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BUSINESS DAY TV: There is room to look at how to regulate OTT services
by Transcript Services, 28 January 2016,
2016-01-28 18:31:50.0
Transcript Services, 28 January 2016
BUSINESS DAY TV: There is room to look at how to regulate OTT services
NADIM Mohamed from First Avenue Investment Management discusses the implications of regulating over the top (OTT) services, such as WhatsApp, Skype and Facebook Messenger and the stance of cellphone operators
BUSINESS DAY TV: If you think OTT has more to do with your mother-in-law’s loud clothing then you might need to brush up a bit. OTT providers such as WhatsApp but also Google and Facebook have been before Parliament this week to present their case as to whether OTT services need to be regulated in SA.
MTN and Vodacom say they must, if only to ensure they’re subject to the same compliance rules as networks. Is this a losing battle that the cellphone providers really should not be fighting, or is there just too much at stake? Joining us now in the News Leader studio is Nadim Mohamed, telecoms analyst at First Avenue.
Nadim...do you see the argument that’s been put on the table by the likes of Vodacom and MTN?
NADIM MOHAMED: There seems to have been a lot of hype about this issue, the sum of its parts by Cell C...they’ve positioned themselves as a consumer champion and they use this as key opportunity to set up the big guys, who are trying to defend their profits at the expense of consumers. That’s not really the case...all the operators in SA have realised that OTT is the future and that there is a symbiotic relationship between the network and the OTT providers. So without the network especially in SA there would be no OTT service. So between the two, because of the adoption of these services was faster than the network operators could even have expected, or even the regulators would have expected. There’s room to discuss and to look at how to regulate these services and that’s really what the discussion was about.
BDTV: You talk about symbiotic relationships...on the other hand the OTT providers or services say that they’re actually pushing people towards using the network operators so there is a mutual gain. But would you say it’s still skewed in favour of OTT service provider’s piggy backing off the networks?
NM: Certainly...actually the OTT providers drive demand of data, so services like Facebook, like Netflix which is now in SA, drive a lot of content adoption and so that traffic in SA would mostly go through a mobile network. So it does drive demand. The trouble is when you go to services like voice, and you have voice calling and WhatsApp, voice calling on Viber etc, then it becomes an issue because the crown jewel in the telco network has always been voice, the most profitable service, and now you can actually get voice a lot cheaper if you communicate via an OTT application.
BDTV: There has been a lot of commentary out saying that the likes of Vodacom and MTN forget that they were once the new kids on the block and this wasn’t such a regulated market when they started off. That things needed time to evolve and to grow. Do you buy into that argument at all?
NM: The right point that they’re making is that it’s not an even playing field. I don’t think that’s as relevant to be honest because the kind of regulation that we’re talking about are things like lawful interception. What that means is that if a security agency wants to tap a call, they can then tap it on a WhatsApp call.
Those kinds of things...things like interconnect, are not really relevant to these kind of calls. So it’s not really the case. The problem that mobile operators really have and this is outside of regulations...that if a mass number of their consumers start using WhatsApp calling their networks are not yet ready to handle this much data. So the longer they can delay this process, the better for them to catch up and dimension those networks to the demand.
BDTV: Do you think they’re actually at an inflection point? I was reading an article by Nathan Jeffrey in TechCentral saying that these guys, Vodacom and MTN, they’re utilities and they have to accept themselves as such. And do you think this is maybe the bitter realisation that they’re now coming to face, and investors in these companies also need to not see them as the cash cows that they’ve been in the last few years?
NM: The golden period that these telco’s had in the 1990s...that is long gone and I don’t think you’ll see double-digit growth again from them. They are already behaving like utilities...even Vodacom, for example, guides to single-digit revenue growth and a good dividend yield so they’re already being priced as utilities to some degree.
But to give you an interesting insight as to how the new models behave, if you take a typical WhatsApp call, say a minute on a WhatsApp call, it uses roughly about 1MB of data and 1MB of data costs you, depending on the bundle or the plan you’re on, between 15c and up to R2, I suppose, if you’re out of bundle. Now a one-minute call...it’s also a range but it’s in the region of a minimum of 66c or maximum of R1.50 so you do get some revenue decline when you move to the services.
But the other side of it is that when a user gets onto a smartphone because he needs a smartphone to use WhatsApp, there are a whole lot of other services he can take up and that again will rise...so it’s not entirely doom as a scenario for the operators. They will probably see the voice service continue to slowly decline and hopefully that will be made up by the data growth in time to come.
BDTV: Of course this is not a conundrum that SA faces alone. So what sort of discussions are being held elsewhere in the world?
NM: Actually this is a very topical subject right now. Every market in the world, every regulator is trying to figure this out. Theres an investigation that’s just been initiated in the UK to understand how to regulate this. In India, in the US, they’re also talking about needing network clarity because in the US what [unclear] is the ability to bill a higher rate for voice service. Now why would you want to do that because a MB is a MB and as a consumer I don’t want to be treated differently if I want to use my mainline voice as opposed to a website, etc?
So theres a lot of discussion and when the US looked towards leaning network parity, which means that these services will be treated equally, which means they will probably hurt the voice revenue of operators. But it was interesting in Morocco the operators have actually banned these services. So theres a wide range of thinking on this and I don’t think anyone has really settled on good direction for it.
