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Telcos and Big Tech: Value Creation or Destruction?

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  • Samaké, Said-Nour

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.

Suggested Citation

  • Samaké, Said-Nour, 2025. "Telcos and Big Tech: Value Creation or Destruction?," 33rd European Regional ITS Conference, Edinburgh, 2025: Digital innovation and transformation in uncertain times 331303, International Telecommunications Society (ITS), revised 2025.
    • Handle: RePEc:zbw:itse25:331303
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    File URL: https://www.econstor.eu/bitstream/10419/331303.2/1/ITS-E-2025-58rev.pdf
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    References listed on IDEAS

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    JEL classification:

    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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