Impact of Over the Top (OTT)

Services on the ICT Sector and its

Stakeholders

www.sacomforum.org.za

Connect to Connect Summit19th to 21st July 2016

20 July 2016

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Innovation is Disruptive!

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Disruption is Happening on a Global Scale

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Converging ICT Ecosystem

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One Cloud, One Pipe, Multiple Devices, Multimedia Content

Source: http://www.cmswire.com/cms/web-engagement/enterprise-content-management-for-

converging-media-channels-007804.php#null

OTTs are Disruptive Innovations

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OTT technologies, products and services are “Disruptive Innovations” which makes the same product more

affordable and accessible so that a far larger population can afford it,

want it, and be able to use it.

Disruptive Innovations are a natural and highly desirable consequence of

technological evolution

They present new entrants and incumbents with new opportunities to create new products and services, and enable improvements and cost reductions of existing products and

services thereby driving user demand and satisfaction upwards

They encourage traditional operators and service providers to leave their comfort zones of past successes, to

become highly competitive innovators of new products and

services

Changing Market Conditions

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“Incumbent” telecommunications operators that

offer services such as fixed and mobile

telephony, broadband and pay TV services,

among others, are being utilised by online

content service providers, specifically those

known as over-the-top (OTT) applications,

services and content.

A fundamental characteristic of OTTs is that

the Internet Service Provider (ISP) does not

profit nor is involved in the distribution of the

OTT applications, services and content.

OTT suppliers, which need the ISP

infrastructure to reach the user, offer products

that compete with the services offered by the

ISPs (voice, instant messaging, online TV). In

this regard, and paradoxically, the broadband

that incumbent operators supply acts as a

platform for the development of these new

businesses that represent the challenge faced

by incumbent operators.

At the same time, the OTTs generate a

growing flow of traffic and an increasing

demand for broadband, which translates into

a need for investment in the network.

Shift to data from saturated voice markets

accelerated by the introduction of low-end smart

phones, declining revenue from traditional

services.

Multiple new business models emerging

from data competition to retain and attract

new customers including zero-rated

services, social media bundles, blended

bundles, build-your-own-bundle

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A Growing Range of OTT Services

TV and Video Music Communication

Productivity Technology Community

Disruptive Innovation: High Level Dilemma

OTTs present a disruptive impact on VOICE and SMS revenues for Network Operators and thus potentially on investment for 4G network roll

out. OTTs reduce incumbent operators’ incentives to invest in the deployment of

networks that ensure access to the speeds necessary for a good OTT experience.

OTT provide a growing source of DATA revenues of Network Operators. However it is not clear that the increase in data revenues of

the MNOs is currently sufficient to compensate for this impact

Network Operators are licensed and governed under the laws and licensing regime of the

country in which they are providing the network - which do not evenly apply to OTTs

There is concern that policy and regulations have not kept pace with technological developments, leading to a situation in which new disruptive technologies enjoy favour through much less onerous regulatory provisions compared to the still vital legacy networks and services

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Legal and Regulatory DifferencesOperators

• Unregulated, global and

“seasonal”

• Mostly centred around use

of consumer data (service

not “free‟)

• Usually no license needed;

exposed to minimal

obligations

• No sector-specific taxes,

freedom to structure

business primarily for tax

planning (Revenue

recognised outside of

jurisdiction)

• Uncertain enforcement

• Minimal restrictions on data

location, retention and LI

• No specific enforcement

outside major countries

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OTT`s

• Regulated, licenced, high-

CAPEX, long-term and

nationally-based

• Focus on connectivity /

services,

• Customer data for user

enrichment

• Multiple licenses including

obligations on rollout,

interconnection and CSR

• Sector-specific fees e.g.

spectrum, USO, licence

and general corporate

taxes

• Horizontal laws; sector

obligations • Rules on data

localisation, retention,

disaster recovery and LI

• Customer-centric

obligations e.g.

transparency, contract

info, QoS, SMP

Consumer

Protection

Privacy &

Security

Taxation

Licensing

Business

model

Source: https://www.itu.int/en/ITU-D/Regional-Presence/AsiaPacific/Documents/Events/2015/Dec-

OTT/Presentations/01_Session02_Jonathan_Yap_ITU-ASEAN%20Forum%20on%20OTT-SSSR%20FNL.pdf ITU -ASEAN Forum on OTTs

Security and Privacy Concerns wrt OTTs• Agreements which allow the NSA to collect data directly from

the servers of nine of the biggest internet companies, including Google, Facebook, Skype, Yahoo!