BDTV: We’ll see how our regulators apply their minds.
2016-01-28 18:29:13.0
NADIM Mohamed from First Avenue Investment Management discusses the implications of regulating over the top (OTT) services, such as WhatsApp, Skype and Facebook Messenger and the stance of cellphone operators
BUSINESS DAY TV: If you think OTT has more to do with your mother-in-law’s loud clothing then you might need to brush up a bit. OTT providers such as WhatsApp but also Google and Facebook have been before Parliament this week to present their case as to whether OTT services need to be regulated in SA.
MTN and Vodacom say they must, if only to ensure they’re subject to the same compliance rules as networks. Is this a losing battle that the cellphone providers really should not be fighting, or is there just too much at stake? Joining us now in the News Leader studio is Nadim Mohamed, telecoms analyst at First Avenue.
Nadim...do you see the argument that’s been put on the table by the likes of Vodacom and MTN?
NADIM MOHAMED: There seems to have been a lot of hype about this issue, the sum of its parts by Cell C...they’ve positioned themselves as a consumer champion and they use this as key opportunity to set up the big guys, who are trying to defend their profits at the expense of consumers. That’s not really the case...all the operators in SA have realised that OTT is the future and that there is a symbiotic relationship between the network and the OTT providers. So without the network especially in SA there would be no OTT service. So between the two, because of the adoption of these services was faster than the network operators could even have expected, or even the regulators would have expected. There’s room to discuss and to look at how to regulate these services and that’s really what the discussion was about.
BDTV: You talk about symbiotic relationships...on the other hand the OTT providers or services say that they’re actually pushing people towards using the network operators so there is a mutual gain. But would you say it’s still skewed in favour of OTT service provider’s piggy backing off the networks?
NM: Certainly...actually the OTT providers drive demand of data, so services like Facebook, like Netflix which is now in SA, drive a lot of content adoption and so that traffic in SA would mostly go through a mobile network. So it does drive demand. The trouble is when you go to services like voice, and you have voice calling and WhatsApp, voice calling on Viber etc, then it becomes an issue because the crown jewel in the telco network has always been voice, the most profitable service, and now you can actually get voice a lot cheaper if you communicate via an OTT application.
BDTV: There has been a lot of commentary out saying that the likes of Vodacom and MTN forget that they were once the new kids on the block and this wasn’t such a regulated market when they started off. That things needed time to evolve and to grow. Do you buy into that argument at all?
NM: The right point that they’re making is that it’s not an even playing field. I don’t think that’s as relevant to be honest because the kind of regulation that we’re talking about are things like lawful interception. What that means is that if a security agency wants to tap a call, they can then tap it on a WhatsApp call.
Those kinds of things...things like interconnect, are not really relevant to these kind of calls. So it’s not really the case. The problem that mobile operators really have and this is outside of regulations...that if a mass number of their consumers start using WhatsApp calling their networks are not yet ready to handle this much data. So the longer they can delay this process, the better for them to catch up and dimension those networks to the demand.
BDTV: Do you think they’re actually at an inflection point? I was reading an article by Nathan Jeffrey in TechCentral saying that these guys, Vodacom and MTN, they’re utilities and they have to accept themselves as such. And do you think this is maybe the bitter realisation that they’re now coming to face, and investors in these companies also need to not see them as the cash cows that they’ve been in the last few years?
NM: The golden period that these telco’s had in the 1990s...that is long gone and I don’t think you’ll see double-digit growth again from them. They are already behaving like utilities...even Vodacom, for example, guides to single-digit revenue growth and a good dividend yield so they’re already being priced as utilities to some degree.
But to give you an interesting insight as to how the new models behave, if you take a typical WhatsApp call, say a minute on a WhatsApp call, it uses roughly about 1MB of data and 1MB of data costs you, depending on the bundle or the plan you’re on, between 15c and up to R2, I suppose, if you’re out of bundle. Now a one-minute call...it’s also a range but it’s in the region of a minimum of 66c or maximum of R1.50 so you do get some revenue decline when you move to the services.
But the other side of it is that when a user gets onto a smartphone because he needs a smartphone to use WhatsApp, there are a whole lot of other services he can take up and that again will rise...so it’s not entirely doom as a scenario for the operators. They will probably see the voice service continue to slowly decline and hopefully that will be made up by the data growth in time to come.
BDTV: Of course this is not a conundrum that SA faces alone. So what sort of discussions are being held elsewhere in the world?
NM: Actually this is a very topical subject right now. Every market in the world, every regulator is trying to figure this out. Theres an investigation that’s just been initiated in the UK to understand how to regulate this. In India, in the US, they’re also talking about needing network clarity because in the US what [unclear] is the ability to bill a higher rate for voice service. Now why would you want to do that because a MB is a MB and as a consumer I don’t want to be treated differently if I want to use my mainline voice as opposed to a website, etc?
So theres a lot of discussion and when the US looked towards leaning network parity, which means that these services will be treated equally, which means they will probably hurt the voice revenue of operators. But it was interesting in Morocco the operators have actually banned these services. So theres a wide range of thinking on this and I don’t think anyone has really settled on good direction for it.
BDTV: We’ll see how our regulators apply their minds.
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