The case against OTT regulation

Regulation of “over the top” providers may just be raising another barrier to competition in the telecommunications sector, rather than protecting consumers from harm. By Yash Ramkolowan and Genna Robb.

Yash-Ramkolowan-180The advent of new technologies continues to disrupt competition in a number of traditional markets, many of which have operated in the same manner for decades.

Examples of this include the metered taxi industry, where Uber is quickly becoming both a noun and verb in South African conversation, and the television industry (hello, Netflix).

From a telecoms point of view, so-called over-the-top (OTT) communication providers such as WhatsApp, WeChat and even Facebook Messenger have revolutionised the way in which we communicate.

Not unusually, in almost all these disrupted industries, traditional players have called for “better regulation” of these new (and technologically advanced) entrants. Recently, successful lobbying by certain mobile operators has led to parliament’s portfolio committee on telecoms & postal services scheduling a hearing into the possible regulation of OTT services in South Africa.

genna-robb-180The core argument from these mobile networks appears to centre on the suggestion that OTT providers use infrastructure for (in) which they do not pay (invest), and that they are therefore “free-riding” on expensive assets built by the operators. There has also been some argument that OTT providers are not sufficiently regulated.

The question is whether there is merit to these arguments, or whether these claims simply represent the mobile operators’ attempts to frustrate competition from more technologically advanced forms of communication.

First of all, let’s deal with the argument that OTT providers are free-riding on the operators’ infrastructure.

Anybody that uses the range of OTT providers (anything from WhatsApp to Skype) on their mobile devices (and through mobile networks) will know that there is a cost attached to doing this. Specifically, the users of these services pay the mobile networks in the form of data charges every time a message is sent and received. And, as opposed to traditional mobile and text communication, in these cases both the sender and recipient pay data charges.

So, while the cost of communication may be lower for each individual party, it is important to remember that both parties pay mobile operators when using OTT services. Ultimately, users are paying for the use of the network operators’ infrastructure through data charges.

Consider also that South Africa’s mobile networks have long operated in an oligopolistic environment, with four mobile network operators (two much larger than the others) accounting for all 85m connections. In this environment, the leading (and oldest) operators have earned substantial returns on their investments, and continue to do so. Even in an environment where SMS and traditional voice revenues are beginning to decline, these operators are seeing huge increases in data revenues and continued good returns.

It is worth noting that South Africa’s third largest mobile network, and historically the underdog in the market, Cell C, has a different view, arguing that regulating OTT services could harm the industry and consumers. Instead of lobbying for more regulation on OTT providers, it has chosen to partner with them. This is the stance increasingly being taken by mobile operators internationally.

From a regulatory perspective, the debate is more nuanced. It is true that mobile operators face a heavier regulatory burden than the OTTs, but this in itself is not necessarily a justification for further regulation.

red-tape-640

For example, regulations relating to quality of service are moot in a market where consumers are very easily able to vote with their feet and switch OTT providers.

While such regulation may have been necessary when we only had two network operators providing communication services, it is not clear that such regulation should be imposed on rapidly proliferating OTT providers.

Over-regulation of these new entrants may only serve to entrench the position of existing operators and throttle the benefits that arise from increased competition, such as lower prices and more market innovation.

A cautionary tale can be found in the development of mobile money, which has failed to take hold in South Africa despite numerous potential benefits to consumers. This is partly because of the heavy-handed regulatory approach taken by South Africa, which treats mobile money providers as if they were banks.

A key principle of regulation is that it needs to be proportionate to the risk of harm to consumers. Ultimately, each aspect of regulation being proposed for OTT services should be carefully weighed in terms of the cost and benefit to consumers. From an economic perspective, this would be far superior than imposing a blanket approach, simply to appease the incumbent mobile operators.

It is interesting to note that in more developed telecoms markets, the debate has gone much further, focusing on the principle of net neutrality (the principle that consumers should be able to go wherever they want, and whenever they want, on the Internet, without facing discriminatory traffic charges).

There is no doubt that mobile operators are in an unusual and potentially profit-threatening situation

Although many mobile operators and Internet service providers resisted this change, there is now increasing acceptance of this principle globally.
Similarly, whereas many operators in developed markets have attempted to fight the rise of OTT providers by lobbying for tighter regulation on these services or by banning them entirely, governments are increasingly opting not to regulate such services, or are employing a “light touch” regulatory approach.

In South Africa, mobile operators are currently directing their lobbying efforts on services that compete with their traditional voice and text communication services; effectively using the regulatory framework to try and raise barriers to competition in their sector.

