Telecom Operators' Transformation in the OTT Era: Challenges, Virtual Operators, and the Shift Toward IT‑Driven Services

Facing a massive increase in data traffic and the disruptive impact of OTT services, traditional telecom networks must transform; the rise of cloud computing and virtualization renders the hardware‑centric development model obsolete.

Historical misjudgment : When telecom operators were at the core of the ICT value chain, they were seen as strong CT (communication technology) providers but weak IT (information technology) providers. This view led them to treat Internet services as CT value‑added services rather than IT value‑added services, misguiding operators and empowering Internet companies.

The misconception that "Internet is a telecom value‑added service" blurred the distinction between IT infrastructure services and CT infrastructure services, causing the loss of IT‑centric competitive advantage.

In this context, the industry uses the OTT (Over‑The‑Top) metaphor: beans (CT) cannot harvest the fruit (Internet) because the fruit‑growing (IT) actors bypass the beans and pick the fruit.

To avoid missing the true IT value, telecoms should not abandon their core CT business entirely but should focus on a few critical IT foundation services, balancing low‑risk, high‑value IT infrastructure with high‑risk, high‑return IT value‑added services.

Impact of mobile manufacturers : Apple’s software‑based eSIM allows users to switch carriers in the phone settings, threatening the traditional post‑paid contract model and eroding operators’ control over user data. Huawei’s "Tianji Tong" app on Honor phones lets travelers use local networks without swapping SIM cards, further reducing carrier dependence.

Leveraging big‑data techniques to mine user behavior becomes a crucial strategic direction; losing user data would cripple these new business models.

Virtual operator competition : Since the first virtual operator licenses were issued in December 2013, the number of virtual‑operator users grew from 2 million at the end of 2014 to over 11 million by August 2023, with a monthly net increase of about 2 million. They attract customers mainly through cheaper tariffs.

Although virtual operators lack the scale of traditional carriers, they can carve out niche markets with flexible offerings. Google also announced plans to become a virtual network operator to pressure incumbents into lowering data prices and to boost its advertising business.

Domestic three‑major operators’ transformation actions :

China Mobile adopted a comprehensive counter‑strategy, reorganizing nine bases into two companies (Migu Culture Technology Group and an Internet company) to integrate music, games, video, reading, etc., and to revitalize its legacy "Feixin" service.

China Telecom opened up to private capital, allowing internet firms to take equity stakes and creating joint ventures such as the partnership with NetEase for the "Yixin" service.

China Unicom, the smallest of the three, fully embraced internet giants, collaborating with Baidu’s platforms and establishing a venture fund to support internet‑oriented startups.

Leadership reshuffles (e.g., China Mobile’s new chairman, the exchange of chairpersons between China Unicom and China Telecom) are intended to bring fresh perspectives but are not expected to alter the overall market hierarchy.

Operators’ response strategy : Building "soft power" through SDN, NFV, and related technologies should be a priority, as it enables more flexible resource allocation and fuels continuous transformation.

The relationship between Internet data and telecom pipelines can be likened to cargo on a highway: the Internet cares about the cargo (applications), while operators care about the road’s smoothness. Operators should therefore:

Provide fast‑track lanes for important regular customers.

Identify those key customers.

Understand which companies might switch to competitors.

Analyze their pain points.

Analyze traffic patterns to develop new services.

Assess regional development stages.

Current trends show a "de‑telecomization" or "Internet‑ization" of telecoms; success depends on strengthening the previously weak IT layer, seizing the opportunity beyond OTT shadows, and moving toward an IT‑seeded, value‑rich future.

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