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WhatsApp is the most prevalent OTT replacing network operators’ offerings such as text messaging and traditional voice calls with cheaper alternatives that mobile phone users tend to opt for

Delta Milayo Ndou: Digital Dialogue

According to a June 2016 Postal and Telecommunications Regulatory Authority of Zimbabwe (Potraz) report, local mobile network operators (MNOs) lost over $12 million in nine months — from June 2015 to February 2016 — owing to client migration as users preferred to use Over-The-Top (OTT) services to make calls or send messages as opposed to using operators’ voice and text services.Wavestone, a leading global consultancy firm, defines OTT services, as services that use the telecom operators’ networks and bring value to users, but without the telecom operators being involved in the development, sale or provision of these services to customers, and consequently, without generation of revenue for them.

In Zimbabwe, WhatsApp, which is reportedly used by 95 percent of mobile phone users, is the most prevalent OTT supplanting network operators’ offerings such as text messaging and traditional voice calls with cheaper alternatives that mobile phone users tend to opt for.

Broadly speaking, OTTs are a shared threat to our local MNOs, and one would think that faced with a common enemy, these entities would be prepared to present a united front in terms of finding mitigation strategies that will stem the revenue haemorrhage without disproportionately burdening their clients in terms of pricing their voice and data services.

In my view, the abortive attempt to set a floor price was a regulatory intervention strategy they failed to agree on because their competing and conflicting business interests — and the very patent bad faith in which some of the stakeholders negotiated. Nothing demonstrates this negotiation in bad faith like the submissions made by some of the stakeholders who appeared before the Parliamentary Portfolio Committee on ICT recently.

While it is conceivable that the setting of the floor prices would have some negative impact on the operations of certain MNOs, such concerns should be advisedly weighed against the toll that OTTs are taking on their business — what is likely to erode their revenues faster and harder, client migration to OTTs or floor pricing? In the face of a shared threat that OTTs pose, one would not expect to see MNOs so sharply divided regarding a proposed way forward (albeit, a problematic and imperfect one), one which Potraz initially explained as being a measure meant to maintain a delicate balance between service affordability by consumers and operator viability through setting a floor price.

The OTT reality that the floor pricing fiasco obscured

The directive by Potraz to set floor prices (which took effect on January 11, before being rescinded on January 13, 2017) was met with public outrage, sparked recriminations as a flurry of public statements were issued back and forth — all provide context for this week’s Parliamentary Portfolio Committee submissions.

However, what is missing in that context and what has received scant attention is how the impact of OTTs in terms of eroding the revenues of local telecoms network operators makes OTTs a shared sectoral threat and raises legitimate concerns around the viability of telcos businesses.

In a June 2016 consultation paper assessing the impact of OTT services on licensed telecommunication service providers, the problem statement read, in part: “Local operators have complained that their revenues and profits are being eroded by Over-the-Top service providers. Revenues have been declining since 2013 as a result of the substitution of voice and sms by IP voice and messaging services of the international OTT players who ride on their networks”.

So there is no doubt that OTTs are a shared threat, however the local operators are sharply divided by conflicting interests to a point where this threat appears to be a secondary issue — perhaps, as experts in their sectors, they are correct in treating it as secondary — I am doubtful. Debates around the impact of OTTs on the viability of the telcos businesses are not exclusive to Zimbabwe as South Africa grappled with the same questions about a year ago with some commentators arguing that any attempt to regulate OTTs (like the proposal to place a premium/special levy on OTT voice calls that had been hinted at in the floor pricing directive) is a measure aimed at protecting the profits of telecoms network operators not customers.

Although the futile move to set floor prices carries resonance with similar efforts globally aimed at shielding telecommunication companies from the threat posed by the more affordable OTT alternatives, it has shown how much local MNOs would rather elevate their conflicting interests above searching for a remedy to mitigate the impact of a shared threat.

There is no shame in admitting that the telcos businesses are in trouble unless they can find ways of offsetting the revenue drain triggered by OTTs, but some of those who had the opportunity to make their case before the Parliamentary Portfolio Committee chose to grandstand, throw others under the bus and adopt populist rhetoric to endear themselves to the public — it was neither the place nor the time to do PR.

Hard decisions have to be made and as always, hard decisions are preceded by acknowledging hard facts. Here is a hard fact pertaining to the reality of OTT-triggered revenue drain: Africa is being seen as a major source of future growth for OTTs according to a Wavestone research, so the revenue leakage that OTTs trigger is far from abating.

Recently, Juniper Research reported that OTTs could cost network operators nearly $104 billion in 2017 alone. If OTTs possibly cost local MNOs over $12 million in a nine month period stretching to close two years ago — what would a more recent analysis uncover and what do future projections in that regard portend?

It’s all fair and fine for local operators to push for their own interests informed by their unique business objectives, but if there is a possibility that the impact of OTTs on their business will bleed them more than floor pricing would — then maybe they need to confront this OTT threat as a united front.

Disruption is inevitable, adaptation is mandatory

Insights from McKinsey & Company, a worldwide management consulting firm, indicate that as digital proliferates the telecommunications industry, incumbent telcos find themselves in the middle of a paradox because “as technological breakthroughs accelerate, more and more new digital natives are entering the core telco market with innovative business models and technologies, leaving many incumbents to wonder if they can keep up or if they will be displaced”.

McKinsey & Company argue that although “thinking digital” is deeply embedded in the business models of telcos and despite forecasts that the number of digital customers will skyrocket globally — it is consumer behaviour regarding traditional communication services that is changing, and the total consumer spend on these services is expected to decline even while overall communications activity grows.

The cannibalisation of operator networks’ revenues is driven by the fact the voice and messaging alternatives offered by OTT players offer more for less — for example, they have richer functionality and enjoy the advantage of multi-device accessibility (i.e they can easily be accessed from a computer, smartphone or tablet via apps, while the services of the mobile operators, such as SMS and MMS, have been “built” to run on mobile only).

In some instances, OTT services can even offer better quality voice communication and the irony is that OTTs services ride on the infrastructure of network operators. According to McKinsey & Company, just a few years ago, messaging, fixed voice, and mobile voice services from OTT players accounted for 9, 11, and 2 percent of relevant revenue, respectively.

Several scenarios run by McKinsey & Company reveal the possibility of a jump in share for each of these services and in the most aggressive scenario, the share of messaging, fixed voice, and mobile voice provided by OTT players could be at 60, 50, and 25 percent, respectively, by 2018 in an all-IP environment; hence as those service offerings are being built on innovative business models, they will be available to users at a much lower price than traditional telcos are able to offer.

According to Ovum, this will likely result in a drop in spending on traditional communication services by 36 percent over the next 10 years, further pushing incumbent telcos to the margins of voice and data provision.

If the local telcos really want to fight for their survival, they need to face the shared threat that OTTs pose and innovate because in time, the promotional bundles and discounted products they are squabbling to protect will not save their revenues — they should be considering what richer functionality they can offer to compete with OTTs.

If Lyft can overtake Uber in ranking and in downloads in Apple’s App Store, for the first time ever — then anything is possible — a local network operator could unveil an app that could very well compete with WhatsApp. Its features might include a language option for local languages, same or better functionality than Whatsapp and maybe even get discounted — it’s possible because as things stand, traditional telcos business models and offerings are no match for OTTs.

Delta is a digital expert and advocate of technology-driven solutions. Follow her on Twitter: @deltandou