While they have no problem with mobile users accessing high bandwidth-using applications — don’t we all watch at least one YouTube video a day? — they are looking to preclude consumers from using the same bandwidth to access services which compete with their core business offering. For users of these services, this does not add-up. If you are already paying for the bandwidth, why should the operator care what it is used for? And isn’t YouTube “free-riding” on their networks just as much as WhatsApp?

There are further and more complex questions as to how regulation of OTT space would be implemented. What would be classified as an OTT provider, considering that the forms of communication that are available through data networks are ever expanding and ubiquitous?

Would regulation (or prescribed higher charges) also apply to OTT providers that are accessed through broadband (and fibre) networks? How would this be monitored? Would there be rules for users that opt to hide their Internet activity through the use of virtual private networks and other similar services? How would OTT services provided by the mobile operators themselves be regulated?

There is no doubt that mobile operators are in an unusual and potentially profit-threatening situation. Prompted by disruptive technologies, entrenched players are finally beginning to face real competition for the services they provide. Their response, it would seem, has been to seek protection from the regulator. The regulation of companies should ultimately be for the benefit of consumers. In this case, it is not clear that widening the regulatory net or increasing the regulatory burden to incorporate OTT providers, will serve this purpose.

  • Yash Ramkolowan and Genna Robb are economists at DNA Economics, an economics consultancy based in Pretoria

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  • Jannie van Zyl

    Morocco blocked outright but a few other countries including Germany and France implemented some of the regulations. Egypt is another one off the top of my head. Saw a list today with around 20 countries doing one thing or another in this space.

  • Greg Mahlknecht

    Cool, thanks – looks like Germany/France/Belguim/UK are trying to implement regulations, but haven’t got them through yet.

    Morocco’s outright ban backed by regulation is a lesson why these OTT regulations absolutely cannot go through, it’s so against the interest of the citizens.

    And of course Egypt is the poster child why these services should be free to work. During the Arab Spring, the government pretty much cut all internet ties to the outside world in an attempt to stop the use of Twitter/Whatsapp, but even that wasn’t enough, and they kept on working.

    Looking to any other countries doing anything in this space points clearly to NOT regulate OTTs, which is a very good thing.

  • But now I don’t have to go, since you are there to set the record straight and to tell ICASA how Vodacom is against government regulation of OTTs. Thanks guy, you do care about your customers after all.

  • Here’s one of many links, again. By the way, you can click on this text and your browser (that’s one of those OTTs which urm, is not really an OTT it’s just a service someone uses with data on your network which you should thank and pay because they are bringing you business) will open:

    Vodacom calls for OTT regulatioin

  • Andrew Fraser

    So, if these services are subject to similar regulation, you’d agree to allowing them access to your spectrum in order that they can roll out infrastructure? Because you can’t have it both ways. The reason that Vodacom etc. are so heaviy regulated is precisely that they have licensed portions of a very scarce spectrum. QoS and similar regulations are there to ensure that they don’t abuse that access by price gouging and providing sub-standard service.

    It is specious to compare the services provided by OTT providers in the same way. OTT providers need to provide QoS in order to survive, churn is inevitable if customer satisfaction is not high. The barriers to churn for MNOs are much higher (but not high enough to stop me from considering it).

    If Vodacom wants support for a levelling of the playing field, how about arguing for a reduction in regulation? Lower barriers to entry, easier access to spectrum, simpler licensing regime?

  • Jannie van Zyl

    No-one is calling for heavier regulation, heaven forbid. So your suggestions should be on the table as well, for sure.

    The single biggest theme that emerged from yesterday’s submission is the spectrum issue.

  • Andrew Fraser

    But that is exactly what both the CEO of Vodacom and the ex-CEO of MTN have proposed. Additional regulation.

    The day wasted on this OTT nonsense could have well been spent on the spectrum issue. Something that is regulated and needs clarity and implementation for the good of all (MNO, consumer and OTT alike). The statements attributed to the spokespeople from Vodacom, MTN and ICASA (misreported as they may be), show a singular lack of clarity on the real issues that plague the telecomms sector.

  • Jannie van Zyl

    Andrew, no. Shameel only ever said the regulator will have to look at this whole environment. No-one ever called for ‘heavier’ regulation. It’s counterintuitive to increase regulation.

    As Greg said, we might even end up with less regulation.

    I must also point out that Vodacom never made unsolicited statements on this topic
    The one time Shameel made a statement was when he was asked by the media after such an unsolicited statement by another MNO.

    So to say Vodacom is calling or lobbying for this is not quite correct. But when the debate started everyone came to VC (as the market leader) for comment.

