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OTT regulation? That’s so over-the-top

March 1, 2016 • Mobile and Telecoms, Opinion, Southern Africa, Top Stories

(Image Source: http://techloy.com/).

not enough research had gone into ascertaining the advantages (or disadvantages) of regulation. (Image Source: http://techloy.com/).

The first item on the South African Parliament’s agenda this year was an eleventh hour hearing, scheduled by the Portfolio on Telecommunications and Postal Service (the Department).

The hearing was ostensibly prompted by calls from mobile network service operators (Operators) who have previously voiced their concerns about “over-the-top” (OTT) internet services threatening the profitability of their own “traditional” telecommunication distribution services.

OTT services bypass traditional (regulated) means of distribution of media, content and communications and are generally, if not always, lower in cost. Examples of OTT services include, WhatsApp, Skype and Google Hangouts to name but a few.

The stated purpose of the hearing, as published in the notice dispatched to select stakeholders, was to determine the impact of OTT’s on competition in the local market and whether policy interventions were required to regulate them. Representatives at the hearing included telecommunications and broadcast policy experts, mobile  network providers, OTT service providers, internet service providers, the Independent Communications Authority of South Africa (ICASA) and Department officials. Arguments for and against the regulation of OTT services were presented and we summarise the highlights of the hearing below.

Arguments for regulation
The main argument for regulation, made at the hearing, was about the unequal distribution of operational costs between market players. For Operators, operating costs are quite extensive and include expenditure on construction, operation and maintenance of networks (i.e. labour, rental and energy and frequency license costs). Operators argued that:

– the current playing field is uneven with operational costs for the provision of access being absorbed by the networks while OTT players reap large profits without requiring a license to operate or having any obligations to develop or invest in the underlying telecommunications infrastructure;

– unlike the Operators, OTT service providers do not pay taxes on their profits and therefore do not contribute to the fiscus;

– the absorption of operational costs means reduced profitability for Operators, coupled with the fact that there has been a decrease in demand for voice and messaging services as a result of the Operators’ inability to compete with OTT services; and

– Operators are yoked with an obligation to provide a telecommunication service which has the capability of being intercepted in certain instances. OTT providers are often not the subject of such regulation and are thus not always required to meet that same obligation, while their communications are often difficult to intercept, leading to security concerns

ICASA reiterated the Operators’ sentiments by noting that while OTT providers stimulate a demand for data, they have “no contribution to network investment” and that “Operators have no mechanism to recover costs”.

The case made against regulation
On the other side of the fence, those arguing against the regulation of OTT services, argued that regulation talks were premature and would serve only to stifle an open internet and (amongst other things) contended that:

– not enough research had gone into ascertaining the advantages (or disadvantages) of regulation;

– there was an inability to define OTT services and to differentiate between them, rendering regulation difficult, particularly within the context of “net-neutrality”;

– there was no concrete evidence of actual harm to network providers and instead OTT services had stimulated demand for data with concomitant benefits to mobile operators; and

– the disruption of an infant industry would result in the throttling of innovation and (in turn) curtail competition in the industry.

Unexpected revelations
ICASA also announced that it has plans to launch an inquiry, examining the impact of OTT services in the local market. ICASA confirmed that, in its view, the public could benefit better from OTT’s, and that an ostensible “bottleneck” in the industry would be the focus of any potential regulation.

Not waiting for the dust to settle, the Department (rather surprisingly) indicated that it was finalising the much anticipated National Integrated ICT Policy White Paper (White Paper) for submission to the Cabinet in March 2016. The White Paper includes a suggested approach to the regulation of OTT services, and the Department acknowledged that the submissions made at the hearing would be taken into account when finalising the draft. According to the Department, key considerations likely to influence its position in completing the White Paper would include:

– the principle of net neutrality and whether it should apply in South Africa;
– concerns relating to the implementation of any regulation; and
– the need not to stifle competition within the industry.

So far, discussions have focused only on regulating voice and messaging apps as opposed to the entire body of OTT services. These three components are significant, however, and add to the speculation of any intended regulation, which could very well apply across the board, affecting the full spectrum of OTT services available.

Outcomes of prospective regulation
The upshot of potential regulation will depend on the approach taken in its drafting. Hastily drafted legislation will inevitably have a far-reaching impact, not only on OTT services currently under fire from the Operators, but to those not exclusively aimed at communication. This kind of knee-jerk legislation could impact on variety of OTT services in the local market, including OTT applications such as banking apps, real-time gaming apps which provide chat platforms, dating apps, medical aid and healthcare apps, voice messaging in email apps, educational apps, and streaming video and music apps. Without sufficient consideration, there is a strong chance that proposed legislation will (perhaps as an unintended consequence) have the effect of maintaining the dominance of monopolies long past their prime.

With a fresh wave of rumblings around the potential regulation of OTT services globally (e.g. with countries such as the USA, Chile, India, Kenya and, more recently Zimbabwe), and with regulatory debates still taking place in the EU, the current dialogue surrounding the regulation of OTT services in South Africa is on-trend. It remains to be seen what shape any potential legislation will take from a South African perspective and we will continue to monitor developments.

Issued by the Baker & McKenzie Johannesburg ICT Team



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