Can African countries benefit from micro-levies on OTT content?

2016-11-16 11:33

The predicament African mobile operators find themselves in with over-the-top content (OTT) services like WhatsApp, skype and Viber has come to a head.  The issue is rather complex and calls for a reassessment of traditional perfunctory stances by all the stakeholders involved.

Fundamental to the debate is to recognise that there is a real threat to operator revenue. OTT has a strong cannibalising effect on operator messaging revenue — in particular on SMS and more than half the operators have seen a decline in messaging revenue.  Markets such as Ghana, Uganda and South Africa have experienced a decline in messaging services by 20% to 30% annually since 2013.

The predominantly pre-paid nature of African markets make them especially vulnerable to such revenue cannibalisation.  The prepaid model means that revenue is more vulnerable to changes in customer usage patterns—a customer can cut their spending directly through usage shifts and this is directly reflected in operator revenue.

OTT services make a strong contribution to data revenues.  A large proportion of incremental usage (people using more data) and users (more people purchasing Smartphones to use data) can be directly attributed to OTT services which are free. The issue is therefore the net differential between the revenue gains and revenue losses— attributed to OTT services.

For the most part, many African operators are not yet able to compensate for what they are losing on the voice and SMS side by what they are gaining on the data side.  This is the crux of the matter.

The debate is heating up because governments are asking operators to pay up for 4G spectrum and increasingly noticing the revenue shortfalls—lower revenue means lower tax revenue —at a time when economic growth is slowing and when African currencies continue to depreciate—thus threatening an important source of foreign exchange.

The revenue volumes threatened by OTT services are, however, relatively small—10% to 15% of revenue and much less when the incremental revenue from data services is accounted for. Others have made this work—negative data contributions are not a foregone conclusion.  In Kenya for instance Safaricom’s net revenue contribution has been steadily positive —even excluding the M-Pesa service because of constant innovation in voice and SMS pricing by operators.

The negative nett revenue contribution is temporary.  Once more people start to use data services, accelerated usage turns the contribution positive over time due to network effects, accelerated usage and an operating model that becomes optimised for data services. In effect, therefore, the negative nett contribution phase is a transition phase to a data-centric model.  How long it stays negative is dependent on each operator’s operating model and innovative approach.

Even acknowledging the challenge to operators that OTT services present, these services are now so intricately integrated into usage patterns that blocking OTT services would be an indiscriminately blunt and short-sighted instrument for a challenge that, in effect, cannot be legislated away. Furthermore, the widespread use of Skype, Viber and WhatsApp have made them critical to small business collaboration and consumer interaction which is even more important in Africa as small business (including the informal sector) is a critical contributor to economic development.

The operator focus in dealing with OTT services should be at the strategic, marketing and operational levels.  One of the most significant challenges facing organisations at different phases of their development cycle is the need to reinvent themselves to adapt to changing market conditions.

Addressing the OTT challenge requires a smart long-term view at a time when many operator decision-makers appear obsessed with the short-term view. Many long for market conditions that no longer exist.

Nokia’s former CEO, Stephen Elop told the company’s employees that they were standing on a “burning platform” and needed to jump off it, transform themselves and move forward.

There are, however legitimate policy reasons for firming up on a regulatory framework which governs OTT services—considering African conditions. If a regulatory framework is not put in place that at least favours companies with local staff and operations more explicitly, the alternative is that governments will look for other ways to address real or apparent revenue shortfalls; regulatory fines, increased taxation, more aggressive tax collection, high spectrum costs.  This may be even worse—penalising local business to the benefit of large global Internet companies.

Regulation and micro levies on OTT will benefit everyone in the long run.  The micro-levies are broad-based and governments will be able to provide proper infrastructure to cater for the future. If carefully considered and appropriately implemented, the micro-levies need not impact much on the users or service providers.

News24 Voices Terms & Conditions


AB praises selfless skipper

2010-11-21 18:15

Join the conversation! encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions.

Inside News24

Traffic Alerts
There are new stories on the homepage. Click here to see them.


Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.

Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire network.


Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.

Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.