Telcos and Big Tech: Value creation or destruction?

This paper estimates the causal impact of OTT/CAP expansion on telecom operators' mon-etization and investment in mobile and fixed broadband markets. We construct an original quarterly operator-application panel (2017Q3-2024Q2) linking revenue per connection and capital expenditure to application-level engagement across a large cross-country sample. The empirical strategy combines a microfounded framework, multi-way fixed effects, and a Bartik shift-share instrumental-variable design exploiting plausibly exogenous shocks to application popularity. To our knowledge, this integrated approach is novel in the literature. The results reveal a clear capacity-monetization gap. In mobile markets, instrumented increases in OTT engagement reduce average revenue per connection (ARPC), including its data component, with stronger effects at higher engagement intensity. In fixed broadband, ARPU shows no robust response to OTT engagement, consistent with flat-rate pricing. On the supply side, OTT engagement increases CapEx in both mobile and fixed networks, consistent with traffic-induced capacity upgrades. Market structure shapes these effects non-linearly: total mobile ARPC follows a U-shaped relationship with concentration, whereas data ARPC declines in highly concentrated mobile markets. Mobile investment peaks at intermediate concentration. In the European subsample, the main patterns persist, and the negative effect of OTT engagement on mobile ARPC is attenuated in more concentrated markets. Overall, OTT usage is associated with higher capacity requirements but weaker monetization per connection, intensifying the policy challenge of sustaining network investment and value sharing between Big Tech and telecom operators.