• NSA carries out Computer Network Exploitation, placing malware in individual computers to surveil users

• Communications Metadata being collected

• Surveillance being used for economic and political advantage: economic espionage.

MEANWHILE:

In September 2015, the U.S. and China have agreed that neither government would support or conduct cyber-enabled theft of intellectual property

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In line with these

evolving trends, are

new rules required

for the healthy

development of the

whole ecosystem?

Options:

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• Net neutrality standards mean that carriers should treat all data equally and not impose differential treatment or charges on different kinds of data.

Net Neutrality

• massive and high-frequency traffic to be managed.

• Premium services of enhanced Quality-of-Service (QoS) to be made available for service requiring higher performance at higher prices

Managed Services

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Net Neutrality• The principle that Internet service providers (ISPs) should enable access to all

content and applications regardless of the source, and without favouring orblocking particular products or websites.

• In principle, this means that all legal electronic communications contentdelivered over the internet must be treated equally, without favour of onetype, or a specific company’s product, over any other. ISPs may not chargedifferent per unit delivery rates for premium, high demand, or operator/ISPowned content

• It also implies that ISPs may not block, throttle, or charge more for, orinhibit any legal content including OTT messaging, voice or video content,hence the conflation of OTT issues with Net Neutrality

• The Net Neutrality principles have generally been supported by users andcontent providers who do not have commercial interests in ISPs

• They have tended to be resisted by operators and ISPs who fear abuse oftheir networks leading to network congestion and/or unfair dominance oflimited broadband networks by well-resourced content providers.

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Net Neutrality: The South African debate• On 27th March 2014, ICASA gazetted a Notice of Public Inquiry into the State of

Competition in the Information and Communications Technology Sector ofSouth Africa

• One of the key components of this inquiry was Net Neutrality, treated by ICASAas a competition issue

• Most SACF members viewed the Net Neutrality issue as premature for SouthAfrica: the national broadband capacity was too low to accommodate NetNeutrality: the freedom to charge higher prices for premium content wouldgenerate the revenues that network operators needed for network expansion

• As national broadband networks progress to wide coverage high speed highcapacity networks, the argument against Net Neutrality would dissipate: allsuch content could then be accommodated equally on such networks: thepresent expansion of FTTH networks in South Africa’s wealthier urban enclavesis an example of this

• While ICASA has not yet arrived at a firm conclusion and regulation from itsinquiry, the Authority has noted the trends in most developed, and a growingnumber of developing economies, that favour Net Neutrality as a policy andregulatory framework

How should Operators and Regulators respond?

OTTs:

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How do Operators and Regulators respond?Ban or strongly regulate: A few countries,

mostly developing, have shielded their

operators through national regulations (e.g.

China, Middle East). No outright bans, but

breathing room for operators to react;

Link OTT to Net Neutrality issues:

FCC linked OTT to net neutrality debates:

“a level playing field where consumers can

make their own choices about what

applications and services to use, and

where consumers are free to decide what

content they want to access, create, or

share with others.”

“Bundling strategies” – Offer bundled (fixed

and mobile telephony, Internet and TV)

services. However, this strategy is

questionable from the point of view of

competition policy. Furthermore, the

purchase of packages tends to be accessible

only by those demand segments with high

purchasing power, which are very sensitive to

the quality of services, rendering it necessary

that all of the products included in the bundle

be competitive in terms of quality.

Development of proprietary applications

that compete directly with the OTTs.

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New Business Models & Strategies

1. Choose your platform. An understanding of the factors driving OTT voice, messaging,media, and cloud is key to choosing the appropriate business models, positioning anddetermining whether your competitive posture is offensive or defensive. Above all, beclear about where, when, how, and with whom you are going to compete.

