Telcos and Big Tech: Value Creation or Destruction?

Said-Nour Samaké

33rd European Regional ITS Conference, Edinburgh, 2025: Digital innovation and transformation in uncertain times from International Telecommunications Society (ITS)

Abstract: This paper examines how the rise of Over-the-Top (OTT) or Content and Application Provider (CAP) services reshapes the revenue and investment behavior of telecommunications operators in mobile and fixed broadband markets. A micro-founded theoretical framework links OTT engagement to operators’ pricing and investment incentives, and the predictions are tested empirically using a multi-country quarterly panel (2017 Q3–2024 Q2) combining operator and application-level data. The empirical strategy combines multi-way fixed effects, shift-share instrumental variables (SSIV), and dynamic System GMM estimation to address endogeneity and persistence. Results show that greater OTT usage significantly lowers the average revenue per connection (ARPC) in mobile markets. As users access identical OTT platforms through any network, perceived differentiation between operators vanishes. Price competition intensifies under flat-rate plans, preventing operators from monetizing growing data traffic and leading to revenue dilution. In contrast, the effect on fixed broadband ARPU remains weak, reflecting cost-based pricing and utility-type demand. On the investment side, rising OTT traffic increase capital expenditure (CapEx) as operators expand network capacity. In European mobile markets, investment follows an inverted-U pattern with market concentration, peaking at intermediate levels. Revenue losses from OTT usage are also less pronounced in moderately concentrated markets but stronger in fragmented ones. Overall, OTT expansion erodes monetization while compelling operators to invest to sustain rising traffic. This structural tension exposes a trade-off between static efficiency, constrained by declining revenues, and dynamic efficiency, preserved through continued investment. Policy frameworks should balance competition, pricing flexibility, and value sharing between connectivity and content providers.

Keywords: Telecommunication; Two-sided market; Big Tech; CAP; OTT (search for similar items in EconPapers)
JEL-codes: D71 K23 L51 L86 L93 O32 O33 (search for similar items in EconPapers)
Date: 2025, Revised 2025
New Economics Papers: this item is included in nep-com, nep-eur, nep-ict, nep-mac and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:itse25:331303

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