OTTs regulation could stifle innovation and investment, experts warn

Parliamentary portfolio committee on Telecommunications and Postal Services met on Tuesday with mobile network representatives and stakeholders to discuss the possible regulation of over the top services (OTTs) in South Africa.   

The issues under discussion included concerns surrounding the growing source of data revenues of network operators, which OTTs provide. While mobile network operators are governed under the laws and licensing regime of the country and are subject to regulations, this do not apply to OTTS and as a result poses revenue challenges to network providers.

The main argument put forward by mobile operators is that OTTs do not pay taxes and do not build their own infrastructure and so they need to be subjected to the same rules as the mobile networks. 

The debate

An issue which was of major concern, according to media reports is that OTT players offer end to end encryption, which contravenes South Africa’s licence requirements. As a result of this MTN and Vodacom requested that parliament consider passing a policy of data services on mobile networks to generate revenue for carrying the data services on their bandwidth infrastructure.

In response to this, Tshepo Ramodibe, executive head of corporate affairs at Vodacom told Justmoney: “It is Vodacom’s view that the current debate regarding the policy and regulatory treatment of OTTs in our country is timely, and should be tackled by our regulator and policy makers as is being done elsewhere in the world.”

“It is our firm view that crucial issues such as security, content, quality of service and taxation need to be discussed, as opposed to the current focus on margins and perceived territory protection,” Ramodibe highlighted.

Further, Ramodibe added that Vodacom supports open internet and solutions that allow all the players to work together in the interest of the broader public and the country. “Accordingly, we are committed to working with the portfolio committee, policy makers, the regulator and other relevant stakeholders to enhance an environment that enables all players, including OTTs, to co-exist in South Africa,” said Ramodibe.

Likewise MTN believes that OTTS present a disruptive impact on voice revenue for network operators and potentially on investment. But on the contrary, Cell C chief legal officer, Graham Mackinnon told Justmoney that regulation of OTT services would stifle innovation and investment.

"Not only that, but as they currently stand, these services lower the cost to communicate and consumers love these services. Regulating these OTTs could force them to exit the market or force higher rates on consumers.

Mackinnon added that “if we don't innovate around these services and drive value to our customers, we run a higher risk of being left out of the future entirely. Customers also innovate around these services, using them as platforms to generate income and boost the economy, and higher costs associated with these would stifle that.”

Further, he expressed that “if OTT services and mobile network providers work together and develop partnerships, everyone - especially the consumer - can benefit. Innovation is what drives customer retention and growth. Operators must work with OTTs to find models that work for both parties.”

In an earlier report, Facebook, Google and Microsoft strongly refuted this argument, stating that the services they offered should not be seen as competing with those offered by mobile operators, but rather as revenue generators for them. Google representatives argued that the company is willing to pay tax if the tax review changes the tax structure.

However, Microsoft representatives believed that regulating OTTs could come at a high cost. This is because Microsoft owns Internet-based communication platform Skype, and if it is forced to shut down it could impact negatively on the small business owners who depend on it.

Regulation 

Professor Alison Gillwald, director of research ICT Africa, stated that “there are changing markets in the telecoms sector where consumers are shifting to data and in a competitive market players have to continue to invest so SA has to move from a static regulation to a more dynamic one.”

There are two categories of regulation, Mackinnon explained. “The first is the telco regulation which includes policies such as licensing, interconnect, facilities leasing, and quality of services. The second category can be summarised under the headings: security, privacy and taxation. If Government has concerns about the second category (security, privacy and tax) then these can be addressed through existing frameworks and laws. Still, we caution that these are difficult issues to grapple with and if it was decided to regulate these aspects then a "light touch" approach should be adopted. Infrastructure sharing would assist all mobile network providers to lower their input costs and by extension lower the cost to communicate for the costumer,” he maintained.

According to Gillwald, “there are issues at stake around investment regarding networks and OTTs but how will a regulation be enforced? We need complex adaptive regulation because OTT regulation could down innovation.”
She added that short term instrumental regulation must be guarded against and we must look very carefully before we regulate.

For more information on OTT possible regulation click here