Vodacom, MTN want to break the Internet

Can you imagine Facebook opening offices in every city or appointing officials in small towns to do Rica just so South Africans can talk to each other online? By Nathan Jeffery.

nathan-jeffery-180As you might have seen, the networks are at it again, on a drive to get the government to regulate Web services, which these network operators like to call “over-the-top” (OTT) providers.

Regulating Internet services will have a huge ripple effect throughout the economy. I don’t even want to start thinking about how badly this could be implemented.

How on Earth would such regulation even be managed? Can you imagine Facebook opening offices in every city or appointing officials in small towns to do Rica just so South Africans can talk to each other online?

I can’t see this happening, though. It is counterintuitive and anti-Internet to add such labour-intensive processes. If Vodacom and MTN have their way and companies such as Facebook and Google are somehow forced to add complex and unnecessary red tape to the sign up and account-creation process, all that will happen is they will pull out of the country.

Fighting for regulation instead of innovation

While organisations like Digital Village, Project Isizwe and the Western Cape government are making an effort to get more people online and bring communication costs down, companies like Vodacom and MTN are publicly making an effort here to screw the South African consumer.

These big companies are pleading poverty while the CEO of Vodacom was paid R10,9m in 2015 and the CEO of MTN R28,1m in 2014. Who are they trying to fool?

They sell bandwidth to consumers and then, if you don’t use it within a certain amount of time, you lose it. Imagine buying a hamburger, but because you don’t eat it fast enough, the restaurant throws it away. There is no way we would accept that from anyone in retail, so why on Earth is it acceptable from a cellular service provider?

Meanwhile, forward-thinking network operator Cell C is embracing OTT players and says regulation could hurt the industry. That’s stating the obvious.

I’ve been a Vodacom customer for going on 18 years now and I’ve generally been happy with the service, even if I haven’t been happy with the pricing. I have, however, reached the point where I feel we need to start threatening to cancel our contracts and moving to operators like Cell C that have embraced the future.

Networks like MTN and Vodacom need to realise that they are nothing more than utilities. The only value they have to offer us in the long term is faster connectivity and wider network coverage. There is, however, nothing stopping them from investing in Internet start-ups or creating their own OTT services.

Why not rather be productive and contribute to society by incentivising innovation or establishing and running accelerators or incubators? They could even create investment vehicles to push our economy forward, in new directions, leveraging their core network and embracing new technologies instead of spending time, effort and money on slowing down progress with legal or regulatory proceedings and attacking companies offering services that benefit the community and economy.

Let’s debunk some myths

Service providers make some blanket claims that indicate they don’t understand how the Internet or hosting business works. Worse, it seems that the CEOs of these companies that make the claims don’t understand how the billing systems work at their own companies.

Part of what is so infuriating about this whole situation and some of the accusations being thrown around is that both Vodacom and MTN are also commercial Internet service providers, operating data centres, home to what they themselves refer to as OTTs. As a result of hosting and bandwidth utilisation being a source of revenue for network operators, they should know that anyone operating a cloud service (an OTT service) pays for hosting and bandwidth utilisation.

Myth 1: OTT operators are ‘free riders’

Every cat picture and meme you look at on Facebook costs both you and Facebook money to transmit over the Internet. The same goes for watching videos on YouTube and Netflix.

Every website and Web service pays to stay online. Companies such as Facebook, Twitter, Google, Microsoft and Apple pay enormous amounts of money to run servers in countries around the world.

They either rent data centre space or set up their own data centres. They need to pay to connect to Internet service providers and either pay for bandwidth used or for dedicated bandwidth/pipe.

Think of it this way. At home, you can either have capped or uncapped ADSL. If you have capped ADSL, you pay for data used; if you have uncapped ADSL, you pay for the size/speed of your data pipe/connection. In other words, the amount of data you can transmit per second.

Uncapped connections usually come with a fair-usage policy, which sets an upper limit on how much bandwidth you may transmit either via upload or download during a 30-day period before being throttled. These same concepts apply to the tech giants, but on a massively different scale. Instead of needing to worry about megabytes, they’re working with terabytes and petabytes. All of this costs real money.

Myth 2: OTT services are being used for free

The cheek and audacity of network operators to complain that accessing OTT services is free is unbelievable.

Users — also known as paying customers — access the Internet either through purchasing data bundles from Internet service providers or mobile networks or paying for network access in the form of a monthly subscription. Once on the network, users can access hosted websites and services, all of which use bandwidth for which they have paid.

