OTT - THREAT OR OPPORTUNITY FOR AFRICAN TELCOS?DR CHRISTOPH STORK

MOBILE BROADBAND• Mobile broadband (2.5G and 3G) and declining smart

phone prices have lead to a rapid increase in Internet use • Computer based Internet access - is a privilege of the few

in Africa (formal jobs or Internet Cafe) • Mobile BB

• Requires less skills than computer based access • It does not require electricity at home • It is prepaid

• Mobile BB is expensive for the poor, and at the same time as it is a cost saving tool • It is expensive when using the full Internet including media

streaming • It is cheap when Over The Top (OTT) services are used instead

of voice and SMS

GLOBAL TRENDRe

venu

e

0%

25%

50%

75%

100%

2000 2005 2010 2015 2020

Voice + SMS Data

Separation of access and service platforms

PHASE 6: MNO = ACCESS ONLY PROVIDERS• Pricing = flat access • Billing = very easy • Marketing = performance can be measure

objectively • Dumb Pipe Syndrom? Investors don’t

complain if the make reasonable returns • Some operators in Africa prepare for

transition: Bundling to keep stable ARPU and simulate flat access e.g.

VOICE AND SMS VS DATA RETAIL PRICESQ1

2016

Lowest average prices in US cents % 1 Mb when purchased as a 1GB top up expressed in share of other prices

1 Mb out of

bundle1 SMS 1 Minute

1 Mb based on 1 GB top

up

1 MB out of bundle 1 SMS 1 voice

minute

Malawi 0.89 3.78 9.30 0.67 75% 18% 7%Sudan 1.08 0.71 0.71 0.43 40% 61% 61%

Ethiopia 1.76 1.76 3.37 0.96 55% 55% 28%Tanzania 1.88 1.47 5.29 0.60 32% 41% 11%

Egypt 1.97 1.97 1.97 0.32 16% 16% 16%South Africa 2.50 2.50 5.14 0.70 28% 28% 14%

Botswana 2.65 2.12 7.04 1.79 68% 84% 25%Tunisia 2.74 1.37 1.70 0.50 18% 36% 29%

Cote d'Ivoire 3.81 3.81 8.95 0.82 22% 22% 9%Kenya 5.65 1.13 3.01 0.50 9% 44% 17%

Namibia 7.76 3.02 12.50 0.55 7% 18% 4%Mozambique 7.93 3.81 10.84 0.36 5% 9% 3%

D.R Congo 9.00 4.00 8.44 1.30 14% 33% 15%Angola 9.01 9.01 20.03 1.86 21% 21% 9%Lesotho 11.15 4.46 10.70 0.84 8% 19% 8%Zambia 16.66 3.28 13.54 0.90 5% 27% 7%

OTTS PROVIDE A COMPETITIVE OPPORTUNITYSmall Operator • On-net / Off-net

discrimination does not apply to OTT services

• The size of the subscriber base doesn't provide a competitive advantage

• OTTs stimulate data use through social networks - boost data market share

Dominant operators • may embrace OTTs to defend

their market share and discourage market entry

• A new operator- several years to break even while building a network

• A new operator would have to build a business case around flat access pricing rather than traditional mobile business model in a market with wide spread OTT use

MNO RESPONSE TO OTTS

BLOCKING OTTS• In Europe, the initial response by mobile operators had

been to block or throttle peer-to-peer traffic or VoIP • The European Commission in 2013 raided telecom

operators on grounds of throttling concerns • AT&T blocked mobile VoIP following the release of the

iPhone but soon faced consumer and regulatory pressure and backed down

• Morocco operators blocked Voice over IP services - Viber, WhatsApp and Skype without subscribers knowledge

‣ Blocking directly violates the idea of net neutrality, an open Internet accessible to all

‣ Consumer pressure has been more effective though

REGULATING OTTS• Regulatory intervention to prevent customers

using OTTs • To protect operators from market erosion • Regulating zero rated OTTs based on net

neutrality principle (India 2016, Egypt 2016) • Regulatory intervention to create an equal

playing field - OTTs have no licence or tax obligations (Vodacom and MTN in South Africa)

EMBRACING OTTS1.Bundling dedicated data for social media (MTC in Namibia)

