Innovation has always been the singsong of the ICT industry worldwide and perhaps nobody contemplated the other side of it. Today, licensed telecom operators across the world are counting their losses due to innovations that produce over the top (OTT) services, but they are not just folding their arms; they are crying to the regulators, who are also faced with the technically hard decision of whether to regulate the OTTs or not. SAMSON AKINTARO reports.
OTT Regulation: To be or Not to be?
The telecommunications world in the last decade has witnessed tremendous developments with rapid growth in the number of connected people across the world. Yet, the best may not have come in terms of innovations that get people connected beyond mobile telephony. From the developed to the developing countries, innovations continue to change the telecommunications landscape, thus forcing the industry regulators to periodically adjust their rules to meet the demand of the dynamic industry.
Interestingly, technological developments, especially the transition to the IP technology, which enables a growing range of services to be consumed online, has implied the emergence of new services and business models operating over the Internet. The provision of Internet-based services commonly known as “over-the-top” is of increasing importance in the rapidly evolving information- and communication technology industry and of great value for consumers and businesses.
But the emergence of these services has become a major issue for regulators worldwide as much as it has become source of worry for licensed telecom operators. OTT services such as Skype, WeChat, WhatsApp, Facebook, Netflix, among others, have gained so much ground in the last few years and are increasingly drawing voice and SMS traffic away from mobile operators. Reports indicate that mobile revenues have stagnated or declined in many major markets, leading many mobile operators to propose to slow or block OTT traffic, or deploy their own OTT services in competition with the third-party providers, or ask for regulatory relief in the form of termination charges for OTT traffic.
While mobile operators continue to count their losses to these new services, the pressure is on the regulators to intervene by way of strict regulation, which will either compel the more or less virtual OTT service providers to get licensed or get banned totally. For one, it is believed that the fact that the OTTs are neither being regulated nor licensed in African markets where they enjoy huge patronage makes them non-accountable to any one and can do what they like.
In some countries like China and United Arab Emirates, the regulators of both countries had banned some of the OTTs, although that has not solved the problem as it affects telcos as subscribers still find a way around it. However, in Nigeria, the operators are calling for regulated OTT operations, not just for impact on their businesses but for the impact they have on the nation’s economy at large.
“These are people who have no licenses, they are not paying local taxes, they are not committed to the economy, if at all they are listed, they are listed somewhere that is not directly impacting the local economy, and they are not giving back to the community and so there’s a direct economic impact beyond the telcos,” a top executive of one of the leading mobile operators had lamented recently. While noting that some of the operators, had made attempt to partner with the OTTs, he said there is need for government policy to regulate their activities.
“We think that going into the future there must be a clear policy on how OTT must be managed. We do know that in many countries there is already a lot of discussion on net neutrality where it is not just about carrying contents but also knowing the kind of contents I carry so that I can charge by the type of contents. So if I know that am running some of this OTT, I can premium charge them so that at the end of the day, I’m not throwing away value because we must all commit to industry sustainability. If there is no industry tomorrow, the OTT cannot survive and everyone must recognise the roles the mobile network operators are playing in building the infrastructure that the OTT are now building on. So there must be that mutual understanding and so at the end of the day, we do kill the industry and throw value on the table whilst also ensuring that we deliver optimum value to the customers. There must be that balance,” the mobile executive said.
Elsewhere in South Africa, it was the same sentiment and agitation that has prompted the South African telecom regulator, Independent Communication Authority of South Africa (ICASA) to launch an enquiry into the impact of OTT as telecom operators continue to clamour for their ban in the country. MTN and Vodacom, both South African operators, first made the call for OTT players to be subjected to regulation late last year, arguing that they make no contribution to investment in infrastructure and are not subject to the same regulations and controls that apply to South African operators.
In Kenya, the clamour for OTT regulation has also heightened, prompting the government to intervene in the rancour that ensued between the operators and regulators over the issue. The Kenyan ICT Ministry has ordered all regulators to suspend any plan of regulation for OTT as the Ministry “has opened discussions that will lead to formulation of regulations for companies classified as Over The Top (OTT) service providers in a favourable manner, to retain the businesses locally”.
In other African countries, the story is not different as licensed operators are insisting that the seeming parasites must be subjected to regulation as a way of curbing their excesses which is telling on the licensed operators’ revenues.
For now, the debate is getting hotter and at the centre of this debate are the regulators whose decisions would either maintain or change the status quo.
Why Nigeria May Not Regulate OTT
Although licensed operators in the country have continued to sound it to the regulator to bring OTT services providers under its regulation, the Nigerian Communications Commission appears to be treading cautiously. That perhaps explains why the Commission recently released its own report tagged ‘Overview of Provision of Over the Top Services’, The report which was drafted by the Policy, Competition & Economic Analysis Department of the Commission highlighted the challenges posed by OTT services to licensed operators, but gave some conditions under which the former may be regulated.
First, the regulator’s view is that regulating the Internet or OTT will stifle creativity and innovation, and reduce the accelerated growth Nigeria is already recording in new media development across the world.
Speaking on the issue at a recent function in Lagos, the Executive Vice Chairman of the Commission, who spoke through the Director of Public Affairs, Mr Tony Ojobo, noted that the regulator’s objectives should be to catalyze additional opportunities offered by OTT services to the benefit of the consumer and to support competition while avoiding the OTT related risks in the areas of security and data protection. Ojobo said that while the commission acknowledges the fears of traditional telecom service providers that traditional telephony and SMS revenues are under threat from newer, IP based alternatives like WhatsApp, Skype, Viber, among others, they should also in turn accept the challenge to innovate and explore more efficient business models that would enable them compete favourably with OTT service providers.
