WILL YOU BE PAYING THE PRICE FOR SERVICE PROVIDERS’ INSISTENCE ON OTT REGULATION?

January 29, 2016

Parliament’s portfolio committee on telecommunications and postal service met on Tuesday 26 January 2016 to discuss the controversial topic of ‘over the top’ (OTT) services and whether there is a need for policy interventions to govern them.

What calls for a meeting like this?

Well, there’s a lot of hype in the telecommunications industry at the moment especially amongst the large providers, like Vodacom and MTN, who feel that OTT services should be governed to instate fairer competition. But also from consumers who are determined to prevent this happening.

Before we discuss this in more detail, let’s go back to the beginning…

What are OTT services?

OTT services are basically any app-based services that run over your data connection, this includes voice-over-Internet protocol (VOIP) – so making calls via Skype, WhatsApp or Facetime – and messaging applications like WhatsApp, Facebook Messenger and Skype.

Background

These services allow cellphone users to make calls or send messages via their data plan at a much cheaper rate than the traditional methods of making calls and sending SMS’s. This has put many of the main providers (like Vodacom and MTN’s) noses out of joint, as quite clearly, the demand for traditional calls and sms’s are reducing, leading to a loss in revenue.

How do the service providers feel about this?

For the last 18 months, the large providers have been quite vocal in expressing their demands to have OTT regulations instated – in particular, Vodacom and MTN. The large providers are disgruntled because the OTT apps use their networks which they’ve spent billions of Rands installing and maintaining, and they don’t get a cent from the OTT providers in return. For these reasons, they are demanding that OTT regulation is implemented.

“You have to regulate them because clearly they’re making a huge amount of revenue on top of the infrastructure that the operators have paid for. Somehow they have to contribute towards the building of this infrastructure,” said MTN South Africa CEO Mteto Nyati

However, Cell C, protecting their reputation as the consumer champion, have a completely different stance. They believe that regulation of OTT services could harm the industry and consumers. This echoes the same sentiment felt by the consumers, and it’s comforting to know at least one of the service providers have the consumer in mind.

How do consumers feel about this?

The main argument rests in the fact that consumers are already paying for the data required to use OTT services, and this money goes straight into the pockets of the networks. So why should OTT services pay anything to the networks? This would only impact the consumer, who’d end up paying higher rates, to compensate for this fee.

Consumers have also been in uproar over the recent hype. And rightly so! Consumers are so determined to stand their ground that they’ve created an online petition calling on South Africa’s government to reject calls by mobile networks to regulate OTT services. At the time of writing, over 4,000 people had already signed the petition. Consumers feel strongly that service providers are being greedy and simply looking for new ways to make even more money. Sadly, this always impacts the consumer, who are already paying cellphone fees that are much too high.

How much are OTT services really hurting the networks?

Tariffic did some calculations to estimate the real effect that OTT services have on the networks.

WhatsApp calling uses around 400kb of data a minute. The operators will make about 5.85c/min (assuming 15c/mb in bundle rates for a 1GB data bundle) on this WhatsApp call. This is about 10% of the revenue they make from a 58c/min voice call (this is Vodacom’s effective average call rate).

The situation gets worse, for the operators, when it comes to SMSs. A WhatsApp text message uses a negligible amount of data (about 30kb) which won’t even bring the operators 1c in revenue, as opposed to the 33c that they’ll earn from an SMS (looking at SMS bundle pricing).

There is one big difference between traditional calls and SMSs and OTT-based calls and messages in South Africa though. When making a call or sending an sms, only one person would pay for that. However, when you make a call on Skype or send a WhatsApp message, both the person sending AND the person receiving would use data. So we would have to double the figures above to really understand how much the operators are making on data used by these OTT services.

As you can see, the networks do have reason to be pretty upset about consumers moving from using (and paying) for their services to the OTT services. But does that justify their crusade against these OTT services?

And what is Tariffic’s take on this controversial debate?

The operators are giving us the data, which we are paying for, but they are now looking to control what we use it for. Can you imagine if Johannesburg Water said, “here’s your water pipe but you’re only allowed to use the water for drinking, and can’t use it to bath or wash your dishes”? It would be completely absurd.

We acknowledge that the operators have invested substantially in infrastructure and that their revenue has been eroded by users moving away from cellular calls and SMSs towards Skype calls and WhatsApp messages. But this hasn’t stopped them from earning billions of Rands from the rest of their operations (Vodacom’s latest results show them earning a revenue of R 62 billion from their South African operations in the last financial year).

As a result, they’re now trying to clutch at straws to increase their revenue in any way they can – and this is the perfect opportunity for them.

If they really wanted to get money from OTT services, they should make their own apps that customers would want to use and should, in fact, be encouraging the use of OTT services which would bring them more data revenue.

South Africa is in dire need of more tech startups, which would help jump-start our economy and provide much needed employment, but the types of potential regulations being discussed would stifle such innovation, especially in the cellular space. Why would the next Mark Zuckerberg even consider building the next Facebook, Whatsapp, or Skype, if they knew they’d be subject to restrictive regulation which benefits the operators? We should be encouraging technological innovations in this country rather than choking it.

Sadly, once again, we see service providers trying to implement changes for monetary growth, rather than to improve the service to their loyal consumers.

What does the future hold for OTT services in SA?

Well, it seems OTT services have already been banned in Morocco. But what’s in store for SA? Will this debate end at WhatsApp, Skype, and FaceTime, or will it be extended to other OTT services like ShowMax, Netflix, YouTube, and every other app on your phone? Look out for our next article which will aim to dissect the key discussions from parliament’s meeting.

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