    Go read Shameel’s words again and you see what I mean.

  • You are misinformed on the kind of OTT regulations that are being discussed in the EU. Most of that discussion revolves around net neutrality and privacy concerns of customers. It’s not the same kind of regulation that played out in Egypt or Morrocco, which has no bearing on OTT regulation, but more on political oppression. Apples and oranges.

  • So should Vodacom be regulated as ISPs then? I mean my ISP service from Vodacom is in effect an OTT…

  • More like we’ve come to a point where Vodacom invested in SMS and voice tech when they should have invested in internet services and now they’re trying to bludgeon the shortfall out of OTTs.

  • I disagree, I would love to see MTN and Vodacom lose their licenses for collusion and therefore be blocked. As someone for disruptive innovation, I’m sure you can see the advantages of getting rid of the bullies on the school yard.

  • Hopefully with Vodacom and MTN going out of business.

  • Jannie van Zyl

    If there are relevant ‘IS Regulations’, of course.

    You really seem to battle with this concept of uniform regulation.

  • Jannie van Zyl

    Really?

    What % of the 3G and 4G networks (where the investment happens) carry data vs voice?

  • You seem to battle with this concept of Vodacom calling for regulation, and then calling for uniform regulation, and then denying that Vodacom called for regulation.

    You can’t call for uniform regulation, and then claim that nobody from Vodacom called for OTT regulation.

  • Did you tell ICASA that Vodacom opposes stifling competition with regulation yet?

  • Marcan

    Jannie, please finally reveal that you are a long term Vodacon employee, and advocate.

  • Andrew Fraser

    But why does the regulator have to look at the environment? The regulator is borderline incompetent to enforce the regulations that are already in place.

    There are serious issues that need to be addressed, worrying about whether the MNOs become dumb pipes shouldn’t be something for the regulator to concern themselves with. If MNOs don’t innovate and offer consumers what they want, it is inevitable that they’ll get it elsewhere. The argument that is repeated is that OTTs get a free ride, but since the MNOs get two bites of data (sender and receiver) that they can bill for, I can not see how that is an argument.

  • Jannie van Zyl

    I’m going to type this slowly for you.

    Vodacom did not call for regulation. But when it was asked, the answer was that regulation should be uniform.

    Is this really that difficult to understand?

  • Jannie van Zyl

    Often.

  • Jannie van Zyl

    Andrew, I think what’s creating a lot of confusion (and emotion) here is that a multi-faceted conversation is being held and many latch onto one specific topic, often without thinking about the overall picture. Net neutrality, Regulation, etc. all is involved here.

    I’ve not heard anyone say that the regulator must prevent MNOs from becoming dumb pipes, BTW. If the MNOs can’t do it, tough luck.

    Lots of arguments for and against the fact that OTTs get a ‘free ride’. On the one hand the consumer pays for the data (so they’re not getting a free ride), on the other, they have no obligations (so here they do).

    As I’ve said repeatedly, it’s a complex environment and (for me) the answer is a complete relook at the whole telecoms space. What that’ll produce, nobody really knows, but it’s a process that’s likely long overdue.

    Maybe we end up with no regulation for anyone (Greg wishes!) or maybe draconian blocking of every service at the other end of scale (as unlikely). Right now we can only speculate but to get to the final answer, someone must do some work and that’s what the portfolio is contemplating. Way to early for many of the comments were seeing.

    We should watch whats happening in the rest of the world, as every government is grappling with this. And hopefully take the best of everyone for SA.

  • Jannie van Zyl

    Pretty sure everyone knows that.

    Maybe read my comments above where it’s patently clear.

  • Strange, I have not found a single case of that anywhere in the press. You are however on record as calling for regulation. Not only you but several Vodacom representatives called for OTT regulation. And then you lied about that, so no surprise that you are lying again.

  • That means Vodacom asked for regulation. So stop lying about it.

  • Jannie van Zyl

    You really debate like a child. Just keep on repeating what you want to say even if the facts speak differently.

    You could not produce one single quote where VC, myself, Shameel or anyone else is made an unsolicited call for regulation (because we never did – and I’ve explained it to you multiple times) but think if you keep on repeating it, others will think you must be correct. This might work for a Republican voter, not TechCentral readers. They can fact-check.

    Not sure I have much more to say to you. I’ll speak to the adults on this page who can engage in constructive discussions and not revert to insults when they’re proven wrong.

  • Read: Industry shill. Except not doing a very good job because his lies are so easy to spot.

  • prodigy712

    100% agree. For the MNO, they face an unfair advantage due to the burden of regulation while the OTT who when conjoined, offer the same service to the consumer.