2. Zero rated OTTs - without charging for data services

3. Free Basics package from internet.org • Operators in 21 African countries have partnered with

Facebook to offer zero rated Free Basics on their platforms • Interestingly, in nine of the African countries it is being driven

by Airtel despite despite the head of Airtel Africa calling for regulation of OTT services

• Malawi and the Democratic republic of Congo are the only countries in Africa in which the service is being offered by two operators

SIMULATE OTTS THROUGH BUNDLING• Bundle voice, SMS and data into packages that

provides OTT like services • Price of the top-up so that it receives the desired

ARPU • 4 x 7 day validity top up = ARPU * Subscribers =

desired revenue • Sometimes lose to unlimited voice call and text

messages • Operators in 24 African countries offered

bundling voice, text and data together in 2015

OFFERING NON TELCO OTT• Safaricom offers MPESA successfully • Streaming music and videos (zero rated -

i.e. not charging for data) • In South Africa, Vodacom partnered with

Deezer, a music streaming service - ZAR59 per month for unlimited music access

• MTN offered its own video streaming service - MTN Vu formerly known as MTN Front Row

OFFERING OWN OTT• An operator could develop a own OTT

service • Deutsche Telekom offers a WhatsApp

alternative with its immmr service • Such a strategy would facilitate the

transition to a flat rate access model

MOBILE PRICES

LOWEST PREPAID Q1 2016Egypt

MozambiqueRwanda

SudanUganda

GhanaKenya

Cape VerdeTunisia

NigeriaMoroccoNamibiaBurundi

TanzaniaMauritius

MalawiGuinea

CameroonSouth AfricaMadagascar

Cote d'IvoireBenin

Bukina FasoSenegal

NigerTogo

LesothoZambiaGabonAlgeria

EthiopiaLiberia

MaliD.R Congo

ChadCongo Brazzaville

BotswanaAngola

ZimbabweSierra Leone

MauritaniaSwaziland

Seychelles 47.3932.00

27.0825.19

20.0018.5717.91

16.6916.69

13.0012.5212.00

9.609.399.188.978.448.348.348.348.348.348.18

7.106.976.686.666.656.466.035.855.325.105.064.994.984.974.894.354.324.133.623.18

UgandaSudanTunisiaKenyaEgypt

GhanaCameroon

MauritiusNigeria

TanzaniaEthiopiaGuinea

South AfricaMadagascar

MauritaniaRwandaAlgeria

GambiaBurundiZambia

NamibiaLibya

BotswanaMozambique

BeninCote d'Ivoire

D.R CongoSenegal

Congo BrazzavilleNiger

Bukina FasoMalawi

MoroccoMali

LiberiaGabon

Central African RepublicSwaziland

Guinea-BissauZimbabwe

ChadTogo

AngolaSierra Leone

LesothoSeychelles

Cape Verde 23.2117.13

13.6613.37

12.9912.9912.8612.8012.7412.56

11.1910.5810.4810.4710.209.93

9.258.848.658.348.148.11

7.637.316.94

6.456.135.925.83

4.884.704.594.564.31

3.823.573.403.363.283.102.93

2.492.262.232.03

1.581.45

1 GB PER MONTH

30 CALLS 100 SMS PER MONTH

HIGHEST VALUE FOR MONEY INDEX Q1 2016UgandaNamibia

CameroonTanzaniaMauritius

SudanMorocco

MadagascarCote d'Ivoire

KenyaSenegal

South AfricaD.R Congo

EgyptRwandaAngola

BotswanaMozambique

MauritaniaChad

AlgeriaGabon

EthiopiaGhana 0.00

0.130.240.330.350.570.590.610.670.670.901.031.10

1.801.922.00

2.303.113.33

3.684.16

5.837.79

8.59

‣ Valuing bundled voice, SMS and data from a OTT users perspective ‣ 1 minute = 0.2 US cents, ‣ 1 SMS = 0.1 US cent ‣ 1 MB data = 1 US cents ‣ 1 MB Social Media = 0.5

