/ 4 February 2016

SA wades into global app regulation battle

OTTs such as WhatsApp are an alternative to SMSes where users can exchange messages by cellphone free of charge but for the data used.
It is safe to say that, given the risk factor involved, the pandemic has exacerbated online activities, and even if, as the severity of its effect decreases (when a vaccine has been developed, for instance), people return physically to their places of work, the current expansion of online work practices means it is likely to remain so to a significant degree.

Whether or not to regulate services such as Whats­App, Facebook Messenger and Skype was a challenge only recently presented to Parliament.

Governments elsewhere have taken varied approaches to regulating these services, because low-cost data services have cannibalised the voice and messaging services of the telecommunications companies and stunted their profits.

Software applications such as Skype are a popular alternative to international calling. A report by TeleGeogaphy, a telecoms market research firm, found that, in 2013, international calls made over Skype were equivalent to 40% of all international phone calls.

Skype to Skype international traffic grew by 36% in 2013 to 214-billion minutes. International phone traffic from fixed lines and cellphones continues to grow as well, increasing an estimated 7% in 2013 to 547-billion minutes.

An estimated $368-billion will be lost to the global telecoms industry between 2012 and 2018 as a result of over-the-top (OTT) services, according to Ovum, a research and consulting business focusing on IT and telecoms. The department of telecommunications and postal services said OTT refers to services provided over the internet without the involvement of a service provider’s own managed network.

Local network giants find themselves in a tough spot as cheaper OTT services gain popularity. Data revenues are growing much faster than those of voice services, but the margins are significantly slimmer. Although OTT services are a potential substitute for voice and data services, they do not have to comply with the regulations that domestic service providers have to, which relate to matters such as licensing fees and quality of service.

OTT services demand a large amount of bandwidth but, says the Independent Communications Authority of South Africa (Icasa), they don’t contribute to the cost of a network.

OTTs such as WhatsApp or Facebook Messenger are an alternative to SMSes and users can exchange messages from cellphones free of any charge other than for the data used.

The services have already put one local operator offering a mobile instant messaging service, known as Mxit, out of business. It closed its doors in October last year, as the South African Communications Forum told Parliament’s portfolio committee on telecommunications and postal services last week.

WhatsApp now also offers Whats­App Calling, which uses data instead of airtime to make calls.

The international response to the rise of these services varies widely, including banning OTT services, regulating them in the same way as domestic operators are regulated, or by reducing regulatory barriers.

“The fact is, all telecos are getting hammered with the same stick, regardless of whether they are a duopoly or operate in a competitive market,” said Richard Hurst, a senior analyst of Ovum.

MTN and Vodacom, in their submission to the parliamentarians, said competing services needed to be treated consistently. But Cell C said it was opposed to any additional regulation of the telecoms industry, and warned any regulation relating to security, privacy and tax matters should follow a light-touch approach.

In many countries, the key issue has not necessarily been OTTs themselves but rather a practice known as “zero-rating”, in which operators, in a bid to win market share, offer access to some online services or applications at a discount or, often, for free. In South Africa, Cell C has recently zero-rated WhatsApp for contract customers, meaning the user does not pay for the data charges when WhatsApp messaging.

Zero-rating, it has been argued in other countries, violates “net neutrality”.

This is the principle that supports a free and open internet in which traffic is treated equally and without discrimination.

Zero-rating, supposedly violates this because it can upset a supposedly level playing field. Several countries have introduced net-neutrality policies and have banned zero-rating for this reason (see below).

There are several avenues for South Africa to consider.

The more traditional arguments about OTTs have called for regulations similar to those placed on telecoms companies to be imposed on these services.

But the executive director of Research ICT Africa, Alison Gillwald, said this argument has become futile, given that this kind of regulation would not be enforceable because of global, foreign-based platforms and apps operating on a complex adaptive system such as the internet.

Icasa also told the paliamentarians that the monitoring and interception of OTT services could pose a challenge for law enforcement.

Hurst said: “In the South African context, the regulation of OTT will depend on the overall policy of the government and how they wish to see the communications markets develop. I think a point of departure will be how the South African government want their communications market to look like. The arrival of the OTT players will certainly threaten the existing telco revenue streams but there are several routes for them.”

The department presented the portfolio committee with some of the findings of its ICT policy review process (see below).

“Stakeholders that proposed a net-neutrality policy raised concerns that, if the policy framework does not enforce this, broadband providers might act as gatekeepers of content and use their last-mile infrastructure to block internet applications, content and competitors,” it said.

Other stakeholders expressed concern that “access tiering” would be introduced by broadband providers if a net-neutrality policy is not developed. This could result in a “fast lane” for rich and powerful users and a “slow lane” for less powerful users.

Some stakeholders proposed that South Africa should follow the Netherlands model for full net neutrality, and others proposed a net-neutrality policy that requires broadband providers to be transparent about their network management policies and fair traffic management should be permitted.

Hurst said: “For people across the world, everybody is still cost-conscious and, if there is an easy, cost-effective way to communicate, it’s going to happen. Network operators like Vodacom and MTN need to start thinking like OTT players themselves. They need to be innovative.”

More investment will be needed, and the regulator must help to smooth the pathway by releasing long-anticipated spectrum for 4G and 5G services.

Gillwald said the delay is stifling the evolution of mobile communications in the country. “There is no holding back this wave. It needs to be enabled so that the extreme digital inequality that exists in the country can be redressed,” she said.

Last week, Icasa resolved to launch an investigation into the effect of OTT on the data services market.

The global reaction to services is inconsistent

Chile was the first country to take on the issue of over-the-top (OTT) services and, in 2010, introduced net-neutrality principles in its National Telecommunications Act, according to the department of telecommunications and postal services presentation to Parliament. In 2014, Chile banned zero-rating on these grounds.

In 2011, the Netherlands became the second country to adopt net-neutrality principles into law and outlawed zero-rating access deals, as has Slovenia.

In these cases, the regulators can control their licensees by preventing them from discounting prices for these services, said Alison Gillwald, the executive director of Research ICT Africa.

A ban on zero-rated services has been called for in India, although the regulator has declined to do so after extensive hearings and petitions, she said.

But the South African Communications Forum, consisting of the public, private and civil society sectors, last week told MPs the Indian regulator is developing a regulatory framework for OTT services. In March last year, it released a consultation paper, to which the overwhelming response was a call for fair and uniform regulation across the board with a light-touch approach.

The department noted in its presentation how, when Apple’s iPhone was released in the United States, the telecoms giant AT&T imposed a restriction on VoIP (Voice over Internet Protocol) services on its 3G network, but subsequently lifted it because of pressure from users and regulators.

In March 2015, the US Federal Communications Commission released new rules that stop broadband providers from, among other things, blocking access to legal content or services, impairing or degrading lawful internet traffic, and from favouring some lawful internet traffic over other lawful traffic.

In early January this year, Morocco banned OTT services.

“This is only possible when operators operate more through collusion than competition,” said Gillwald. “As long as one operator engages actively in marketing their product through an OTT product that they offer discounted or for free in order to gain market share, the other operators cannot charge or shut off services without losing customers.”

In Switzerland the rise of OTT services has prompted a further deregulation of the telecoms industry, but in greater Europe, the European Commission has recently undertaken a review of the telecommunications regulatory framework.