    Regulation in-itself not a bad thing as a frame-work, but it too should evolve.

  • Andrew Fraser

    I appreciate that you’re taking the time to engage on this, but I think you may have seen that Vodacom (and to a much greater extent, MTN) has a massive credibility gap. One that is created by their own disingenuous statements and action with regard to MTRs. Quite simply, most spectators simply don’t believe you.

    I’m on the point of the net neutrality spectrum where I feel that neutrality should be the default, and that any deviation from neutrality should be:
    1. Transparent – Consumers should know exactly what kind of interventions will be undertaken on their data before they buy the service. If the connection is shaped (or prioritised) that information should be made clear to the customer, so that they can make an informed purchase.
    2. In the consumer’s interests. Any shaping/prioritisation should be used to improve the overall service or to make it more affordable. Using shaping/prioritisation to act against the competitors to a service provider’s own offerings should be viewed as what it is: anti-competitive.

    If anything should be regulated it is this.

    I’m personally not convinced that the duopoly of MTN/Vodacom feel the same way. The use of regulations to lift barriers of entry and unfairly compete, and market strength to bully the regulator has become standard operating procedure.

  • Jannie van Zyl

    Pretty pro-NN myself. There will always be a need for some traffic management (video vs. Torrents, for example) but it should be the exception. Today we don’t discriminate at all between traffic types but I can see a need in the future as wireless broadband prices drop.

  • Yet another example of Vodacom calling for OTT regulation:

    Though he was at pains to say the operator welcomed the innovation that OTT services brought, Andrew Barendse, Vodacom’s managing executive of regulatory affairs, said the operator wanted the regulation of OTT services that competed directly with its own products and services.

  • tongue in cheek

    yeah, just so the mobile operators can screw the consummer – again

  • tongue in cheek

    maybe the consumers all vote with their wallet for a month, especially the pay as you go kind of consumer, I’m sure even guys on contracts have charges to their account, over and above their “contract” fee. Maybe all the Voda and MTN towers, electrons, packets and stuff will go rusty or something with lack of usage for a month, as will their finance and account depts

  • William Stucke

    Yes they can. As they can intercept ANY traffic carried by any infrastructure operator in RSA.
    Calling for additional interception of IP protocol stuff is totally redundant. WhatsApp, Skype, etc., can be and is already intercepted.
    You want to do it twice? Why?

  • Greg Mahlknecht

    I think what they’re calling for is backdoors to be created. All these “OTT” services (I call them OTT, but it’s really just “Competing Services”) are end-to-end encrypted; intercepting the raw traffic is useless. Not like voice and SMS which have positions in the infrastructure that shims can be placed by the MNOs to capture the unencrypted traffic (or just harvested wholesale with devices like a Stingray).

    And these backdoors will never happen. The “OTT” guys are fighting the same big battles in USA and Europe… our pipsqueak government and MNOs aren’t going to sway their opinion one iota.

    But your point is well taken. Maybe the fact they can already intercept the encrypted data satisfies the letter of the current law, and the argument can be put to rest here.

  • William Stucke

    It’s entirely unnecessary for Apple to be concerned with LI in RSA. All ISPS already have to provide LI facilities for all traffic. Including iMessage, WhatsApp, Skype, WeChat, etc.
    The obligation is to provide the data. Not to decrypt it.
    Oh, Jannie & Joosub: Who’s the biggest ISP in South Africa? No, it’s not IS. Not MWEB. It’s Vodacom! But you’re still not members of ISPA? Get with the 21st Century, why don’t you?

  • William Stucke

    Absolutely. RICA (I won’t bore you with its full acronym) is without a doubt one of the most poorly thought out pieces of legislation in this country, ever. I personally spent 5 years fighting it, and getting rid of some of its most stupid and egregious provisions. It has directly contributed to an enormous increase in Identity Theft and done very little indeed to achieve its stated aims of reducing crime & terrorism.
    In terms of the strict reading of the Act, if you provide access to the Internet to your family through your ADSL line, you are an “ISP” and are legally obliged to provide interception facilities …
    Despite all its many, tedious and expensive requirements, nowhere are you obliged to decrypt the communications that you are required to provide invisibly to the victim. Sorry, target.

  • Jannie van Zyl

    William, it’s easy to intercept any IP stream.

    But it’s pretty useless if you can’t decrypt the encrypted payload, right? Where is the OTT voice carried in the packet? Think a bit about it.

  • Jannie van Zyl

    William, if you recall I made that presentation to you directly.