2. Redefine value propositions and business models. The OTT surge will force a rethink onvalue propositions. While OTT services are evolving fast, consumer behaviors are shiftingfaster, so operators will have to create business models that are both agile andadaptable, and whether partnering will be the best way to do it.

3. Create new platforms and approaches. The mantra of the new digital era is customerexperience. Delivering a memorable one will require new technology solutions, ofcourse, but more important will be a deeper integration of network, IT, product andservice development, and mobile, fixed, and media assets.

4. Rethink organizational approaches. OTT media and video services compel more creativeapproaches to organizational structures, skills, systems, and mindsets.

5. Remain flexible and ready to adjust. Understand changes in consumer behavior andcreatively adjust strategies accordingly.

6. There cannot be one OTT strategy. Indeed, each platform-voice, messaging, media, andcloud—will demand a different strategy.

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OTT VOD Innovation in South Africa

South Africa’s MTN launched its “FrontRow” video streaming subscriptionservice in December 2014, and rebranded it as VU in December 2015 with freedata usage for MTN subscribers to counter the growing OTT (video) competition

South Africa’s Times Media Group was the first local company to launch astreaming Video on Demand (VOD) service in September 2014, offering 100s ofonline TV programmes and video rentals to customers with high speedbroadband internet connections. The service shut down in February 2016

South Africa’s global media giant Naspers launched its VOD streaming service inAugust 2015, with clear intention of competing head on with similar global OTTgiants like Netflix, leveraging Naspers African footprint, and its strategic globalpartners which include China’s Tencent OTT giant. Naspers partners with localnetwork operators, including Mweb and Telkom for online content distribution.ONTAPtv launched a competing VOD service in Sept. 2015, announcing plans toproduce TV content locally in anticipation of local content preferences andregulations. The Hong Kong Telecom (HKT) owned service will be operated byHKTs international subsidiary PCCW Global, a global broadband service provider.

South Africa’s CSIR, recognising the inevitability of OTT, assisted thedevelopment of a video streaming OTT service Tuluntulu, which enables cost-effective video downloads even on slow mobile networks.

Meeting the OTT challenge in Africa

http://www.detecon.com/sites/default/files/VP_Value%20Killer%20OTTs%20in%20Africa.pdfSource: Detecon:

The following case studies were chosen to assess the impact of OTTs on African Telco operators and derive region specific strategies for operators based on current trends.

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Case Study: India The Telecom Regulatory Authority of India “TRAI” released a consultation paper in March

2015 with the aim to propose a regulatory framework for OTT services, Internet servicesand net neutrality.

The objective of the paper was to analyse the implications of the growth of internetservices / Apps and OTT’s and consider whether changes are required in the currentregulatory framework.

The question was raised as to whether there is still any incentive for telecommunicationoperators to invest in infrastructure due to declining revenues.

These are some of the questions the consultation paper sought to address :

• Is it too early to establish a regulatory framework for OTT services?

• Is the growth of OTT services impacting traditional revenues oftelecommunication services?

• Should OTT players pay to use Telecommunication operator’s networks?

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The overwhelming response to the consultation paper was a call for fair and uniform regulation across the board, through a light touch approach

Case Study: IndiaBharti Airtel

previously introduced differentiated tariff plans for voice calls over the Internet and data surfing asVoIP calls were charged almost three times more than regular data surfing.

However, this tariff plan was eventually withdrawn following protests by users who accused BhartiAirtel of violating the principles of net neutrality.

Free Basics by Facebook

Free Basics is a Facebook operation where, by partnering with local telecoms firms in the developingworld (including South Africa, through Cell C), the firm offers free Internet access – limited only toFacebook, Facebook-owned WhatsApp, and a few other carefully selected sites and services.

Facebook paid for billboards, full-page newspaper ads and television ad campaigns to try to enforcethe point that Free Basics is good for India’s poor.