Below I outline some differences between the traditional and modern (Internet) engagement and billing models.

Traditional model ... initiator pays

Traditional model … initiator pays

In the old model, the person initiating the phone call or sending the message is the only one who pays for the communication¹.

Take the “please call me” service.

A “please call me” allows someone without airtime to send a free message to someone else (presumably with airtime) to call them back. The reason this works and is viable is because the person who initiates the call pays for it so the person being called, in this case the person who sent the “please call me”, does not need to have any airtime as their participation in the conversation is free. They could both listen and speak without incurring any cost.

Internet-based voice and messages ... everyone pays

Internet-based voice and messages … everyone pays

There is a big difference in how Internet-based services work compared to the traditional model².

In the modern Internet world, the networks being operated by the telecommunications companies, whether they be cellular or fixed line, provide a data conduit through which devices can communicate with each other. All devices on the big interconnected network, also referred to as the Internet, pay to participate and pay for data traffic in both directions.

With this in mind, any OTT operator doing their job properly will be using compression and efficient encoding to reduce the bandwidth being used by their service as it costs them money to operate. This leads to less strain on the network and smaller data packages being sent between devices. As a result of this, modern, Internet-based communication is more efficient and generally uses the least possible amount of data required to get the job done. This is good for everyone, even the traditional Internet service providers, as it reduces the load on the networks. It might not result in a surge in data usage (and revenue) upfront, but in the long term it results in faster Internet adoption and more users spending money to get online and do business online.

Due to both directions of traffic being billable, all parties pay to be part of a conversation. Whether it is a voice-over-Internet protocol call or a group chat via instant messaging, users pay to both send (upload) and receive (download) data. This means the more people participating in a conversation, the more bandwidth is being invoiced, even if only one person is sending the messages or speaking.

Regulation will affect everyone

Tell your friends and your family. Help them understand the far-reaching impact should Vodacom and MTN get their way. This is an issue that will affect us all. The definition of OTT is vague and could eventually be twisted and applied to this very website you’re reading.

  1. Calls made to networks, other than the user’s home network, are handled through interconnection, which is a complex issue on its own.
  2. This only covers the high-level concepts; the billing structure is actually more complex. I’m just trying to illustrate that it’s a multi-payer situation now and that same packet of data is being paid for multiple times by different parties. There are other more complex issues such as peering which this Ars Technica article covers quite nicely.
  • Nathan Jeffery is a technology strategist who invests in and consults for technology start-ups on product development and infrastructure. He is founder and CEO of software development company MyEcommerce, co-founder and director of the Garden Route ICT Incubator, and chief product officer for construction project management software-as-a-service company Hlalani IQ

Share this article

  • What an epic, brilliant and well thought out article!

  • Thanks Tobie.

  • Ar Ka

    Agreed. A journalist who actually researched the subject matter. How refreshing. Bravo. So many articles are “mile wide inch deep”.

  • Arno Van der Walt

    Brilliant article, one comment though. You highlight in your own words why we as South African consumers are getting the Mno’s we deserve. You say “we need to start threatening to cancel our contracts” that’s all we do is threaten as contract customers, seldom do we ever put pen to paper. That is why we are where we are, myself included.

  • DM

    Well done, excellent article…MTN & Vodacom….catch a wakeup, you are positioning yourself’s to become the ‘Hellkom’ of the 90’s. Sies man!

  • Ivor van Rensburg

    Monopolies must fall !!! If Cell C had their own network and coverage … they too would have been part of the fight for regulation of OTT. Monopolies must fall !!! … For years they’ve been charging about 80 cents per sms. This is daylight robbery. Eskom, Multichoice, Vodacom and MTN must fall !!!

  • Vusumuzi Sibiya

    Time to take the kind of action that will bite back at the #GreedyCravingCrybabies

  • Dave Baker

    Looking at the MNOs points one by one.

    1. The toughest one 1st. I don’t think there is any provision to require MNO’s to monitor and be able to provide the contents of say a WhatsApp, Skype or iMessage session?

    Am I wrong? They clearly couldn’t do that. This is a battle being waged in developed countries (including the UK) and the UK and US govt does not appear to be winning.

    2. Tax – Another international challenge common in most countries.
    This hasn’t got much to do with Telecomms regulation. It is a globalisation issue that applies e-commerce.

