February 04, 2016

Not sure what OTT services are? Want to catch up on the recent OTT news? Then read our previous article where we introduce the OTT debate that’s been heating up the telecommunications industry.

There’s been a very-public debate in the telecommunications industry recently. It’s all been about the regulation of OTT services. A meeting was held by Parliament’s Portfolio Committee of Telecommunications and Postal Service last Tuesday.

Here, we saw many big players voicing their strong opinions both for and against OTT regulation; including research companies, Government, MTN, Facebook, Cell C, Google, Microsoft and the Internet Service Providers’ Association (ISPA).

Considering a full day was used to discuss this issue, was the outcome what we expected?

First up to voice their opinion was Dr Alison Gillwald, executive director of research ICT Africa, who cautioned against the use of OTT regulation. Her sentiment demonstrates that OTT is both a blessing and a curse. She said that cheaper smartphones are “driving data take-up” but that “operators are anxious about becoming dumb pipes”. On the other hand, though, she makes a good point by saying that services such as WhatsApp and Skype are opening up access to the internet for the poor and providing services that would not normally be accessible for them.

She said that they need to allow innovation or risk stifling the sector. She also reminded those present that OTT services create a growth in data usage, which ultimately benefits providers. This is evident in Vodacom and MTN’s impressive revenue, which continues to grow, despite the expansion of OTT services.

If you read our last article , you’ll see that 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.

Another contributor to the meeting was Democratic Alliance MP, Marian Shinn. She didn’t even support having the meeting in the first place. She feels that, as influencers in the market, there are far more important telecommunications priorities to tackle first, like the issue of the cost of data. She says top of the list is to focus on awarding more spectrum, which would benefit BOTH consumers and operators.

Cell C were also present. Protecting their reputation as the consumer champion, they have even offered some OTT services for FREE to consumers (at limited timed periods). "Over-the-top services need to be embraced; you cannot fight them," said Cell C chief legal officer Graham Mackinnon.

Big mobile operators, Vodacom and MTN, are unhappy that services like WhatsApp and Facebook use their networks, without having invested in them. Their protestations are, presumably, cause for the meeting.

MTN are in favor of OTT regulation and say OTT players don't pay taxes in South Africa, which is quite a drastic claim.

Fortune Mgwili-Sibanda, South Africa’s public policy manager at Google, confirmed that it’s a myth that Google does not pay tax on the services it provides. He went onto say they are willing to pay more tax if the tax review headed by Judge Dennis Davis changes the tax structure. Which makes MTN’s claims redundant.

Siyabonga Madyibi, representing Microsoft, echoed the same opinions as DA. He didn’t even understand why this topic justified having a meeting.

Here at Tariffic, we are also unsure as to where you draw the line when it comes to regulating OTT services? There isn’t even a 100% accepted definition for OTT – do OTT services also include things like dating websites, Twitter, Showmax or Netflix? The networks are focusing on the services which detract from their existing offerings (like calls and SMSs) but who’s to say this won’t extend to any other app on your phone? And if regulation is instated, this would be so detrimental to small businesses who rely on OTT services like Skype, to manage their voice spend.

Like we questioned in our previous article, if legislation is passed, who does it favour? Small companies and consumers or large mobile operators? More likely, the latter.

Microsoft, Google and Facebook all support the same sentiment – they would rather see themselves working with operators, as revenue generators, rather than in competition.

So where to from here?

By the end of the meeting, The Independent Communications Authority of South Africa (ICASA) had stated that they plan to launch an inquiry in the next financial year to look at the impact of OTT services, like WhatsApp and Skype, on the data services market.

From what we can see, it’s still too soon to implement regulation. Instead, they’ll monitor the impact OTT has on the market.

For the time-being, consumers can happily continue to use their OTT services as they wish and large cell phone providers would have to find other ways of recouping lost revenue – preferably through services that offer value to their customers rather than detracting from customers’ experiences.

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