However, the Commission’s policy Department has recommended that Commission should conduct a stakeholder’s consultative forum on the provision of over-the-top services in Nigeria to determine if regulation is required for such services and its impact on the growth of the Nigerian Telecoms industry.
“Following the consultations, the Commission should review its Guidelines on the provision of International Gateway and Voice over Internet Service and also consider an appropriate Framework for Provision and Regulation of over-the-top services in the Nigerian Telecoms market. The Commission must ensure that it does not stifle innovation since internet penetration is still evolving, access speeds are still low and there is limited coverage of high speed broadband in Nigeria”.
It further recommends that the Commission should encourage network providers in Nigeria to innovate and explore more efficient business models that would enable them compete favourably with OTT service providers, adding that network providers can also take advantage of the internet protocol technology in the design for their network upgrades.
20 Questions for Stakeholders
Apparently in search of justifications for OTT regulations, the Policy, Competition & Economic Analysis Department of the NCC has raised some posers which it wants stakeholders to give answers, noting that the answers will guide the regulator on the next steps to take.
Below are the 20 questions raised by the Commission:
Question 1: Could it be considered too early to establish a regulatory framework for OTT services, since internet penetration is still evolving, access speeds are generally low and there is limited coverage of high-speed broadband internet in Nigeria? Can we commence the development of a regulatory framework that could be adapted to changes in the future?
Question 2: Should the OTT players offering communication services (voice, messaging and video call services) through applications (resident either in the country or outside) be brought under the licensing regime?
Question 3: Is the growth of OTT impacting the traditional revenue stream of MNOs? If so, is the increase in data revenues of the MNOs sufficient to compensate for this impact?
Question 4: Should the OTT players pay for use of the MNOs network over and above data charges paid by consumers? If yes, what pricing options can be adopted? Could such options include prices based on bandwidth consumption? Can prices be used as a means of product/service differentiation?
Question 5: Do you agree that imbalances exist in the regulatory environment in the operation of OTT players? If so, what should be the framework to address these issues? How can the prevailing laws and regulations be applied to OTT players (who operate in the virtual world) and compliance enforced? What could be the impact on the economy?
Question 6: How should the security concerns be addressed with regard to OTT players providing communication services? What security conditions such as maintaining data records, logs etc. need to be mandated for such OTT players? And, how can compliance with these conditions be ensured if the applications of such OTT players resides outside Nigeria?
Question 7: What are the possibilities of OTT players offering app services ensure Security, safety and privacy of the consumer? How can they ensure protection of consumer interest?
Question 8: In what manner can the proposals for a regulatory framework for OTTs service in Nigeria be drawn from those of other jurisdictions? And, what practices should be proscribed by regulatory fiat?
Question 9: What should be our views on net-neutrality in Nigerian context? How could the various principles be dealt with?
Question 10: What forms of discrimination or traffic management practices are reasonable and consistent with a pragmatic approach? What should or can be permitted?
Question 11: Should the MNOs be mandated to publish various traffic management techniques used for different OTT applications? Is this a sufficient condition to ensure transparency and a fair regulatory regime?
Question 12: How can we create a conducive and balanced environment such that MNOs are able to invest in network infrastructure and are able to innovate and grow? Who should bear the network up gradation costs?
Question 13: Should MNOs be allowed to implement non-price based discrimination of services? If so, under what circumstances are such practices acceptable? What restrictions, if any, need to be placed so that such measures are not abused? What measures should be adopted to ensure transparency to consumers?
Question 14: Is there a justification for allowing differential pricing for data access and OTT communication services? If so, what changes need to be brought about in the present tariff and regulatory framework for telecommunication services in Nigeria?
Question 15: Should OTT communication service players be treated as Bulk User of telecoms Services (BuTS)? How should the framework be structured to prevent any discrimination and protect stakeholder interest?
Question 16: What framework should be adopted to encourage Nigerian’s-specific OTT apps?
Question 17: If the OTT communication service players are to be licensed, should they be categorised as ASP or CSP? If so, what should be the framework?
Question 18: Is there a need to regulate subscription charges for OTT communication services?
Question 19: What steps should be taken by the Commission for regulation of non-communication OTT players?
Question 20: Are there any other issues that have a bearing on the subject discussed?
Ominous Clouds Over OTT ACROSS AFRICA
In South Africa, the OTT Controversy Rages on
With repeated calls by South Africa’s two biggest mobile networks Vodacom and MTN for regulation of OTT services in the country, the country’s parliament had no choice but to intervene in a move that however left the issue unresolved. Incidentally, the South African licensed operators are not also united in their quest to get OTT regulated, while MTN and Vodacom strongly believed the OTTs must be regulated, their competitor, Cell C, feels otherwise.
MTN and Vodacom first made the call for OTT players to be subjected to regulation late last year, arguing that they make no contribution to investment in infrastructure and are not subject to the same regulations and controls that apply to South African operators.
Speaking at a hearings hosted by Parliament’s Telecommunications and Postal Services Committee, Vodacom’s Dr Andrew Barendse said the same service should be treated the same. “Vodacom does support the equal regulatory treatment of services that have the same functionality and compete with each other”. MTN’s Graham de Vries said his company agreed, adding that OTT services don’t pay tax in South Africa. De Vries also raised a security concern, saying under South African law, services had to be imperceptible.
