Wireless providers make OTT strategy key to future profitability, report says

Despite ongoing concerns about the amount of bandwidth that over-the-top video is taking up on wireless networks, the popularity of the medium means that carriers, including AT&T (NYSE: T), T-Mobile US (NYSE:TMUS) and Verizon (NYSE: VZ), are making wireless OTT a "key pillar" of their future plans, a Wells Fargo analyst research note says.

While each carrier is taking a slightly different path in their respective mobile video strategies, "we believe OTT is a boon for the wireless industry overall," according to analysts Jennifer Fritzsche, Eric Luebchow and Caleb Stein, co-authors of the note, sent to investors on Tuesday.

The question, according to the note, is how carriers will capitalize on mobile video, which currently takes up 55 percent of all mobile traffic and may grow to 72 percent of traffic by 2019, according to a Cisco report.

"VZ's view of the world is that a linear TV asset does not to be owned, as content costs eat up all the margins. Rather, it believes its 108MM wireless base will be a key asset to content players to attract more 'eye balls' and enable VZ to develop new video delivery methods," the analysts noted. "AT&T has taken a diverging path, as evidenced by its purchase of DTV. In T's view, the critical bundle is one that includes broadband, video AND wireless."

The popularity of online video services like Netflix (NASDAQ: NFLX) helped drive growth in the wireline broadband business, the analysts explained as a background, and will likely do the same for the wireless industry. Verizon and AT&T have already begun to shift their strategies to accommodate online video: In 2012, both carriers changed their data pricing to an "a la carte type approach" which gave them more breathing room on the revenue side and will drive future growth, the note said.

While the analysts' conclusion--that mobile video is the real game-changer for the wireless industry--is one that most millennial-aged consumers already share, it's an indicator that yet another traditional market is being swayed by the allure of OTT.

For more:
- see the Wells Fargo site

Related articles:
Mobile data use skyrockets in 2014; is online video to blame?
Analyst questions reports of 'special treatment' deals between ISPs and streaming video providers
Wireless carriers are getting left behind, and it's their own fault

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