Traditional telco and over-the-top service providers can co-exist profitably

Tuesday January 8 2019

By JOHN WALUBENGO
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Over-the-top services, or OTTs in technical jargon, are those services that ride over telecommunication infrastructure with the potential to compete with or substitute the traditional telco services like voice, SMS or broadcast.

Skype calls, WhatsApp messaging and YouTube or Netflix immediately come to mind as potential substitutes for traditional voice calls, SMS and broadcast services respectively.

No doubt, these OTTs have provided immense benefits to consumers in terms of reduced costs of services as well as accelerating the pace of digital transformation within the society. In fact, some of these services are technically free to the consumer, making them the preferred and obvious choice over the expensive alternatives charged by a telephone company. Once a subscriber has an Internet connection, they can essentially make international calls, send messages or watch video broadcasts at little or no extra cost.

Many other online services such as Facebook, Google and others have joined the fray by providing free communication services and gone beyond by trying to actively build out physical network infrastructure to carry their traffic.

DECLINING VOICE REVENUES

Traditional telephone companies are very much concerned to see that their anticipated revenues from voice, SMS and broadcast services are declining after taking a hit from this type of competition.

With reduced incomes, they argue that their capacity to continue expanding and upgrading their network infrastructure to remote sections of the country is compromised.

Furthermore, it is observed that the owners of these OTTs are not Kenyan but foreign-based companies. This means that they do not pay local tax and are not burdened by regulatory obligations that other operators and players have to meet. These include licensing fees, quality of service, security of services and universal service fund requirements.

At a minimum, the local operators expect that OTT providers are put under the same regulatory burden or regime to ensure a level playing field for all the market players.

Furthermore, they argue that OTT providers make obscene amounts of money through online advertisements without investing any of it back into the country or the network infrastructure that is built by the traditional telco.

RISING DATA EARNINGS

In response to these claims, most OTT providers argue that they do pay for connectivity to their OTT services just like all the other customers, which should be sufficient compensation for the telephone companies. For example, to ensure YouTube or Skype call service availability, the providers must purchase bandwidth capacity from the telephone companies. There is therefore no free riding as implied by the traditional telco.

Moreover, in as much as telephone companies have seen declining revenues from their traditional Voice or SMS segments, they have in turn observed increased revenues from their data services, courtesy of the rise in popularity of OTTs.

So in essence, the consumers are paying for the OTTs by increasing their Internet bandwidth consumptions and compensating local telephone companies accordingly for it.

It is therefore a win-win situation for both camps.

Both sides do make solid arguments, and over the recent years, the regulator has opted to watch the space evolve rather than intervene. However, late last year, they advertised for a consultant to review the status quo and advise.

It will be interesting to see what the consultant advises and if the regulator will decide to intervene in this fast-evolving space over the coming months.

Mr Walubengo is a lecturer at Multimedia University of Kenya, Faculty of Computing and IT. Email: [email protected], Twitter: @Jwalu