“There are OTT players that offer end to end encrypted services that do not comply with that particular requirement and are therefore not imperceptible.”
But Cell C’s Graham Mackinnon said his company’s opposed to additional regulation saying that is capable of stifling innovation. “You simply stifle innovation, you stifle investment – we believe OTTs need to be embraced” he said.
OTT Service Providers Kicked
Expectedly, the suggestion did not go well with some of the OTT service providers who were also at the meeting. Facebook, Microsoft and Google voiced their opposition to possible regulation of over-the-top (OTT) services such as WhatsApp and Skype in South Africa.
Fortune Mgwili-Sibanda – who is the public policy manager at Google SA – argued against regulation as he said the search giant pays tax in South Africa. Google operates its voice and text OTT service dubbed ‘Hangouts’ in South Africa and across the globe. “Content should not be regulated like access,” said Mgwili-Sibanda. “Services are not networks; there is no evidence that OTTs are harming telco revenues,” Mgwili-Sibanda said.
Microsoft’s legal and corporate affairs director, Siyabonga Madyibi, also criticised any possible move to regulate OTTs in South Africa. Microsoft owns popular voice over internet service Skype. “Beware using 20th century regulations on internet services,” said Mgwili-Sibanda at the meeting. “Regulating Skype won’t impact Microsoft, but what about a local innovator? You are effectively killing anyone who wants to break into the market just to protect the revenues of mobile operators,” said Madyibi.
Another global tech player at the meeting was Facebook, which owns instant messaging service WhatsApp. “WhatsApp operates independently. We do not sell user data; we sell advertising,” said Ebele Okobi, who is the head of public policy for Africa at Facebook.
Regulator Watches
Meanwhile,the Independent Communications Authority of South Africa (Icasa) has said it has adopted a wait-and-see approach on the possible regulation of new communication tools such as Facebook and WhatsApp. Icasa CEO Pakamile Pongwana said mobile operators have grown because and not in spite of a regulatory light touch. “If you look at the growth of the existing mobile operators, it has grown to be what it is because of regulatory (and) policy forbearance. Sometimes, when innovation comes up, you allow it to grow.”
Kenya Mulls OTT Policy
In Kenya, the OTT regulation debacle took a different dimension as two of the country’s regulators slug it out on whether to regulate or not. According to reports, the Communications Authority Of Kenya is in contention with the Kenya Film Classification Board (KFCB) over the regulation of content carried by American movie streaming service Netflix, which launched operations in 130 new countries including Kenya recently.
The Communications Authority is of the opinion that Netflix should not be required to apply for a local broadcasting licence, meaning the US firm would be exempt from local broadcasting regulations that are part of the licensing conditions. This was contrary to KFCB’s position that Netflix be regulated and subjected to Kenya film classifications before its content would be made available in Kenya.
The Communications Authority held that Netflix is a content provider that does not control the transmission of its material, meaning that it is an over-the-top (OTT) service. It only makes the content available, unlike cable companies that transmit controlled content over a managed network, making it impossible to license them locally or regulate their content.
“Netflix is an over-the-top service provider, and subscribers get its content through streaming. As such, the Communications Authority will not ask them to apply for a licence,” CEO Francis Wangusi said. “Should Netflix partner with local providers or avail its content on the digital broadcasting platform where its signals can easily be accessed, then it will be required to adhere to local broadcasting regulations.” “The Communications Authority will only become involved in matters relating to quality of service to the customers,” Mr Wangusi added.
However, KFCB CEO Ezekiel Mutua insisted that his agency had the mandate to fully regulate and govern any and all content made available to Kenyans, whether broadcasted or streamed, meaning that Netflix would have to be subjected to its classification format. “The content will be viewed in Kenya”, Mutua said, “therefore it needs to be subjected to Kenyan ratings and standards for consumer protection. The Kenya Information and Communications Act of 2013 [PDF] empowers the board to impose any restrictions on all films to be aired by broadcast stations, whether mainstream or online, in order to ensure they conform to national values”
Meanwhile, the country’s Ministry of ICT has intervened on the issue, urging the regulators to hold their peace pending direction from the government. ICT Cabinet Secretary, Joe Mucheru, said the ministry has opened discussions that will lead to formulation of regulations for companies classified as Over The Top (OTT) service providers in a favourable manner, to retain the businesses locally.
“We want the businesses of OTTs to actually be based here. There is a huge debate as to whether we will be billing or charging Netflix, and I think OTT should feel comfortable to invest in Kenya,” said Mr Mucheru in an interview. “The government is responsible for regulation, policy will come from government then it will be regulated but this will take some time. Regulators have to wait.”
Morocco Bans OTTs as Citizens Kick
Apparently following the footsteps of other countries in the region such as Egypt and the United Arab Emirates, Morocco early this year announced a ban on calls made through mobile internet connections, in a move the country’s analysts believe could boost voice revenues for local telecom operators. The ban on Skype, Viber and WhatsApp calls will apply to the three mobile operators in Morocco who offer internet access for computers via USB and other mobile modems, as well as via mobile phones.
However, most citizens of the country who felt they are being deprived of their rights are protesting the move, with local media speculating whether security controls were behind the ban. The Moroccans took to the social media to register their displeasure, saying that the government has ‘killed Net Neutrality’. Some of them mocked the regulator saying the ban will not in any way boosts telcos profit because ‘there is always another way’.
