OTT - THREAT OR OPPORTUNITY FOR AFRICAN TELCOS?DR CHRISTOPH STORK
MOBILE BROADBAND• Mobile broadband (2.5G and 3G) and declining smart
phone prices have lead to a rapid increase in Internet use • Computer based Internet access - is a privilege of the few
in Africa (formal jobs or Internet Cafe) • Mobile BB
• Requires less skills than computer based access • It does not require electricity at home • It is prepaid
• Mobile BB is expensive for the poor, and at the same time as it is a cost saving tool • It is expensive when using the full Internet including media
streaming • It is cheap when Over The Top (OTT) services are used instead
of voice and SMS
GLOBAL TRENDRe
venu
e
0%
25%
50%
75%
100%
2000 2005 2010 2015 2020
Voice + SMS Data
Separation of access and service platforms
PHASE 6: MNO = ACCESS ONLY PROVIDERS• Pricing = flat access • Billing = very easy • Marketing = performance can be measure
objectively • Dumb Pipe Syndrom? Investors don’t
complain if the make reasonable returns • Some operators in Africa prepare for
transition: Bundling to keep stable ARPU and simulate flat access e.g.
VOICE AND SMS VS DATA RETAIL PRICESQ1
2016
Lowest average prices in US cents % 1 Mb when purchased as a 1GB top up expressed in share of other prices
1 Mb out of
bundle1 SMS 1 Minute
1 Mb based on 1 GB top
up
1 MB out of bundle 1 SMS 1 voice
minute
Malawi 0.89 3.78 9.30 0.67 75% 18% 7%Sudan 1.08 0.71 0.71 0.43 40% 61% 61%
Ethiopia 1.76 1.76 3.37 0.96 55% 55% 28%Tanzania 1.88 1.47 5.29 0.60 32% 41% 11%
Egypt 1.97 1.97 1.97 0.32 16% 16% 16%South Africa 2.50 2.50 5.14 0.70 28% 28% 14%
Botswana 2.65 2.12 7.04 1.79 68% 84% 25%Tunisia 2.74 1.37 1.70 0.50 18% 36% 29%
Cote d'Ivoire 3.81 3.81 8.95 0.82 22% 22% 9%Kenya 5.65 1.13 3.01 0.50 9% 44% 17%
Namibia 7.76 3.02 12.50 0.55 7% 18% 4%Mozambique 7.93 3.81 10.84 0.36 5% 9% 3%
D.R Congo 9.00 4.00 8.44 1.30 14% 33% 15%Angola 9.01 9.01 20.03 1.86 21% 21% 9%Lesotho 11.15 4.46 10.70 0.84 8% 19% 8%Zambia 16.66 3.28 13.54 0.90 5% 27% 7%
OTTS PROVIDE A COMPETITIVE OPPORTUNITYSmall Operator • On-net / Off-net
discrimination does not apply to OTT services
• The size of the subscriber base doesn't provide a competitive advantage
• OTTs stimulate data use through social networks - boost data market share
Dominant operators • may embrace OTTs to defend
their market share and discourage market entry
• A new operator- several years to break even while building a network
• A new operator would have to build a business case around flat access pricing rather than traditional mobile business model in a market with wide spread OTT use
MNO RESPONSE TO OTTS
BLOCKING OTTS• In Europe, the initial response by mobile operators had
been to block or throttle peer-to-peer traffic or VoIP • The European Commission in 2013 raided telecom
operators on grounds of throttling concerns • AT&T blocked mobile VoIP following the release of the
iPhone but soon faced consumer and regulatory pressure and backed down
• Morocco operators blocked Voice over IP services - Viber, WhatsApp and Skype without subscribers knowledge
‣ Blocking directly violates the idea of net neutrality, an open Internet accessible to all
‣ Consumer pressure has been more effective though
REGULATING OTTS• Regulatory intervention to prevent customers
using OTTs • To protect operators from market erosion • Regulating zero rated OTTs based on net
