THE PROSPECTS OF DATA UPTAKE AND OTT SERVICES: OPPORTUNUITIES & THREATS FOR THE TELECOMMUNICATIONS INDUSTRY

MTN Ghana CEO EBENEZER ASANTE

NCA 20th Anniversary Symposium

• Vibrant mobile telecommunications industry has contributed immensely to Ghanaian economy, positively impacting GDP growth, developing industries and creating jobs

• Recent report published by the Ghana Chamber of Telecommunications (Tax Contribution of Telecommunications Sector: A study by Ghana Chamber of Telecommunications, November 2015), states that sector liberalization in early nineties has led to estimated US$6B dollars in investments over the past 18 years in telecoms sector.

• The industry employs over 5,000 people directly, but has spawned some 1.5 million jobs indirectly, while supporting and catalyzing other sectors such as banking, media, advertising, agriculture, health, education, creative arts as well as facilitating social and familial communication and stability.

• According to the Chamber study, the total tax contribution (total taxes paid and total taxes borne) of the industry in 2013 was GHC1.04 billion and increased to GHC1.05 billion in 2014.

• Competitive environment with multiple players

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Ghana’s Telecom Industry

Advent of OTT’s

• Similar to global trends, Ghana has experienced tremendous growth in data use over last few years:

− March 2013 NCA report put data subscription in Ghana at 8.9 million. (National Communications Authority, Data Trends 2013)

− 3 years later by March 2016, total of 18.8 million data subscribers in Ghana -- 100% increment. (National Communications Authority, Industry Information, Telecom Subscriptions for March 2016)

• In comparison use of mobile voice service has slowed down.

− Voice subscription increase from 26.7 million in March 2013 to 36.1 million in March 2016, an increase of about 38%.

• Rapid increase in data usage worldwide has spurned innovative means of communication, including Over-The-Top (OTT) services.

What is OTT?

• OTT service providers deliver audio, video and other types of media over the internet and bypasses traditional distribution, services that come over the top are mostly related to communication and media and are typically cheaper.

• Since the OTT’s do not require any business or technology affiliations with network operators to provide these services, they are referred to as "Over-The-Top" (OTT) applications. Examples are Skype, WhatsApp, Netflix, Viber, Snapchat etc.

• OTT’s generate most of their revenue from advertising, subscriptions and premium services.

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Over-the-Top (OTT) Players

Opportunities Created by OTT Services

• OTT’s have created opportunities as well as threats by influencing education, entertainment, culture, sports, and religion. Opportunities:

• Uptake of Smartphones usage: OTT’s have undoubtedly provided new opportunities for mobile network operators:

− The use of smartphones and data service has increased exponentially since the advent of these services.

− Once customers start using data plans, they increasingly use higher and higher amounts of data as they become familiar with smartphone application environments

• Increased data revenue streams:

− As a result of new trends, MNOs continue to develop popular connectivity related services such as data-only packages and bundled offers designed to drive customer acquisition and sustained revenue per user.

− Consumers, who are key drivers of profit, have an array of data-related options available to them from MNOs

• Opportunity to innovate and grow: MNOs have been forced to assess and develop services of their own to meet the needs of consumers which are not already being met

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OTT Threat to Telco’s

VoIP has changed the game for Telcos, especially in

the voice business

Customers turn to OTT applications like Skype to

meet their voice needs

With over 300 million users, Microsoft Skype is now a

major player in the Telco space

Skype international traffic is growing at more than 2x

that of international phone traffic

OTT Impact on Telco’s

Opportunity Loss- Worldwide

According to the London-based research and analytics firm Ovum. The

telecommunications industry will lose a combined $386 billion between

2012 and 2018, the firm predicts, from customers using over-the-top

(OTT) voice applications such as the market-leading Skype.

As of 23rd of June, 2016 100 million calls per day were made worldwide (Equivalent to 1100 Calls/s).

VoIP TESTS & RESULTS

The main objective of this task is to test the data

usage and cost of OTT voice calls on various

operating systems compared to traditional circuit

switched voice calls.

OTT Impact on Telco’s

Comparison of GSM & OTT Voice…

Methodology

Table 2 below show the type of Phones used for the test.

Phone Operating System Operating System Version

iPhone 5S iOS 9.3.1(13E238)

Huawei Mate 7 Android 4.4.2

Samsung Galaxy Note 5 Android 6.0.1

Methodology

These phones were Fresh Phones with no applications installed apart from the OTT app under test

• All android applications like google maps, google mail, YouTube and other default applications uninstalled.

Background Data and automatic updates were also disabled for correct data usage.

The OTT apps Installed on the Phones were:

Skype Viber WeChat Whatsapp

VOIP calls were performed using the above OTT Apps for a duration of Five (5) minutes and data usage measured.