But the Telecommunications Regulatory National Agency, known as ANRT, said telecom services such as phone calls need licences whether they are Voice over Internet Protocol (VoIP) or others. “In addition to the losses for the telecoms national market, the free internet voice calls do not respond to the required legal gateway,” ANRT said.
ANRT had tolerated internet voice calls for years but the drop in call volumes, mainly international calls, might explain the decision. Morocco’s telecoms market is dominated by Maroc Telecom , majority owned by the UAE’s Etisalat, French group Orange’s local affiliate Medi Telecom (Meditel) and Wana Corporate, a subsidiary of the royal holding SNI. The ban would affect the two most used applications in Morocco Skype and WhatsApp, along with Viber and other providers of VoIP services.
“Their suspension (VoIP) came in conformity with the operators’ obligations that were underlined in their licences,” it added. Mobile phone market penetration is running at around 140 percent of Morocco’s 34 million population, and the country had 10 million Internet subscribers by the end in 2015, up more than 60 percent from 2013.
Why Telcos Want OTTs Out
While different regulators across the world are considering different approaches to address the rising challenge of OTT and probably find a common ground for the convention operators to operate alongside the OTT, the case may not be put to rest until issue of revenue loss by telcos are addressed. For one, the increasing adoption of OTT services by most consumers means less revenue for the licensed operators and this will definitely not augur for them considering the huge amount they pay for license, which of course is subject to renewal with additional payments and the periodic fees they pay for their operations.
A report by TeleGeogaphy, a telecoms market research firm, found that, in 2013, international calls made over Skype were equivalent to 40% of all international phone calls. Skype to Skype international traffic grew by 36% in 2013 to 214-billion minutes. International phone traffic from fixed lines and cellphones continues to grow as well, increasing an estimated 7% in 2013 to 547-billion minutes.
An estimated $368-billion is estimated to be lost to the global telecoms industry between 2012 and 2018 as a result of over-the-top (OTT) services, according to Ovum, a research and consulting business focusing on IT and telecoms.
Local network giants find themselves in a tough spot as cheaper OTT services gain popularity. Data revenues are growing much faster than those of voice services, but the margins are significantly slimmer. Although OTT services are a potential substitute for voice and data services, they do not have to comply with the regulations that domestic service providers have to, which relate to matters such as licensing fees and quality of service.
OTTs such as WhatsApp or Facebook Messenger are an alternative to SMSes and users can exchange messages from cellphones free of any charge other than for the data used. WhatsApp now also offers WhatsApp Calling, which uses data instead of airtime to make calls.
These are definitely not the best of times for telecommunications companies all over the world as the reality of dwindling revenues stare them in the face. But while many challenges could be adduced to this, the OTT factor seems to have weighed in on the operators’ profitability more than anything else.
MTN Nigeria, for instance gave a vivid picture of the situation while analysing its financial performance for 2014 to the media. According to the company, its SMS revenue has declined sharply as the subscribers embrace the OTTs, this it represented with graphic illustrations showing that the new trend has led to its SMS revenue decline by 29 per cent. In the company’s words, “growth in chat applications has a cannibalising effect on voice and data revenue”.
In March 2015, China Mobile – the world’s largest operator, announced its results for year 2014, which saw its net profit fall sharply, with higher capex for its 4G buildout biting into margins, and service revenue slipping slightly as strong gains in data revenue couldn’t offset a fall in voice/SMS. “We are facing severe challenges from intensified competition from two aspects,” stated chairman Xi Guohua. He highlighted competition from so-called OTT and Internet players, while also stressing the rivalry it faces from operators China Telecom and China Unicom.
The country’s leading mobile player posted a 10.2 per cent drop in its net profit for 2014 to CNY109 billion ($17.74 billion) and a 2.1 per cent decline in its EBITDA to CNY235.3 billion. According to the operator, voice now accounts for 53 per cent of total revenue, down from 60 per cent in 2013, while messaging (SMS/MMS) – which fell 15.8 per cent – accounts for just 6 per cent or CNY34.78 billion.
Globally, the downward trend for telcos began in 2013 when expenditure on telecommunications operator messaging services, including Short Message Service (SMS) and Multimedia Messaging Service (MMS), declined for the first time after its peak in 2012. According to Strategy Analytics, operator’s revenue from messaging services fell by almost four per cent in 2013 to just below $104 billion.
The report noted that continued intense competition for subscribers between operators combined with the fast growing popularity of over-the-top instant messaging services like WhatsApp, Line Messenger and Tencent’sWeChat will drive a 20 per cent fall in global operator messaging revenue by 2017. Faced with this reality, it is not surprising that telcos across Africa are putting pressure on their regulators to arrest the situation. But will their coming under regulation returns SMS revenue for the telcos? That has yet to be ascertained in any jurisdiction.
Consumers’ Gain
They may be seen as threats by telecom operators, but for the telecom consumers globally, the OTTs are the best thing to have happened in the history of the telecommunications industry. Obviously, the emergence of smartphones which come with internet capabilities and run third party applications is the impetus the OTTs need to thrive, and here is the era where over 70 per cent of mobile users prefer to go smart.
For that reason, it is not surprising that virtually every mobile user now rely on OTT services for communication. The OTTs have become so relevant that most businesses now rely on them to connect with their community of consumers; either to publicise created social media content, advertise or get direct feedback from their consumers. Hardly can one find a corporate organisation in the world today without a Twitter handle and Facebook Page, and these have come handy as communication channels to reach their various stakeholders.
