Telefonica has been among tier-one telcos in Europe investing in over the top applications and services of various types, including Jajah. Recently, Deutsche Telekom invested in messaging provider Pinger.

Telefonica also is investing between €50,000 and €75,000 in 10 U.K.-based start-ups. You might argue those investments are not great, when compared to Telefonica’s global capital investment, but they suggest a developing trend.

Facilities-based service providers generally believe that over the top services are a threat to traditional telco services, whether mobile or fixed. That mostly is true. But there is no realistic possibility of suppressing such developments.

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The “easy” advice many will start to offer is that telcos will, over time, find themselves more actively involved in over the top services and apps, one way or the other. But such advice is easy to give when it is directed to what somebody else should do about their business.

As a practical matter, over the top, whether “owned” by a telco or by third parties, is at best a double-edged sword. That is no argument against doing so; simply a reflection of the tough financial trade-offs.

To the extent that over the top apps are a permanent fact of life, telcos have to decide when, and how, to participate in any available revenue streams over the top apps and service represent. But it never is easy to quantify the precise impact the offering of such apps could have on existing telco-provided services.

The financial impact could be quite different in the consumer and business customer segments, for example.

Over the past decade, many telcos have had to quantify the impact of switching rapidly from legacy voice to VoIP, for example. At best, such moves might be revenue neutral. In other words, switching to consumer VoIP, though requiring investment, might not actually increase revenues.

But some might argue that a switch to VoIP could actually decrease revenues. That especially would be the case if service providers decided to match competitor prices to some extent, dropping voice tariffs across the board.

For that reason, many have decided the wiser course is simply to allow VoIP competitors to take some market share, and preserve the existing tariff regime. In practice, especially when telcos offer triple-play or quadruple-play bundles, there is some price discounting, and the issue is how to characterize or “book” those multi-service discounts.

The business case for enterprise and small business or medium business customers is more complex, and, in principle, should boost revenues.
The point is that, up to this point, refraining from directly and actively offering over the top services and apps.

Analyst Dean Bubley thinks telcos should themselves accelerate their involvement in specific types of over the top initiatives. Some of the approaches might be deemed more achievable than others, though. Bubley argues telcos could create their own Web apps, extend on-network services to off-network users and develop cloud apps.

Some might argue the odds of telcos creating the next Facebook are slim, but that many other efforts to create over the top consumer-focused content services could be a reasonable expectation. Perhaps more “reasonable” are over the top enterprise apps.

Sooner or later, that sort of advice is going to make more sense. Precisely how that happens is not so clear, and there are serious implications.

To the extent that an embrace of over the top services starts to make practical sense, service providers will have to ask themselves how much they can afford to invest in their legacy businesses. Only so much capital can be invested, in any given year. What doesn’t get funded so capital and operating expense can be shifted to support of new over the top apps?

This will be anything but easy.

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