Discussion Papers

No. 409: The Market for Over-The-Top Services in Germany 

Authors: René Arnold, Christian Hildebrandt, Martin Waldburger
June 2016

(Full Version only available in German language)  


Consumers appear to find traditional communication services such as telephony and SMS less and less attractive in recent years. While both landline telephony and SMS have been declining, mobile telephony is practically stagnating. Over-the-top (OTT) communications services are becoming more popular. A similar trend is observable for content providers. In this sector, new entrants that use the Internet as their distribution platform are very successful. The public debate on the Level Playing Field just as well as the implications that the increased usage of OTT service hold for National Regulatory Authorities’ (NRAs) duties begs the question if there is any substitution of OTT services for Electronic Communication Services (ECS) and how this can be characterized.  

This discussion paper uses a representative sample of German consumers to explore the alleged substitution. It emerges that consumers use OTT services in situations where they used to rely on ECS. However, various communication opportunities are only enabled by OTT communications services. For the current debate, the fact that OTT communications services’ additional features and functionalities such as sending picture-, video- and voice messages are the most important drivers for consumers’ preferences is most significant. This implies that the observed switching from ECS to OTT services is not a like-for-like substitution. Instead, it is a fundamental change in consumers’ communication behaviour.  

It is equally difficult to apply the rules of German telecommunications law (TKG) solely on the criterion of similar functionality as it is sometimes suggested in the public debate. If applied to broadly this criterion may cause significant collateral damage. If applied too narrowly it would imply that in many cases only parts of a specific OTT service have to adhere to the rules of the TKG. The latter would not only be technically difficult to achieve, but also falls short of a plausible rationale. Market research that can capture consumers’ actual behaviour can shed light on the true competitive relationship between ECS and OTT services. Thus, it can identify the services to include e.g. in Significant Market Power (SMP) analyses. One of market research’s critical advantages is its abilities to follow the most dynamic market developments that characterize the current digital business environment.  

Finally, this discussion paper shows that for both OTT communication services as well as for music and video streaming there is a statistically significant correlation between usage intensity and consumers’ willingness-to-pay for more bandwidth, more high-speed data volume on their mobile plans and high quality mobile devices. Consequently, the rise of OTT services also holds a large potential for telecommunications providers.  

Discussion Paper is available for download.

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