Free Basics runs against the idea of net neutrality by offering access to some sites and not others. Inpractice the submission guidelines forbid JavaScript, video, large images and Flash, and effectively ruleout secure connections using https. This means that Free Basics is able to read all data passingthrough the platform. The same rules don’t apply to Facebook itself, effectively meaning that it can bethe only social network, and (Facebook-owned) WhatsApp the only messaging service, provided.

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Case Study: India Some have likened to a taxi company that will only take you to certain destinations, or an

electricity provider that will only power certain home electrical devices. There arealternative models: in Bangladesh, Grameenphone gives users free data after they watchan advert. In some African countries, users get free data after buying a handset.

May impede development of home-grown Indian commercial alternatives before theybegin. Expanding audience and consumer bases have long been as important as revenuesfor Internet firms.

In India the TRAI pulled the plug on Free Basics while it debates whether telecomsoperators should be allowed to offer different services with variable pricing, or whether aprinciple of network neutrality should be enforced.

Source: Mark Graham is associate professor, Oxford Internet Institute, University of Oxford, article wasoriginally published on The Conversation

http://theconversation.com/facebook-is-no-charity-and-the-free-in-free-basics-comes-at-a-price-52839

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Switching off services: Worrying trend in Africa?

• Election Related internet shutdown

– In 2015 some African governments began switching off access to the internet and/or applications during political protests. The Burundian Government ordered the shutdown of social media applications including Twitter, Facebook, What Sapp, and Viber on the mobile Web beginning on April 27, 2015 . The country's telecom sector regulator ordered telecom operators to block the apps, according to reports. The Democratic Republic of Congo (DRC) also blocked access to the Internet, social media and mobile phone communications following days of protests aimed at blocking President Joseph Kabila from seeking a third term of office. In Niger the government had also ordered telcos to shut down services for three days.

– In 2016 Uganda and Congo-Brazzaville governments order the switch off of their citizens’ access to the internet or social media during general elections so that people could not access social media networks like Facebook, Twitter and WhatsApp. The Ugandan Electoral Commission said “It does not manage internet communications. Our job is to organise elections in this country.”

• In January, Morocco’s three telecommunications companies shut off access to Voice over InternetProtocol (VoIP) on mobile networks like WhatsApp, Viber, and Skype. The NationalTelecommunications Regulatory Agency stated that “corporations using the VoIP technology inMorocco should hold a license to operate.”

• Zimbabwe recently shut down access to messaging service WhatsApp amidst mass stay-away for amorning, but it appeared to be working in the afternoon after outrage swept Zimbabwe’s internetusers.

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South African ICT Policy Review perspectiveThe National Integrated ICT Policy Review Report of March 2015 states:

• The implications of OTT services in economic terms, is that OTT players which rely on IP based networks to reach their customers do not make any direct contribution towards the cost of rolling out infrastructure/the network. Some network service providers have argued this causes them harm.

• There were differing views on whether or not OTT services should be regulated.

• The following points about OTT services, which have been put forward by the ITU:

Proliferation of content and applications services is to be welcomed – they add utility for users.

Change is inevitable. As network operators migrate to next generation networks, voice services will become software applications riding over the network. During this transition, policy-makers are finding different paths to balancing innovation, investment and competition.

Regulators cannot hold back the tides of change to maintain the status quo. These changes are disruptive and inconvenient for those with a stake in existing

arrangements, but the benefits of change outweigh the costs. Regulators generally support innovation. They prevent fixed and mobile operators

from blocking or degrading competing services.

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Recommendations of the National ICT Policy Review Report:

a. For now a wait-and-see approach is taken so as not to stifleinnovation.

b. The impact of OTT services though should be continuallymonitored and regulatory intervention introduced if it is deemednecessary.

Specifically with regard to Broadcasting:

The Panel recommended that: Policy measures must be developed such thatexternal content providers, using the Internet as a medium, are subject to SouthAfrican regulations if they have significant influence in the South African market.

