The Burning Platform of African Telecom

The African mobile operator predicament with so-called over-the-top (OTT) services has flared up over the past few months as more regulators scramble with the issue of how to deal with the likes of WhatsApp, Skype Ltd. and Viber.

In Morocco, all three mobile operators (Maroc Telecom , Médi Télécom S.A. (Méditel) and Inwi ) moved to block mobile calls using WhatsApp, Skype and Viber, at the apparent behest of regulatory body ANRT. In a statement, the ANRT noted that VoIP services could only be provided by operators holding the requisite licenses to do so.

In South Africa, the country's parliament has held hearings on the regulatory framework governing OTTs, and regulatory body ICASA has indicated it will now look into the matter. Last March, Senegal's regulator ARTP ordered a local operator to reinstate OTT services after the operator had purportedly moved to block them.

Not down with OTT
The issue has gained new intensity for a variety of reasons. Operators are feeling a negative financial impact from OTT services, which are hitting three main revenue lines: international voice, SMS (both of which have been declining by 10-30% annually) and, to a lesser extent for now, domestic voice revenues.

To be sure, OTT services are helping drive operator data services revenues too, with data revenues growing in excess of 20-30% a year or more (the fastest-growing revenue line for most).

The problem is the net differential between revenue gains and revenue losses attributed to OTT services. We define this as the net revenue contribution (NRC) of data -- in essence the difference between the incremental gains in data revenue and the losses of voice and SMS revenue over a given period, in absolute terms.

For the most part, we found that many African operators have a negative NRC -- what they are losing on the voice and SMS side is not yet being compensated by what they are gaining on the data side, a potential argument for revenue cannibalization. Even if one does not believe in this cannibalizing effect, there has been enough correlative evidence to spur operators into some form of action.

Evolution of Maroc Telecom Net Data Revenue Contribution*

*We define net data revenue contribution as the difference between the increase/gains from data revenues and the losses from voice/SMS revenue declines.

In addition, operators are now being asked to pay up for 4G spectrum and roll out new infrastructure. Many are concerned they are investing in the tools of their own demise and, in turn, they are putting pressure on regulators to do something about OTT players. Governments are also noticing revenue shortfalls -- lower or flat operator revenue means lower tax revenue, at a time when economic growth is slowing down; the decline in international voice also threatens an important source of foreign exchange, even as African currencies continue to depreciate. Add to that security concerns related to the ability to tap into VoIP calls, and the temptation to block OTT services outright is strong.

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