From available statistics, YouTube now accounts for 24 per cent of global mobile traffic, Facebook Chat consumes 22 per cent of all instant message-related mobile bandwidth, WhatsApp carries 5 per cent of global messaging traffic, and Netflix boasts nearly 30 million streaming sub scribers.
In September 2013, it was revealed that 71 per cent of online adults in the world use Facebook, 17% use Instagram, 21% use Pinterest, 22% use LinkedIn, and Whatsapp attracts about 32%. Rate of use of these social networking sites are expanding—which could mean that socializing would be the only reason why a lot of people would want to use a mobile phone.
In 2014, it was also discovered that 73 per cent of U.S adults use social networking sites and over 85 per cent of Americans children within the ages of 9 and 12 use at least one social media. With climaxing level of online censorship in China, the country has over 420 million internet users, and 90 per cent of the number use indigenous social networking sites, since Facebook, Youtube and other foreign social networking sites are blocked. Out of Europe’s 900 million population, 251 million people use Facebook. 64 per cent of Facebook users in the world visit the site daily. World’s 2015 awareness level showed that Facebook is close to 100 per cent while twitter has reached 80 per cent awareness and Google Plus climbs to 70 per cent in brands popularity figure. More than 7 out of every 10 internet users in the world today are members of at least one social network; which implies that more than 1.5 billion people use social network sites. The research further shows that the world anticipates the next social application and most people want to keep their digital lives as it is with no intention to quit.
In 2014, social networking accounted for 2 out of every 5 minutes spent on the internet globally and ranking as the most engaging online activity worldwide with social networking sites now contributing 82 per cent of world’s internet population. Blogging sites such as Twitter has currently reached 1 in 10 internet users worldwide, growing 59% more than it did in 2013. China’s SinaWeibo grew by 181 per cent to rank as the tenth largest social networking site in the world. Interestingly, the adoption of social network communication is no longer exclusive to the youth population—it cuts across all age groups. Though young users, age 15-24 still represents the most highly-engaged segment of social networkers with an average of 8 hours per visitor daily, the trend is revealed to have caught acceptance among the older age segments across the globe. In fact, people of age 55 and older are representing the fastest growing age segment in global social networking usage, with the penetration of social networks in the segment increasing to nearly 10 per cent points since July 2010, to 80 per cent in 2011 and 92 per cent in 2014.
Africa Embraces OTTs
In Africa, Whatsapp mobile application remains the most used social networking site with over 30 billion messages sent every day. Whatsapp became one of the social media intervention weapon used to create awareness on the Ebola virus in Sierra Leone, Liberia and Guinea, owing to the fact that the application can run on low end and Symbian mobile phones. In Nigeria, the scenario is not any different from what is obtainable in other parts of the world. People are fast adopting various social media platforms for quick and instant communication, which are considered much cheaper than communicating over the mobile network, either via voice call, which depends on the various networks call tariffs or text messaging, in which subscribers are charged N4.00 per 160 character message across all networks.
According to survey by the Pew Research Center’s Global Attitudes Project, when people use the internet in middle and low income countries, they tend to participate more in social networking than in any other internet activities. With 130million active mobile phone subscriptions, 55% of Nigeria’s population, according to African Digital Statistics in 2014 has access to internet services, while 45% of Nigerian mobile phone users use the WhatsApp application. Also last year, the number of Nigerians on Facebook was put at 11.2 million as the country leads the way in Africa in terms of Facebook users and number of internet user indexes, as well as mobile phone internet penetration.
The country’s population on the social media is predominantly youthful, representing 84 million people—population between the ages of 15 and 24 is 19%, while within 25 to 54 years contributes 31%. In 2014, 72% of all internet users in the country visited social networking sites and prefer to communicate for as long as necessary to save cost on calls and text messaging. There are also high possibilities that the number of social media subscribers may increase as more people are connected to internet facilities.
The unprecedented 41% smart phone incursion into the country’s mobile phone market and affordability of some brands of smart phones would also engender many more social media users in the country, simply because many mobile phones users consider social media sites highly flexible to use—do other things while chatting, and cheaper to communicate than making voice calls or sending text messages over the mobile network. Telecom operators in Nigeria, as it is with other operators in the world are feeling the pinch over the drop in revenue in voice calls and text messaging. Most operators have now initiated promotions and offers in which text messaging is additional benefit to subscribing to those services.
Most mobile internet subscribers who use data on their smart phones in most cases promptly renew their data subscription to avoid disconnection mainly from the social networks. Chatting and communicating across the various social networking sites alone on the social network does not consume much megabytes—the unit access to digital information. Statistics shows that there are 4 million smartphone users in Nigeria, 46% of whom uses blackberry. Ever since the BlackBerry Messenger application was patented, it has been one of the most used social application on android phones across the Nigerian social media community. Blackberry subscription of N1,000 allows access to 400MB for a month and almost all social networking sites can also be activated. Nigerians on the social network are highly engaged in communication and are curious to use their smart phones mainly for social networking purposes, while those who own more than one mobile phone use the less sophisticated ones to make brief phone calls when necessary and text messaging when it is most necessitated.
Embracing Alternative Solutions to OTT Challenge
For the embattled telcos, all hopes seems not lost with the OTT challenge, rather, the opportunities in the challenge are now being explored. With the proliferation of smartphones and the growing penchant for social networking, it is obvious that subscribers will be consuming more data and that is being seen as opportunity for telcos to key into as data service providers.