    Tax authorities work slowly. Eventually there will be transfer pricing (when the revenue is significant)

    3. Investment in Infrastructure – This one is nonsense. Google, Apple, Facebook have huge server farm infrastructure. These server farms serve the data traffic that there MNO gets to bill for. Google doesn’t ask the networks to pay their share.

    If electricity generation and electricity delivery were separate would the delivery companies complain that the power stations dont invest in infrastructure

    4. RICA – To use a MNO you have to have a SIM Card which has to be RICAed. No problem

    5. The issue they don’t want to talk about is that the OTTs are eating their lunch. Trouble is it isn’t their lunch to protect.
    If SMSes were not globally too expensive the rationale for WhatsApp may not have existed.
    They seem to assume that we would send as many IMs if we were restricted to smses, No we wouldn’t

    6. If the MNOs are going to get tense I would like them to declare how much mobile traffic they get from Facebook. It must be a fortune.
    I don’t see Facebook asking the MNOs for a revenue share.

  • Jan Chrzciciel

    Very well written. Should be compulsory reading for all MP’s.

  • Rob

    This is one of the best articles I have read on TechCentral. Written by Nathan Jeffery? – appears so. Nothing more to say 🙂

  • Great point. Vote with our money.

  • Thanks Rob.

  • Thanks for the comment Dave.

    On the point of Tax – Technology and the Internet as a whole enable job creation with the end result being an increase in tax revenue. I [personally] feel is it almost irrelevant whether Facebook, Microsoft, Twitter or Google pay Tax in South Africa or not.

    The technologies these companies provide are quite literally the foundation of many local businesses without which many more people would be unemployed and therefore not paying taxes.

  • Vusumuzi Sibiya

    >>I [personally] feel is it almost irrelevant whether Facebook, Microsoft, Twitter or Google pay Tax in South Africa or not.

    Your point that the services of such OTTs do result in the creation of local businesses that would there increase tax revenue is quite correct;

    …however, when such companies do setup a presence locally and thereafter still require that you pay for their services through their UK or US offices into an account there; that is a tax avoidance practice that does need to be looked into – but that’s a matter for SARS and not one that would entail regulating OTT services.

  • 🙂 Good point.

    I’ve got quite a strong opinion on that topic too.

    Short version – operating a complex corporate tax structure costs a lot of money and all parties (lawyers, accountants & consultants) involved along the way get paid and pay taxes for their part in the process. For interest, you should spend some time doing research into opening a business entity or trust in Jersey or Guernsey.

    South African employees of Google, Facebook etc all pay PAYE/UIF so they’re still contributing to the local economy in that sense just not on a corporate level and personally I don’t see anything wrong with that.

    I would rather see local jobs created than a corporate paying local taxes.

  • Vusumuzi Sibiya

    >>For interest, you should spend some time doing research into opening a business entity or trust in Jersey or Guernsey.

    Point taken… and I would certainly agree that the business generated locally is no where near the volumes that would justify;

    >>operating a complex corporate tax structure that costs a lot of money

    …but I do think that it is something that SARS can definitely begin to look at with a medium to long term view; that would ensure that when local businesses are generating sizable volumes through such OTT services, the money isn’t being paid to the UK or US account but is through the SA office of the OTT.

  • Don’t get me wrong – from a business perspective, I would appreciate receiving Google & Microsoft invoices in Rands with VAT on the invoices so I can claim the VAT but right now I think we have bigger concerns as a country.

    Medium to long term, your line of thinking is probably correct in that if there is a local office and the local office is invoicing locally(i.e. Google invoices a South African) and not just providing support for “free” products then that local office should be subject to local laws.

  • William Stucke

    Well done, Nathan. You wrote an article almost as good as the one I might have – but didn’t 😉
    Small point: Note the difference between mb and MB. It’s quite a lot! (~8 x 10^9)

  • Thanks William. 🙂

    Whoops, that’s a good catch!

    1 min Skype call should be 1 MB and not 1 mb.

  • V.O.I.C.E

    Thank you Nathan, an open honest article, well done!

  • Dave Baker

    I don’t disagree with you Nathan.

    My point is that these battles are being fought by big countries (like the UK, France, Germany) wanting their share of the tax from revenue generated in their country.

    SA is tiny in comparison. This will play out over many years and perhaps there will be transfer pricing agreements. When and if that happens will determine if SARS get money. SA won’t be bringing this one to a head..