neutrality principle (India 2016, Egypt 2016) • Regulatory intervention to create an equal
playing field - OTTs have no licence or tax obligations (Vodacom and MTN in South Africa)
EMBRACING OTTS1.Bundling dedicated data for social media (MTC in Namibia)
2. Zero rated OTTs - without charging for data services
3. Free Basics package from internet.org • Operators in 21 African countries have partnered with
Facebook to offer zero rated Free Basics on their platforms • Interestingly, in nine of the African countries it is being driven
by Airtel despite despite the head of Airtel Africa calling for regulation of OTT services
• Malawi and the Democratic republic of Congo are the only countries in Africa in which the service is being offered by two operators
SIMULATE OTTS THROUGH BUNDLING• Bundle voice, SMS and data into packages that
provides OTT like services • Price of the top-up so that it receives the desired
ARPU • 4 x 7 day validity top up = ARPU * Subscribers =
desired revenue • Sometimes lose to unlimited voice call and text
messages • Operators in 24 African countries offered
bundling voice, text and data together in 2015
OFFERING NON TELCO OTT• Safaricom offers MPESA successfully • Streaming music and videos (zero rated -
i.e. not charging for data) • In South Africa, Vodacom partnered with
Deezer, a music streaming service - ZAR59 per month for unlimited music access
• MTN offered its own video streaming service - MTN Vu formerly known as MTN Front Row
OFFERING OWN OTT• An operator could develop a own OTT
service • Deutsche Telekom offers a WhatsApp
alternative with its immmr service • Such a strategy would facilitate the
transition to a flat rate access model
MOBILE PRICES
LOWEST PREPAID Q1 2016Egypt
MozambiqueRwanda
SudanUganda
GhanaKenya
Cape VerdeTunisia
NigeriaMoroccoNamibiaBurundi
TanzaniaMauritius
MalawiGuinea
CameroonSouth AfricaMadagascar
Cote d'IvoireBenin
Bukina FasoSenegal
NigerTogo
LesothoZambiaGabonAlgeria
EthiopiaLiberia
MaliD.R Congo
ChadCongo Brazzaville
BotswanaAngola
ZimbabweSierra Leone
MauritaniaSwaziland
Seychelles 47.3932.00
27.0825.19
20.0018.5717.91
16.6916.69
13.0012.5212.00
9.609.399.188.978.448.348.348.348.348.348.18
7.106.976.686.666.656.466.035.855.325.105.064.994.984.974.894.354.324.133.623.18
UgandaSudanTunisiaKenyaEgypt
GhanaCameroon
MauritiusNigeria
TanzaniaEthiopiaGuinea
South AfricaMadagascar
MauritaniaRwandaAlgeria
GambiaBurundiZambia
NamibiaLibya
BotswanaMozambique
BeninCote d'Ivoire
D.R CongoSenegal
Congo BrazzavilleNiger
Bukina FasoMalawi
MoroccoMali
LiberiaGabon
Central African RepublicSwaziland
Guinea-BissauZimbabwe
ChadTogo
AngolaSierra Leone
LesothoSeychelles
Cape Verde 23.2117.13
13.6613.37
12.9912.9912.8612.8012.7412.56
11.1910.5810.4810.4710.209.93
9.258.848.658.348.148.11
7.637.316.94
6.456.135.925.83
4.884.704.594.564.31
3.823.573.403.363.283.102.93
2.492.262.232.03
1.581.45
1 GB PER MONTH
30 CALLS 100 SMS PER MONTH
HIGHEST VALUE FOR MONEY INDEX Q1 2016UgandaNamibia
CameroonTanzaniaMauritius
SudanMorocco
MadagascarCote d'Ivoire
KenyaSenegal
South AfricaD.R Congo
EgyptRwandaAngola
BotswanaMozambique
MauritaniaChad
AlgeriaGabon
EthiopiaGhana 0.00
0.130.240.330.350.570.590.610.670.670.901.031.10
1.801.922.00
2.303.113.33
3.684.16
5.837.79
8.59
‣ Valuing bundled voice, SMS and data from a OTT users perspective ‣ 1 minute = 0.2 US cents, ‣ 1 SMS = 0.1 US cent ‣ 1 MB data = 1 US cents ‣ 1 MB Social Media = 0.5