It comes with a notion that the OTTs should not be viewed as enemies, as what is being lost in data and voice revenues can be regained from data. But most importantly, analysts have recommended partnerships between telcos and the OTTs to leverage on the growing trend of data consumption.
It is believed that the OTTs are increasing broadband traffic on both mobile and fixed networks, which allows operators to upgrade customers to higher value packages but this increase is also forcing the operators to upgrade their infrastructure. “The operators are missing out on value added services as they have not been able to keep up with the services and apps offered by the OTT companies,” said Paul Budde, senior analyst at research company BuddeComm.
“However, we must also note that OTT players are also bringing users on mobile broadband and creating a strong demand for mobile content, which can be beneficial for telecom operators if they are able to successfully leverage this trend,” he added.
Another analyst with Ovum, Neha Dharia had noted that several operators have launched OTT subscription packs such as Etisalat in the UAE with the Social Data Pack. Operators are also working to enhance their content offerings in the region to better compete with OTT players.
According to analysts, telecom companies may cry about lost revenues, but there are plenty of opportunities for growth even in an OTT-first world. “Ecosystem tie-ups such as the one Facebook signed with Airtel in Zambia for free Internet access are an option. The advent of 4G services will bring more opportunities, especially in video streaming, live events and other aspects which require data-heavy usage. In fact, as more mobile devices replace PCs, the revenue growth potential even within cellular data is quite high, said Dharia.
According to Allen Samawi, Digital and Partnership manager at Umniah, a Jordan network operato, there are different strategies to face OTTs. “Either you do nothing, as most operators are doing in the region, or block them as happens in the United Arab Emirates or you neutralize them. Then you can emulate them or partner with them. These two last ones are the recommended options,” Samawi stated.
Emphasising the need for partnerships, Samawi noted that Umniah has been the first operator in the region to partner with Facebook, adding that the partnership that would bring benefits for both parties. “We want to give a better customer experience and Facebook is looking for expansion, that is why this partnership is good for both actors,” he said.
This was also corroborated by Yousef Abu Mutawe, CTO at Zain Jordan when he said: “Our role as operators is to partner and be able to monetize what OTTs are doing.” Mutawe reckons that OTTs are impacting on their revenues, especially on international calls and messages. “The international business will move, the volume of international calls have increased on OTT service. The market has changed and we cannot say that international calling is really a predominant part of the growth,” he added.
Also bringing out the positive side of OTT, Ihab Ghattas, Assistant President of Huawei Middle East, said “there is an industry-wide transformation currently taking place where a model of operators charging for access is being replaced by the offering of value-added services, either directly or indirectly. One of the channels through which we see operators keen to offer these services is through deeper cooperation with content providers and app developers. The ultimate goal is for constructing a more prosperous and sustainable ecosystem for all”. Ghattas reminded the tremendous impact that OTTs have in the revenue of the operators: “An operator typically has a core set of services and content available on their network. Clearly OTT services that pass through the network can be a challenge to these offerings, and an operator must ultimately decide for each category of offering whether to develop a competing value-added service or enter a cooperative partnership. The form of such alliances depends on what value the operator is providing to the end user. If the value is simply the access network, then it could be a form of managed wholesale. If the operator is adding further resources such as CDN or compute servers, then it is a hosted model. More intriguing, in my view, are the opportunities available to operators today to pioneer wholly new communication and entertainment services.”
In Nigeria, Airtel could be seen towing the line of leveraging on the OTTs with its recent introduction of ‘WTFB’ bundles, which gives its subscribers access to Whatsapp, Twitter, Facebook and BBM once they subscribe for the bundle. According to Airtel this data bundle was designed for customers who spend most of their time on social networks and love to stay connected with their friends and family on the go and every moment.
Generally, the stand of most analysts is that rather than see OTT only as a threat, operators need to learn from the strengths of OTT, and adapt their processes to satisfy an increasingly-demanding consumer base. This stand was corroborated by the immediate past Secretary-General of the International Telecommunications Union (ITU), Hamadoun Toure, when he said that the approach to OTTs should not be tackling them, but working with them. During the SAMENA summit in Dubai, Toure insisted on the need to work with these content providers to grow new revenue businesses.
Global Attempts at Regulating OTTs
The regulation of VoIP services remains a topical issue around the world as it is mostly perceived by traditional telephone network operators to be a threat to their continuous existence. In this regard different countries have as some point or the other attempted to or developed a framework to regulate the provision of VoIP services. Some of these countries are outlined below:
India
The Telecom Regulatory Authority of India [TRAI] has commenced discussions on a regulatory framework for over-the-top services in India. A consultative paper was published in March, 2015 which outlined the Authority’s intent to analyze the implications of the growth of OTTs and consider whether or not changes are required in the current regulatory framework. To understand the underlying issues, a seminar was conducted by the Authority on “Regulatory Framework for OTT services” in year 2014, in which representatives of Telecommunications Service Providers [TSPs], OTT providers and legal experts presented their views and those views are reflected in the published consultative paper.
The consultative paper noted that the starting point for a suitable regulatory framework is the need to define the basis for classification of OTT players either as Communications Service Providers (CSPs) or as Application Service Providers (ASPs).
Highlights of the consultative paper presented by TRAI identified that:
- Traditional Voice calling rates in India are one of the lowest in the world implying that there can compete favorably with VoIP service providers;
- Mobile Internet penetration rate is still very low in India (about 20%) therefore implying that the uptake of OTT services or substitutability of traditional telephony with VoIP services is relatively low; and
- Quality of service of OTT services is lower than what is offered by traditional telephony services.