  • Ferdi

    I fully agree with all of the compliments to Nathan above. I also think he might have only briefly touched on the actual core of the problem.

    “With this in mind, any OTT operator doing their job properly will be
    using compression and efficient encoding to reduce the bandwidth being
    used by their service as it costs them money to operate.”

    Compression equals some kind of “encryption”, as it is usually propriety, making it more difficult to monitor without the assistance of the OTT players, as they can effectively continue to evolve their compression techniques with every update. I just have this nagging feeling that this is more about Dave Baker’s point 1, and I am glad that he did elevate it to 1.

    “1. The toughest one 1st. I don’t think there is any provision to require
    MNO’s to monitor and be able to provide the contents of say a WhatsApp,
    Skype or iMessage session?”

    If MNO’s are feeling pressure from government to provide this service, then all parties must come out and declare it in the open so that the people can decide who will pay for government’s need to monitor us, that is if MNO’s are unwilling to fund it from their own generous profits.

    Throwing the problem back at government WILL result in a long term catastrophe, as government WILL act with it’s usual shortsighted legislation like extended birth certificates, in an arena where the consequences will be orders of magnitude greater than it had on tourism or the rand by moving ministers of finance like pawns in a chess game, and we might end up having to RICA, as both Nathan and Dave touched upon, every computing device able to connect to the likes of Skype, Facebook or Whatsapp or whatever will follow in their footsteps, as they are not only restricted to mobile use.

    If I am not mistaken, Cell C retracted somewhat from their original way forward position by admitting that some regulating might be needed. Maybe somebody reminded them by a whisper in their ear about government’s need to monitor?

    I can really not fathom the idea that MNO’s can be so blatantly stupid as to try and throttle their data portion of their profit and obvious future area of growth by prohibiting or opposing the largest data guzzlers like Facebook. Only time will tell….

  • Vusumuzi Sibiya

    >>as government WILL act with it’s usual shortsighted legislation like extended birth certificates, in an arena where the consequences will be orders of magnitude greater than it had on tourism or the rand by moving ministers of finance like pawns in a chess game,

    I couldn’t have said it better myself Ferdi;

    >>the consequences will be orders of magnitude greater than it had on tourism or the rand by moving ministers of finance like pawns in a chess game,

    Yep! couldn’t have said it better myself.

  • Vusumuzi Sibiya

    >>SA is tiny in comparison. This will play out over many years and perhaps there will be transfer pricing agreements.

    Sure… but it’s something for SARS to begin looking into rather than these ridiculously absurd considerations of regulating OTT services which are being motivated by the #GreedyCravingCrybabies

    …and if they approach it correctly, then the;

    >>perhaps there will be transfer pricing agreements.

    …may end up being a definite – which would be a win for tiny SA.

  • Word. 🙂

  • Thanks Danny, I’ve downloaded it, will give it a skim.

  • Thanks Ferdi.

    I’m pro-privacy so viva encryption, viva!

    Truth! Government intervention would be catastrophic.

    The way I understood the Cell C comments was that if regulation is to be enforced it should be under existing regulation and no new regulation. I believe the stance is still against regulation of OTTs.

    Word! South African corporates be crazy, it’s not just the MNOs.

  • Ferdi

    If you like encryption then you will like what you read if you visit Whatsapp’s Wiki page. Apparently they are trying to be secure and score 2/7 for security but will most likely never get much higher being a public “chat” app.

  • Funny enough, I don’t actually use WhatsApp but I’m stoked to see they will be offering encrypted calls and messaging. 🙂

  • Andrew Fraser

    No. 3. Tax.
    This may well be an issue, but it has nothing to do with the MNOs. SARS is big enough and ugly enough to look after its own business. MTN mentioning this is the hearings was a red herring, completely beside the subject.

  • Thabang Zuna

    What aload of crap….I own an OTT company an its very successful outside of South Africa. This is the only country where 4 Telco’s run the entire sector. I am disgusted that after all these years that every ISP has a piece in the other. When new competition comes out they shut them down…Let an independant come in and lets see what happens. We are being held hostage and all we do is pay for no reason. Mark my words a massive shackup is coming in the industry and nobody will be expecting and Naspwers will take them to court and blah blah blah….seen and heard it all before…..Change in South Africa is difficult

  • Leo Blom

    How annoying

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