US cents

CASE STUDIES: KENYA, NAMIBIA, SOUTH AFRICA

DATA REVENUES AS SHARE OF TOTAL REVENUE

2011 2012 2013 2014 2015

20% 20%

25%

30%

11.7%

9.1%

21.2%

23.8%

4.8% 4.9% 5.3%6.4%

9.1%

11.6%13.4%

15.2%

17.8%

21.8%

Vodacom SASafaricomMTN SAMTC Namibia

COMPARISON BETWEEN DOMINANT OPERATORS

Kenya South Africa NamibiaNumber of Mobile operators 3 4 2

Marketshare of dominant operator in terms of active SIM 67%

MTN 33% Vodacom 42% 96%

Marketshare of dominant operator in terms of traffic 76% NA 99%

Cheapest OECD Basket

USD 2.23 3.82 6.12Ranking 4 13 21

Cheapest 1 GBUSD 4.97 6.97 5.3

Ranking 7 19 12

Highest Bundled Top up

BVI 1.92 1.1 7.79Ranking 10 12 2

Share of Data Revenue of total for dominant operator FY 2014 6.4% 23.8% 30%

KENYA SAFARICOM

FY11 FY12 FY13 FY14 FY15

32.6326.56

21.8416.8711.78 87.4184.32

75.8468.1263.5

Voice M-Pesa Mobile data SMS

76%

8%16%

EquitelAirtelOrangeSafaricom

Market share by voice traffic July to Sep 2015

• Offering Non Telco OTT - MPESA

• Data revenue compared to voice low, 9% of total revenue

• Voice Revenues still increasing

NAMIBIA MTC• MTC Namibia is close to unlimited

bundles for several years • to defend market share and keep

new competition out • MTC’s aim for constant ARPU and

competitive pressure leads not to lower ARPUs but to more bundled value

• This strategy is simulating flat rate pricing for unlimited voice and SMS

Jul - Dec 2012

Jan - Jun 2013

Jul - Dec 2013

Jan - Jun 2014

Jul - Dec 2014

Jan - Jun 2015

99.0%98.6%98.2%98.1%97.2%97.2%Total Mobile outgoing traffic

MTC’s KPIs 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Revenue N$ million 769 937 1,113 1,232 1,390 1,407 1,453 1,617 1,832 2,082

Shareholders’ equity N$ million

646 903 999 1,136 1,153 1,166 1,121 1132 1,173 1,212

Net profit after tax N$ million

293 337 340 358 388 397 319 353 425 505

EBITDA margin 61% 60.2% 52.2% 50.9% 53.8% 55.8% 53.2% 53.2% 55.0% 54.7%

Source: MTC annual reports, 2005-14

SOUTH AFRICA 39%

3% 32%

26%Cell C (Oger Telecom)MTNTelkom MobileVodacom

2010 2011 2012 2013 2014 2015

154.0134.1 122.0 108.0

92.0

184.0 183.0157.0

128.0 125.0 113.0

Vodacom MTN

Table 5: Revenues in R(m) 2013 2014 2015 Change

Vodacom

Mobile voice 29,151 28,135 25,855 Down

Mobile messaging

3,027 2,675 2,522 Down

Mobile Data 8,882 10,974 13,538 Up

MTN

Mobile voice 22,125 19,677 Down

Mobile messaging

2,365 2,069 Down

Mobile Data 8,656 9,264 Up

ARPU

• Voice and SMS revenues in decline while data revenue increases

• APRUs declining • CellC embraces OTT

- zero rated facebook and whatsapp

• Dominant operators Vodacom and MTN argue for regulating OTTs

BLENDED ARPU 2010 = 100%

2011 2012 2013 2014 2015

87%

79%

70%

58%

96%

108%

120%127% 128%

86% 87% 84%88%

99%

85%

70% 68%61%

Vodacom MTC Safaricom MTN

CONCLUSION• Zero rated OTTs can be used to gain market share for new

entrants or defend market share against new entrants • Declining voice revenues can be combated with

increasing data revenues - or non-telco OTTs like mobile money - jury is still out on video and music

• Providing prepaid products that resemble flat rate pricing is a successful strategy to retain revenues

• An access only model would reduce expenses for billing and branding thus retaining profitability with declining revenues • New business model for MNO • Ghana 4G data only providers are there already