However, OTT services are still unpopular with mobile carriers in India who want to earn higher revenue from such services beyond the charges incurred for data. One of the Telephone Service Providers in India (Bharti Airtel) recently announced differentiated tariff plans for voice calls over the Internet and data surfing as VoIP calls were charged almost three times more than regular data surfing. However, this tariff plan was eventually withdrawn following protests by users who accused the TSP of violating the principles of net neutrality. Regarded as an essential ground for open internet, net neutrality standards mean that mobile carriers should treat all data equally and not impose differential treatment or charges on different kinds of data.
Further to the publication of the Consultation paper by TRAI, they have requested for further comments and suggestions from stakeholders before the process is finalized.
United States of America
The FCC publicly states that it encourages competition and service provider innovation for the Internet as a whole, but it has also worked to bring specific VoIP services, applications, and capabilities under its control. According to the FCC, the U.S regulates VoIP in the following categories:
911 Services: Providers of interconnected VoIP services which allow users generally to make calls to and receive calls from the regular network-do 911 service obligations;
Portability: Interconnected VoIP providers and telephone companies are required to comply with Local Number Portability (LNP) rules;
Calling Records: Interconnected VoIP providers are limited in the use of customer propriety network information such as telephone calling records, and are also required to protect it from disclosure;
Universal Service: Interconnected VoIP providers are required to contribute to the Universal Service Fund;
Accessibility: Interconnected VoIP providers must contribute to the Telecommunications Relay Service Fund used to support the provision of telecommunications services to persons with speech or hearing disabilities. However, in a recent move in year 2015, the FCC voted to regulate broadband Internet services as a public utility. The vote implies that high speed Internet in the US has been reclassified as a telecommunications service instead of an information service under their Telecommunications Act thereby granting the FCC powers to regulate the activities of players like the OTT service providers in the market.
According to Tom Wheeler, (2015) “the move is intended to ensure that no content is blocked and that the Internet is not divided into pay-to-play fast lanes for Internet and media companies that can afford it and slow lanes for everyone else. These prohibitions are hallmark of the net neutrality concept. However, the FCC will not get involved in pricing decisions or the engineering decisions companies make in managing their networks.”
European Union
In Europe, OTT services for video programming have diffused much faster and achieved greater penetration than telecommunications-based services. A number of operators have offered cloud-based pay TV or streaming video services, including Deutsche Telekom with its Livestream Perform service, BSkyB’s NOW TV, and HBO’s Go (Dawson, 2013; Pennington, 2014). Pay TV over OTT, which had about 400,000 subscribers in Europe as of late 2013, was expected to grow to 5.2 million sign-ups, according to analysts (Dawson, 2013). The growth in OTT services over mobile networks has also been significant. A research report from the consulting firm Arthur D. Little identifies the key trends in the OTT sector with a focus on mVoIP. The mobile voice OTT market size is expected to range between $14-100 billion in 2016, accounting for between 2-20 percent of total voice revenues.
European network operators have been alarmed by the growth of OTT services and have demanded changes in the current regulatory and interconnection pricing regime that enable OTT services to use their infrastructure with no return for them according to European Telecommunications Network Operators ETNO in 2012. It is in this context that the ETNO put forward a pricing proposal that would enable them to negotiate pricing schemes with OTT providers. Specifically, ETNO put forward three interrelated demands: (1) Sending networks, such as content providers, OTT services and other application providers, must be required to pay “fair compensation for carried traffic” to interconnect with network operators (the “sending party network pays,” or SPNP principle); (2) new interconnection models should be allowed providing for end-to-end Quality of Service (QoS) delivery for sending parties willing to pay a premium; and (3) governments should allow these interconnection and carriage arrangements to be negotiated between network operators and information services without regulatory interference. The ENTO proposal has been strongly opposed by other stakeholders, such as the BEREC. On the question of SPNP, the BEREC argue that requiring senders to pay for end-to-end connectivity is “totally antagonistic to the decentralized efficient routing approach to data transmission of the internet”, and termed the end-to-end QoS proposal “neither commercially nor technically realistic”.
The ETNO proposal has also run counter to regulatory initiatives in many European countries to promote network neutrality, manifested in regulations on information transparency and minimum QoS standards. In 2009, the EU had announced the guidelines for telecom regulations regarding network neutrality. Subsequently, countries such as the Netherlands, France, and Slovenia adopted net neutrality legislation prohibiting traffic discrimination between content providers. However, other nations, notably the United Kingdom, have taken a different approach based on the calculation that allowing ISPs to develop additional revenue streams from preferential traffic would be the best means of incentivizing investments in the broadband infrastructure.
In the absence of a unified regulatory framework for mVoIP or other OTT services, individual network operators have sought to implement traffic management arrangements advantageous to themselves, sometimes drawing negative scrutiny from regulators. In the Netherlands for example, the incumbent network operator KPN, in cooperation with the local affiliates of Vodafone and T-Mobile, sought to block, or charge for OTT services such as Skype and WhatsApp. Dutch lawmakers reacted strongly passing a net neutrality law in 2011 prohibiting discriminatory practices, making the Netherlands the first European country to do so. Similarly, a German court blocked Deutsche Telekom in 2013 when the telecom provider attempted to reduce consumers’ broadband speeds if they exceeded certain data caps. The court ruled that Deutsche Telecom’s practice was discriminatory since the data caps did not apply to the company’s own customers.
