Watchdogs need to show teeth in ‘fair share’ debate
• Over-the-top platforms use but have not contributed to infrastructure
In Europe, the Caribbean, India and elsewhere the “fair share” debate between data-hungry over-the-top (OTT) operators and network providers is becoming sharper, providing impetus for SA regulators to move swiftly and decisively to tackle the issue here.
OTT platforms such as Netflix, YouTube, Facebook and Spotify have changed how consumers access media and have disrupted the revenue streams and business models of network operators. For example, telcos have seen OTT platforms such as WhatsApp with direct messaging, or Zoom and similar platforms with voice and video calls, displace SMS and voice call revenue.
But even as these revenues plummet the network providers continue to invest in the underlying infrastructure. In effect this unfairly benefits the OTT operators that overwhelmingly dominate traffic but contribute nothing to the infrastructure’s creation and growth.
According to a study by Sandvine, a network monitoring company, it is estimated that six OTT operators account for 55% of global internet traffic.
Across the world, major network operators are demanding that OTT players pay a “fair share”, an issue that has introduced complex policy challenges. This tension has intensified as revenues for network operators stagnate amid surging data demands.
In the Caribbean, for example, the Caribbean Telecommunications Union 2022 report indicates that OTT-driven traffic generates an estimated annual cost of $232m-$332m for operators. This represents 45%-65% of their annual network investment, but only 7%-10% of their revenues.
The issue is now coming to the fore in SA, where the telecommunications industry continues to invest billions in infrastructure to meet surging data consumption demand, also largely driven by OTT players, international and domestic. The Independent Communications Authority of SA (Icasa) annual sector report of 2022 shows that the industry spent R39.7bn on network infrastructure in the year under review.
TIME IS RIPE
As the Association of Comms and Technology, representing local telecom stakeholders, we believe the time is ripe to shape forward-looking policies that provide certainty on fair share obligations. This is becoming even more pressing as the industry ramps up investment in rolling out high-speed 5G infrastructure to meet the exponential demand in growth of data consumption by SA consumers.
It is also an important issue in the context of national ambitions to ensure all South Africans enjoy broadband connectivity and can participate in the digital economy. In July 2023 the association successfully convened a round-table on the issue and brought government, regulators, research institutions, nonprofits, industry associations, OTT platforms and network operators together.
Outcomes included a better understanding of SA’s OTT policy landscape, revenue models, competition dynamics and strategies for sustainable growth. Participants recognised the need to balance commercial interests and consumer rights.
However, we believe the discussions also enhanced co-operation and alliances among the relevant parties, establishing a solid foundation for us to advance this matter in the direction of a just and proportionate distribution of infrastructure contribution.
In 2016 when this issue was considered by the parliamentary portfolio committee on telecommunications, SA adopted a “wait-and-see” approach on OTT governance, allowing the market to evolve organically. In retrospect, this provided space for some of the uncertainties and debates to settle with more concrete examples now available to inform our own deliberations here.
Today there are more options on the table and more reasons for a policy position on this issue from the department of communications & digital technologies, and to empower Icasa with fit-for-purpose regulatory interventions.
The South Korean framework is often cited as a pragmatic precedent. Introduced in 2018 as the first regulatory attempt to deal with the “fair share” debate, South Korea’s rules oblige heavy traffic generators to compensate carriers based on usage and traffic imbalance ratios. For example, if Netflix sends back more than 1.8 times the data it receives from the network operator it must compensate the network operator for the imbalance via regulated prices.
In Europe, opinions are split. Network operators support regulator-led fair share contributions from internet majors such as Google, Meta, Apple and Netflix to finance network investments. But OTT players, and a few national governments, such as Italy, oppose it.
Beyond Europe, the Caribbean and India are grappling with the same dilemmas. Caribbean telcos want commercial agreements forcing compensation for the more than 67% of traffic attributed to OTTs in their territory. Indian telcos are pushing for a “telco tax” on tech platforms to sustain revenue losses from declining voice and SMS traffic and their increasing investments in infrastructure.
As these global developments demonstrate, we in SA are far from alone in seeking to balance OTT innovation and network sustainability. The association believes now is the time for the department of communications & digital technologies to move on implementing framework options that provide policy certainty while upholding consumer interests.
We remain committed to shaping an equitable solution to this complex debate through open dialogue and evidencebased recommendations.