NEXT STEP:

Gazetting of the ICT Policy White Paper, which will reflect formalpolicy on OTTs

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OTTs: Nigeria

Nigerian Converged ICT Environment - A massive market for national OTT players:

NCC Recommendations:

1. The 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 onthe growth of the Nigerian Telecoms industry.

2. Following the consultations, the Commission should review its Guidelines on the provision ofInternational Gateway and Voice over Internet Service and also consider an appropriateFramework for Provision and Regulation of over-the-top services in the Nigerian Telecoms market.

3. The Commission must ensure that it does not stifle innovation since internet penetration is stillevolving, access speeds are still low and there is limited coverage of high speed broadband inNigeria.

4. The Commission should encourage network providers in Nigeria to innovate and explore moreefficient business models that would enable them compete favourably with OTT service providers.Network providers can also take advantage of the internet protocol technology in the design fortheir network upgrades.

The Executive Vice Chairman of NCC, Prof. Garba Umar Danbatta who spoke at a recent function, noted that the regulators objective should be to catalyse 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. The regulators view is that regulating the OTT or internet will stifle creativity and innovation, and reduce the accelerated growth Nigeria is already recording in new media developments across the world.

Source: NCC Nigeria Communications Commission (www.ncc.gov.ng)

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OTTs: Kenya

Kenya’s Ministry of Information, Communications & Technology is reviewing ICT sector

guidelines in regards to regulation of over-the-top (OTT) services – such as WhatsApp, Skype

and Viber – amidst complaints from telecoms operators over unfair competition

Under the plan, the ministry is planning to establish three working groups to oversee

infrastructure issues, new emerging issues and applications and content.

In addition, the new National ICT Sector Policy Guidelines will include policies regulating the

operation of MVNOs in the country.

Kenya to review OTT, MVNO regulation guidelines

Source: www.telegeography.com: 21 March 2016

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OTTs: Egypt Egypt – National Telecoms Regulatory Authority (NTRA):

• OTT brings about opportunities for entrepreneurs and start-up businesses toinnovate and develop new services

• Some operators have begun to offer their own OTT services; some have partneredwith OTT players; and few are still resisting.

• Concerns are mainly related to security and privacy and the lack of relatedregulations and legislations in Egypt. Another intervention made about identifyingour priorities as a country.

• Noting that there is asymmetry in regulatory models between OTTs and telcos,three key aspects is to focus on: 1) Consumer; 2) Service Provider; 3) Innovation.

• Is network neutrality a priority for us at this stage, or is it more important to getmore people online even if through models such as Free Basics?

According to Ahmed Said, NTRA, Egypt’s NTRA has yet to decide whether OTT services oughtto be regulated. Studies are underway. The one exception is Skype which has been blockedover mobile networks since 2009 due to its detrimental impact on revenues of internationalcalls

Source: www.tra.gov.eg Egypt National Telecoms Regulatory Authority

Disruption is inevitable

• New approaches and business models will have to be adopted

• Time of innovation and New entrants (bigger is not necessarily better)

• Regulations and Policies must be just as nimble to enable competition and

protect investment and jobs of established business

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Some Questions to Grapple with:1.Is it too early to establish a regulatory framework for OTT services, since

internet penetration is still evolving, access speeds are generally low and

geographically there is limited coverage of high-speed broadband internet

in South Africa?

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?

3.Should the OTT players pay for use of the 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?

4.Should and can OTT players be regulated under National laws to address

the imbalances in the regulatory environment?

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Some Questions to Grapple with:

5. How should the national security concerns as well as ensuring the

security, safety and privacy of South African consumers be addressed

with regard to OTT players who reside outside South Africa?

6. Should the principles of net-neutrality be adopted? Or allow

discrimination or traffic management practices consistent with a

pragmatic approach?

7. How can we create a conducive and balanced environment such that

Operators are able to invest in network infrastructure and are able to

innovate and grow?

8. Is there a need to encourage localised OTT apps?

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Ke a leboga Dankie Ngiyathokoza

Ke a leboha Thank you

Siyabonga Ngiyabonga

Inkomu Ndo livhuwa Enkosi

Loren Braithwaite Kabosha

loren@sacomforum.org.za

011 315 0590

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