In April 2014, the European Union approved new rules aimed at guaranteeing equal access to the Internet and cutting cellphone charges. In general, the new rules had two objectives: first, to ensure equal access to firms and individuals to online services such as video on demand, streaming audio and cloud computing; and second, to harmonize rules across national borders in order to create a unified European market.
South Korea
Mobile network operators in South Korea have relaxed their initial opposition to VoIP, and a majority of them have allowed VoIP while deploying multiple strategies to minimize losses. For example, both
SK Telecom and KT, beginning in 2010 have allowed their customers to access VoIP services, but only if they subscribe to the more expensive flat rate plans. In this context the Korean telecommunications regulator, the Korea Communications Commission (KCC) announced “Net Neutrality and Internet Traffic management Guidelines”
Its objective was to foster open and fair Internet usage environment, and to create a healthy and sustainable ICT ecosystem through the basic principles for net neutrality and Internet traffic management. Four requirements were included in the NN Guidelines: (1) transparency; (2) No blocking; (3) No unreasonable discrimination; and (4) reasonable traffic management. The transparency requirement made network operators responsible to disclose traffic management objectives, practices and methods to end users. The No Blocking requirement prohibited the blocking of any lawful content, applications or services, with allowances to prevent harm to devices and for reasonable traffic management practices. The No Unreasonable Discrimination requirement prohibited discrimination between lawful content application and services, again allowing for reasonable traffic management practices. Finally, the Reasonable Traffic Management requirement states that network operators may adopt traffic management practices for network security and stability, and for avoiding network congestion and for protecting end users. The NN Guidelines were mostly silent on rights of network operators to charge VoIP providers for the termination of their traffic, though an analyst points out that a “traffic usage based cost share” appears to have been allowed.
Highlighting the conflicts inherent in managing the relationship between OTT providers and mobile network operators, the KCC on July 13, 2012 put forward a Draft Reasonable Traffic Management Guideline” (RTM Guidelines) that appears to contradict some of the provisions of the NN Guidelines. The RTM guidelines have been categorized under four headings: (1) Heavy user management; (2) Massive traffic management; (3) Limitations on VoIP; and (4) Traffic management standards. The RTM guidelines allow data cap limitations on heavy users (the top 1-3%), and restrictions on massive traffic (video and P2P file sharing) at peak times. The guidelines also allow restricting subscribers’ right to choose VoIP services based on their subscription levels.
In terms of traffic management, the RTM Guidelines recommended the adoption of global traffic management standards, provided any agreed standard would have enough notification and consultation prior to adoption. This Draft was not adopted in the face of opposition from consumer groups, non-governmental organizations and VOIP providers.
The Korean Ministry of Science, ICT and Future Planning (MSIP) has recently announced a plan aiming to reduce households’ telecommunication expenses, with implications for the VoIP market as well. The plan affirmed to open the mobile networks completely and eliminate any constraint imposed on VoIP services; the ability to access MVOIP services, earlier limited to the more expensive payment plans, would now be available on all smart phones. But the usage amount will be limited based on consumers’ subscribed plans. The open network decision could lead to the shakeup of the existing revenue structure of the mobile network operators. In other provisions, the plan halves the subscription fees and reduces service fees, and encourages price competition between mobile operators, mobile virtual network operators (MVNOs) and operators of budget phone businesses. The MSIP had already forbidden in Dec. 2013 the mobile network operators’ self-regulatory traffic management except for the cases of either network congestion or DDoS attack.
China
As in many other Asia-pacific markets, China too has witnessed enormous growth in mobile broadband markets in recent years. As of January 2013, the number of internet users in China has reached 618 million, for a penetration rate of 45.8%. With the growth of mobile phone, the number of users of OTT applications such as WeChat and Weibo has also increased. At the end of 2012, there were 309 million Weibo users in China, an increase of 58.7 million over 2011. Mobile Weibo users reached 202 million. WeChat, a free smartphone-based OTT service launched by Tencent in January 2011, has also become a popular application, supporting, voice SMS, video, text, and chat services. As of January 2013, there were more than 300 million WeChat users in China.
The emergence of services such as WeChat has threatened established mobile telecommunications providers such as China Mobile, causing the carrier to lose SMS and voice revenues. In addition, China Mobile and other carriers have argued that the constant signaling of WeChat applications loaded on hand-held devices with base stations to communicate online status and position has imposed traffic costs on the mobile networks.
In 2013, China Mobile with approval from the Ministry of Information Industry (MII), announced plans to begin charging OTT services for termination of traffic to their customers (Business Monitor International [BMI], 2014). Though the China Mobile proposal was short on specifics and did not identify a price point for its charges, the move was immediately criticized by users on social media. On its part, Tencent immediately announced that it had no plans to pass on the charges users to users. Critics alleged that imposing a charge only on one OTT service will not solve the network operators’ problems, since the low barriers to entry into the OTT services market would enable other “free” OTT service to replace WeChat. Eventually, under public criticism the proposed charges were withdrawn.
An added factor complicating a potential regulatory framework for OTT services in China is the desire of the Chinese government to control the information access of its citizens. In July 2014, the Chinese Ministry of Science, ICT and Future Planning (MSIP) blocked two Korean owned OTT services, Naver’s free messaging application Line and Kakao Talk, alleging that the services were being used to coordinate acts of terrorism. But domestic OTT services such as WeChat, and some foreign applications like WhatsApp and others continued to work.