
N_CBOST
Number of Buying Movie of Each Set
NOMES
X
, x≥0
4. Model Analysis
Before going to analyzing the results, we separate strategies in two parts by
strategy characteristic. Strategy 1, 2 and 3 cover a large range of business, including
voice and data revenue. With bundling OTT service and developing their OTT video
platforms is only a part of the overall business. Compared to the wholesale and retail
business, it covers a small range of business and the user it impacts is less. Therefore,
we compare strategy1, 2 and 3 together, and strategy 4, 5 and 6 together.
Strategy 1: Wholesale only
In calculating the net present value of the wholesale only, n is the forecast for the
next 10 years, R_t has Wholesale Benefit, C_t has Spectrum Using Cost, C_0 is the
Spectrum Bidding Cost in the beginning and i is discounting rate 3.83%.
Strategy 2: Retail only
In calculating the net present value of the retail only, n is the forecast for the next
10 years, R_t has retail benefit, C_t has Spectrum Using Cost, C_0 is the Spectrum
Bidding Cost in the beginning and i is discounting rate 3.83%.
Strategy 3: Wholesale + Retail
In calculating the net present value of the wholesale and retail, we assume that
each business account for 50%. n is the forecast for the next 10 years, R_t has 50%
retail benefit and 50% wholesale benefit, C_t has spectrum using cost, C_0 is the
spectrum bidding cost in the beginning and i is discounting rate 3.83%.
Table3. The result of estimation in strategy 1, 2 and 3
Year
Strategy1
Strategy2
Strategy3
2017
4,724,845.517
9,860,912.843
7,292,879.178
2018
4,351,877.497
9,298,489.576
6,825,183.537
2019
3,993,324.691
8,757,470.005
6,375,397.348
2020
3,665,164.01
8,253,573.249
5,959,368.630
2021
3,349,108.263
7,768,263.844
5,558,686.054
2022
3,044,710.934
7,300,856.153
5,172,783.544
2023
2,751,541.997
6,850,689.833
4,801,115.905
2024
2,469,187.207
6,417,128.897
4,443,158.052
2025
2,197,247.719
5,999,560.817
4,098,404.268
2026
1,935,339.323
5,597,395.663
3,766,367.493
NPV
32,482,347.16
69,534,340.88
54,293,344.01
Figure2. The result of estimation in strategy 1, 2 and 3
Strategy 4: Wholesale + Retail + Bundle with OTT service
In calculating the net present value of wholesale, retail and bundle with OTT service,
we have to add the cost and benefit of bundle OTT service. n is the forecast for the next
10 years, R
t
has wholesale benefit, retail benefit and bundle OTT service benefit, C
t
has spectrum using cost and bundle OTT service cost, C
0
is the spectrum bidding cost
in the beginning and i is discounting rate 3.83%. The equation is below:
Bundle OTT Profit(year)=(OCR-NCR)×TC×AP_T
Operation Fee(year) = (PD_BOS×N_CBOST) ×12(month)
Strategy 5: Wholesale + Retail + Develop their OTT video service
In calculating the net present value of wholesale, retail and develop their OTT video
service, we have to add the cost and benefit of develop OTT video service. n is the
forecast for the next 10 years, R
t
has wholesale benefit ,retail benefit, OTT video
platform’s advertisement benefit and subscription benefit, C
t
has spectrum using cost,
content coding cost, rent cost for cloud and bandwidth and content purchase cost, C
0
is
the spectrum bidding cost and content purchase cost in the beginning. i is discounting
rate 3.83%.
Strategy 6: Wholesale + Retail + Bundle with OTT service + Develop their
own OTT video service
In calculating the net present value of wholesale, retail, bundle with OTT service and
develop their OTT video service, we have to add the cost and benefit of bundle with
OTT service and develop OTT video service. n is the forecast for the next 10 years, R
t
has all the benefit items, C
t
has all the cost items, C
0
is the spectrum bidding cost and
content purchase cost in the beginning. i is discounting rate 3.83%.
Strategy1
Strategy2
Strategy3
Table4. The result of estimation in strategy 4, 5 and 6
Year
Strategy4
Strategy5
Strategy6
2017
7,293,534.136
7,257,852.258
7,258,507.216
2018
6,825,694.486
6,777,519.125
6,778,030.075
2019
6,375,774.024
6,327,234.589
6,327,611.265
2020
5,959,675.826
5,909,468.985
5,909,776.181
2021
5,558,874.850
5,506,773.090
5,506,961.886
2022
5,172,862.257
5,118,832.904
5,118,911.617
2023
4,801,142.056
4,745,180.608
4,745,206.759
2024
4,443,135.413
4,385,304.801
4,385,282.162
2025
4,098,382.464
4,038,701.907
4,038,679.268
2026
3,766,257.768
3,704,883.885
3,704,774.160
NPV
54,295,333.28
53,771,752.15
53,773,740.59
Figure3. The result of estimation in strategy 4, 5 and 6
Strategy4
Strategy6
Strategy5
5. Conclusion and suggestion
The main purpose of this research is to find the best strategy and provide useful
suggestions for mobile operators. The result of this research is described in section 5.1,
and research suggestions in section 5.2. Then the limitations of the research are
mentioned in last section.