    I never said, nor implied, that WA or other services should be charged for. I did say that as voice traffic is cannibalised by data traffic it’lll have a knock-on effect on the MNOs ability to invest with the obvious impact on Connect 2020.

    And, believe it or not, making 2020 is a real driver for Vodacom. I was playing with some numbers yesterday and they’re staggering, running into the hundreds of billions.

    This is why spectrum came up in every presentation at the hearings this week.

    Any case, back to OTT. The presentation I did to you and the submissions this week merely pointed out the facts. What the answer is, I would venture no-one knows right now. Except every armchair forum expert, of course. 🙂

  • Vusumuzi Sibiya

    >>What the answer is, I would venture no-one knows right now

    Actually, the answer is quite obvious and if you looked at your business card – it would jump up and punch you in the nose.

    INNOVATE OR FACE BEING REDUNDANT

  • Jannie van Zyl

    You’re completely off topic. It’s obvious companies must innovate or die. That Business-101.

    The question being discussed here is how will OTT services comply with legal intercept, taxation, QoS, etc.

    These laws already exist, so there s no debate if they must comply or not. Rather how the hell are they implemented. Or not.

  • Vusumuzi Sibiya

    …and still in all of your commentary filled with questionable truth, you haven’t answered the very first question I posed to you, Mr Head of Innovation at Vodacom;

    What I do know is that in South Africa, we have always had law-enforcement, prosecution & a justice system…

    So, how about you share with us some of your innovative wisdom on how you see all of what you’ve been rambling on about, being effectively enforced; and without going against net neutrality and the consumer –

    …because from your own comment right here on TC, you do claim to be a champion of NN.

    Let’s not venture into any claim of your being a champion of the consumer with Vodacom… your nose has grown long enough from the remarks you’ve been making in the past week.

    I’d just like to hear how you see the regulation of OTT services being enforced; and whether you’ve actually given any thought as to exactly how your consumers will respond should all the targeted OTT services decide show South Africa the middle-finger.

    Maybe that’s exactly what you’re hoping for, …so you can roll out your very own clone of WhatsApp and Joosub can write a biography, where he also gives an account of exactly how “innovation” works at Vodacom.

  • Vusumuzi Sibiya

    >>There is no doubt that mobile operators are in an unusual and potentially profit-threatening situation. Prompted by disruptive technologies, entrenched players are finally beginning to face real competition for the services they provide.

    You would do yourself a huge favor, especially being in the position you’re in, to do some thorough revision of –

    >>It’s obvious companies must innovate or die. That Business-101.

    Because it certainly appears that you and the clowns that you’ve lobbied in government, are the ones that are in the minority and evidently also missing the very obvious point of the topic.

  • William Stucke

    > William, if you recall I made that presentation to you directly.

    No, Jannie, you’re conflating two different things. The link in the comment to which you are replying is to an article published on the 16th January 2016. You are directly quoted.

    The presentation that you made was in October 2014. Slides 24 – 27 dealt with Net Neutrality issues. The fact that I was sitting on the other side of the table and politely didn’t call every presenter out on every misleading statement (there are only so many hours in the day!) doesn’t automatically make everything that you said either true or accepted as valid by the Panel members 😉

  • William Stucke

    To save you all the trouble of checking the ITweb link, this is what I said: –

    Come, come, Janie. I expect better than this from you. Much better. Let me rephrase that to be more accurate: –

    “Services being provided by Internet operators are becoming increasingly data hungry and the mobile networks are delighted with the additional revenue they gain from their customers paying to access these services.”

  • William Stucke

    Already answered above, Greg. MNOs and other network operators are already obliged to provide LI. That applies to all streams, all protocols, whether encrypted or not. At some point between the end-user and the BWW ™.

    It’s not Apple’s problem. It’s the ISPs problem. And guess who’s the biggest ISP in SA?

    !!! VODACOM !!!

    But they haven’t noticed yet and still think that they’re selling 2G voice. And the world’s most overpriced service, SMSs. And haven’t got around to joining ISPA and at least getting some free advice and real legal protection as a “mere conduit”.

    Oh, well. You can take a horse to water, but you can’t make it drink …

  • William Stucke

    Egypt? That well known bastion of democracy where it’s illegal to have a GPS in your cellphone?

  • WhatsApp, Skype and other “over the top” services should be regulated in the same way as telecommunications operators, especially as there is a risk that these new competitors will threaten cellphone companies’ ability to invest in their networks.

    1. Another example of Vodacom claling for OTT regulation.

    2. An example of Vodacom calling for OTTs to be regulated like telecom operators. How pathetic. They do not provide telecoms, they do not rely on telecom infrastructure, you do.