US cents
CASE STUDIES: KENYA, NAMIBIA, SOUTH AFRICA
DATA REVENUES AS SHARE OF TOTAL REVENUE
2011 2012 2013 2014 2015
20% 20%
25%
30%
11.7%
9.1%
21.2%
23.8%
4.8% 4.9% 5.3%6.4%
9.1%
11.6%13.4%
15.2%
17.8%
21.8%
Vodacom SASafaricomMTN SAMTC Namibia
COMPARISON BETWEEN DOMINANT OPERATORS
Kenya South Africa NamibiaNumber of Mobile operators 3 4 2
Marketshare of dominant operator in terms of active SIM 67%
MTN 33% Vodacom 42% 96%
Marketshare of dominant operator in terms of traffic 76% NA 99%
Cheapest OECD Basket
USD 2.23 3.82 6.12Ranking 4 13 21
Cheapest 1 GBUSD 4.97 6.97 5.3
Ranking 7 19 12
Highest Bundled Top up
BVI 1.92 1.1 7.79Ranking 10 12 2
Share of Data Revenue of total for dominant operator FY 2014 6.4% 23.8% 30%
KENYA SAFARICOM
FY11 FY12 FY13 FY14 FY15
32.6326.56
21.8416.8711.78 87.4184.32
75.8468.1263.5
Voice M-Pesa Mobile data SMS
76%
8%16%
EquitelAirtelOrangeSafaricom
Market share by voice traffic July to Sep 2015
• Offering Non Telco OTT - MPESA
• Data revenue compared to voice low, 9% of total revenue
• Voice Revenues still increasing
NAMIBIA MTC• MTC Namibia is close to unlimited
bundles for several years • to defend market share and keep
new competition out • MTC’s aim for constant ARPU and
competitive pressure leads not to lower ARPUs but to more bundled value
• This strategy is simulating flat rate pricing for unlimited voice and SMS
Jul - Dec 2012
Jan - Jun 2013
Jul - Dec 2013
Jan - Jun 2014
Jul - Dec 2014
Jan - Jun 2015
99.0%98.6%98.2%98.1%97.2%97.2%Total Mobile outgoing traffic
MTC’s KPIs 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Revenue N$ million 769 937 1,113 1,232 1,390 1,407 1,453 1,617 1,832 2,082
Shareholders’ equity N$ million
646 903 999 1,136 1,153 1,166 1,121 1132 1,173 1,212
Net profit after tax N$ million
293 337 340 358 388 397 319 353 425 505
EBITDA margin 61% 60.2% 52.2% 50.9% 53.8% 55.8% 53.2% 53.2% 55.0% 54.7%
Source: MTC annual reports, 2005-14
SOUTH AFRICA 39%
3% 32%
26%Cell C (Oger Telecom)MTNTelkom MobileVodacom
2010 2011 2012 2013 2014 2015
154.0134.1 122.0 108.0
92.0
184.0 183.0157.0
128.0 125.0 113.0
Vodacom MTN
Table 5: Revenues in R(m) 2013 2014 2015 Change
Vodacom
Mobile voice 29,151 28,135 25,855 Down
Mobile messaging
3,027 2,675 2,522 Down
Mobile Data 8,882 10,974 13,538 Up
MTN
Mobile voice 22,125 19,677 Down
Mobile messaging
2,365 2,069 Down
Mobile Data 8,656 9,264 Up
ARPU
• Voice and SMS revenues in decline while data revenue increases
• APRUs declining • CellC embraces OTT
- zero rated facebook and whatsapp
• Dominant operators Vodacom and MTN argue for regulating OTTs
BLENDED ARPU 2010 = 100%
2011 2012 2013 2014 2015
87%
79%
70%
58%
96%
108%
120%127% 128%
86% 87% 84%88%
99%
85%
70% 68%61%
Vodacom MTC Safaricom MTN
CONCLUSION• Zero rated OTTs can be used to gain market share for new
entrants or defend market share against new entrants • Declining voice revenues can be combated with
increasing data revenues - or non-telco OTTs like mobile money - jury is still out on video and music
• Providing prepaid products that resemble flat rate pricing is a successful strategy to retain revenues
• An access only model would reduce expenses for billing and branding thus retaining profitability with declining revenues • New business model for MNO • Ghana 4G data only providers are there already