5.1 Summary of the Results
This study aims to analyze the Taiwan telecom operators adopted strategies when
facing the challenges of the OTT industry. The Analyzing outcome indicates telecom
operators should maintain their dumb pipe service as the cash cow and develop as many
as OTT value added services as they could. To build their owned OTT video platform is
one of the options. With the different strategies, there are also different revenue
generation avenues. (e.g., advertisement, subscription fees and the benefit of bundle
OTT video). At the same time, it should summarize the cost items needed to invest in
different strategies and also builds a cost-benefit model. After estimating the each
strategies of a cost-benefit analysis, it can provide the appropriate strategy for the
telecoms operators. The results of estimating are as followed:
Strategy 1: Mobile operators choose to continue be a dumb pipe and wholesale
only will have the least benefit. The advantage is that do not have to contact with
customers directly and responsible for the customers services, and the challenge form
OTT service providers will be confronted by MVNOs. Mobile operators adopt this
strategy have less risk. However, there has no chance to create new revenue except the
revenue from rental infrastructure and spectrum.
Strategy 2: Mobile operators choose to continue be a dumb pipe and retail only
will have the most benefit. They have to provide service to consumers directly, but they
can provide innovative services for customers. However, they have to take the risk when
providing innovative service. Moreover, they can’t solve the challenges from OTT
operators effectively.
Strategy 3: Mobile operators choose to continue be a dumb pipe and adopt retail
and wholesale will be the third best in all strategies. The advantage is they can not only
benefit from rental spectrum to the MVNOs, but also operate their own mobile business.
Compared with strategy two, this strategy can release data usage and spectrum pressure
from OTT operators. If mobile operators’ mobile business has been impact seriously,
they can adjust the rental spectrum costs as a balance. This strategy will be more
flexible.
Strategy 4: When mobile operators choose to provide bundling OTT service, it will
be the second best in all strategies. It can bring positive profit, but it will start reduce
after strategy begin eight years. The reason is that the reduction in customer churn rate
has limited effect as time goes on. When the churn rate is no longer significant, the cost
of the Bundle OTT service will surpass the benefits. This study will show that Bundling
OTT service has been effective in previous years, but when the reduction of customer
churn rate is no longer significant, it will lead to lost in in business.
Strategy 5: When mobile operators choose to develop their OTT video service, it
will be the fifth best in all strategies. Most of Taiwan's mobile operators operate their
OTT video platform is showing a loss. OTT video platform decisive key lies in the
platform content. There has too many competitors, and most users tend to subscribe to
the platform which has popular content. Content in Taiwan mobile operators’ OTT
platform can’t compete with the OTT operators like LiTV, Netflix and i-QIY. Therefore,
if mobile operators can’t invest more money in purchase content, they won’t have
ability to compete with extensive OTT operators.
Strategy 6: When mobile operators choose to provide bundling OTT service and
develop their OTT video service, it will be the fourth best in all strategies. We can know
that the profit in strategy 4 can’t balance the deficit in strategy 5. Therefore, it also
presents a lower efficiency than the business of wholesale and retail.
5.2 Suggestions of the research
There are three suggestions for mobile operators in our research. The first one is
mobile operators have to pay attention how to deal with churn rate. It’s very important
whether the degree of decline in churn rate can balance the cost in bundling OTT
service or not. The subscribers of bundling with OTT service will not only be the
customers who choose to stay for this strategy, but also the customers who choose to
stay in the beginning. Therefore, mobile operators have to pay attention when the
strategy goes on.
The second suggestion is mobile operators have to provide not only the OTT video
platform, but also the platforms integrate other value-added services like shopping,
music, mobile payment and games. When mobile operators develop their OTT platform,
they have to confront many foreign OTT video service providers, for example, Netflix,
i-QIY and Dailymotion. The content costs of these foreign OTT service providers are
lower than Taiwan mobile operators. To compete with these OTT service providers, the
main goal is to provide consumers attractive and famous video content. However, the
content copyright costs and investment risks have to evaluate seriously.
The third suggestion is mobile operators have to generate extra income resources.
When mobile operators confront the challenge from OTT service providers, the extra
income resources could be make good use of user’s personal information. Based on user
privacy regulations in Taiwan, mobile operators can’t sell and use the user information
legally. However, the US Senate rejected the privacy rules established by the Federal
Communications Commission (FCC) by 50 to 48 on March 24, 2017. They intended to
allow mobile operators to sell user’s personal information without having to get their
consent. Although the rules are still need to verify by the relevant agencies, it can
indicate that mobile operators pay attention for these income resources. Consumers can
choose the mobile operators they preferred easily when mobile operators adopted the
two methods of protecting privacy or not. We considered the best strategy for mobile
operators is price discrimination with providing several of choose (e.g., mobile
operators will provide higher cost when users choose not to provide their information,
and vice versa). On the contrary, the level of extra cost depend on the market
equilibrium of supply and demand (i.e., consumers can accept the range and
management level of privacy strategy of mobile operators).
5.3 Limitations of the research
The cost-benefit analysis relies on accurate information. In this study, the initial
parameter values are limited by the latest data and commercial confidential. Therefore,
there are several assumptions of parameters are made by ourselves without historical
data or can’t obtain. The research limitations of this study were listed as followed:
1. We can’t obtain the key data in the strategies which select wholesale. Therefore, it
can only calculate in traffic and voice. If the relevant information is available in the
future, we can estimate the result more accurately.
2. Churn rate can’t obtain because Taiwan’s mobile operators choose to bundle with
OTT service recently. The decline in churn rate will affect the calculation results.
Moreover, the subscribers of bundling with OTT service don’t have the exact number
and growth rate. It will be able to obtain accurate information to calculate after the
strategy operating for longer.
3. In the calculation of the mobile operator’s OTT video platform subscribers, we use
Chunghwa Telecom’s OTT video platform subscribers growth rate to estimate. Due to
OTT video industry changes rapidly, there are too many competitors. Therefore, it is
difficult to predict whether mobile operators will reinforce for the lack of their OTT
platform or not. It will also affect the growth rate of subscribers in the future.
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