Result…

Type of Phone

OTT App Duration of Call (Min)

Average Data Usage (MB) Single

Party

Average Data Usage (MB) Both

Parties

Data Cost

Equivalent cost of voice call with same

duration -Local

Equivalent cost of voice call with same duration -

International

Difference -Local

Difference -International

Samsung Note 5

WHATSAPP 5 1.73 3.46 0.0581 0.525 3.61 0.467 3.581

WECHAT 5 1.26 2.52 0.0423 0.525 3.61 0.483 3.589

VIBER 5 2.65 5.3 0.0890 0.525 3.61 0.436 3.565

SKYPE 5 2.24 4.48 0.0753 0.525 3.61 0.450 3.572

iPhone 5S

WHATSAPP 5 1.51 3.02 0.0507 0.525 3.61 0.474 3.585

WECHAT 5 3.49 6.98 0.1173 0.525 3.61 0.408 3.551

VIBER 5 3.76 7.52 0.1263 0.525 3.61 0.399 3.547

SKYPE 5 3.99 7.98 0.1341 0.525 3.61 0.391 3.543

Huawei Mate 7

WHATSAPP 5 2.04 4.08 0.0685 0.525 3.61 0.456 3.576

WECHAT 5 3.82 7.64 0.1284 0.525 3.61 0.397 3.546

VIBER 5 3.58 7.16 0.1203 0.525 3.61 0.405 3.550

SKYPE 5 3.51 7.02 0.1179 0.525 3.61 0.407 3.551

Average 2.798 5.597 0.094 0.525 3.610 0.431 3.563

Result..

Call cost comparison for 5 min mobile CS vs. 5min OTT VoIP call…

VoIP Calls Up to 9 times CHEAPER…

Result…

Above shows the average data cost / phone used for testing, difference most likely

influenced by Software version as newer version appear more efficient

GHS

1,807,454

Revenue

Loss / Month

to the State

REVENUE LOSS

Equivalent Voice Revenue - Local (Per Day) GHS 55,492.01

Normal Data Revenue - Local GHS 9,938.25

Revenue Loss - Local(Per Day) GHS 45,553.76

Equivalent Voice Revenue - International (Per Day) GHS 190,786.81

Normal Data Revenue - Local GHS 9,938.25

Revenue Loss - International(Per Day) GHS 180,848.56

Revenue Loss - International(Per Day) - Operator GHS 120,600.09

Comulative Revenue Loss by Operator GHS 166,153.85

Revenue Loss by State (6 cents equivalent) GHS 60,248.47

Revenue Loss

OTT Traffic Trend

Viber, Skype & Facetime Contributes ~92% of total VoIP PS Traffic

VoIP traffic increased by ~17% in July as compared with previous two months data.

• Unfair Playing Field: There is currently an imbalance between the regulation of MNOs and the OTT’s and this has the effect of disadvantage to the MNOs. Areas of licensing, taxation, quality of service are affected by this imbalance.

−Licensing: MNOs require licenses and OTT’s do not, in most cases

−VAS and local content providers are required to register with regulators and pay fees while OTT’s operate in a free-range fashion

−Taxation: MNOs pay local taxes and OTTs locate themselves in low cost jurisdictions and tax havens

−Quality of Service: MNO licenses require minimum QoS; OTTs have no QoS requirements

−Accessible Market: MNOs only serve customers within regulated jurisdiction and OTTs serve any user anywhere

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Other OTT Threats

OTT IMPACT ON TELCO’s

The Telco Challenge…

Partner with OTT’s …..

Provide virtual phone numbers to complement OTT rather than defend

Take advantage of the volume of the OTT users

OTT communication data bundles

Mobile Advertising…

In-App Purchases…

Payments…

Optimization..

Bundling traditional Telco services with OTT type services

OTT IMPACT ON TELCO’s

The Telco Challenge…

OTT IMPACT ON TELCO’s

Partnership Opportunities…

Case : Cooperating with OTT to Consolidate Voice Business

Enlarge User Base Revenue Sharing

UserFree or Pay Revenue Shared User Pay

•$2/month @ unlimited traffic

•6GB storage

•Pre-installed Skype &“always on”

•$10/month (international calls to

mobile/ fixed lines)

Operator A + Operator B +

OTT Regulation

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• There is a clear regulation imbalance as OTT’s who compete directly with

Local Telco’s, VAS and other content providers are not subject to regulation

• With a large youth population and low internet penetration, Africa is arguably

the biggest future opportunity for Telco’s

• Regulatory policies to create a level playing field and encourage a shift from

passive consumption to innovators/developers in the value chain are clearly

needed

• Indonesian Government recently released a regulation requiring all OTT

players in the country to acquire licenses in the country

• Similar to the current EU initiative to regulate OTT services, we propose that

NCA champion regional or continental level initiative on balanced regulation

aimed at regulation OTT like services to provide a level playing field and

encourage local content.

Summary and Discussion

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• It is evident that OTT’s directly threaten traditional Telco voice revenue

• Voice is still a major source of Telco revenue in Africa

• Blocking may not be an effective sustainable approach to solve the

problem

• From observed trend the impact of OTT players on traditional Telco will

continue to get worse as more OTT players are being introduced and

more reliable data technologies are being deployed

• Partnership with the OTT’s in a regulated

environment is likely to be the most effective

solution

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