Over-the-Top (OTT) policy and regulatory options

Meeting report

The Chairperson welcomed members back after the end-of-year break. She conveyed the apologies of the Minister, Deputy Minister and acting Director-General, all of whom were attending the ANC lekgotla. The question of the appropriate governance of Over-the-Top (OTT) services was going to be the most topical issue of 2016, and a platform needed to be created for a dialogue among all stakeholders. Issues that needed to be considered included the cost to communicate, inequality of access, security and privacy (including the right to be forgotten). Parliament would need to ensure that policies were adopted that were in the best interests of all South Africans. She saw no reason to defer the discussion, as had been suggested by some information and communication technology (ICT) stakeholders, but also noted that the present meeting was not a public hearing, just a discussion.

Ms M Shinn (DA) asked who had chosen the topic for the meeting. It had come as a surprise to her. The cost to communicate and the rollout of infrastructure were more pressing issues, such as the cost of communication. The ICT policy review had recommended that they wait and see how the industry developed before considering regulation of OTT services. She also asked whether Telkom, who were not scheduled to present, had been invited.

The Chairperson said that Telkom had been invited to present but had chosen to participate in the discussion only. The programme for 2016 had been circulated late in 2015, and perhaps Ms Shinn had not received it due to the disruption of internal communications caused by the strike. A meeting on broadband rollout would be taking place the next day, she added.

Research ICT Africa on the penetration and Over-the-Top trends in South Africa
Dr Alison Gillwald, Executive Director, Research ICT Africa, explained that the question of OTT service regulation was connected with the issue of cost to communicate. She said that the evidence needed to formulate good telecoms policy was dismal in South Africa, especially on the demand side, even compared to other countries in the Southern African Development Community (SADC). She cautioned against old-fashioned competition regulation of these new and dynamic services that were opening up the internet to the poor. What we really needed was a kind of adaptive regulation, to ensure that there were no unintended negative consequences. It was also important to realise that the Internet was a global distribution platform, and that many OTT service providers were based internationally, which could limit the enforceability of regulations. Although the issue might seem narrow and technical, it was really central to the future of the ICT space, it was important to keep in mind the core public interest question: what was in the best interests of consumers? Throughout her presentation, she emphasised the rapidly changing landscape of mobile data and OTT services, both in terms of services offered and consumer behaviour. She discussed the changing market for mobile network operators (MNOs) in Africa, observing that the market for voice communications was very nearly saturated, and that low-end devices were now driving data usage. MNOs were facing the prospect of becoming “dumb pipes,” with no way to profit from the use of their networks. She did remind the committee that the MNO could still make money from the sale of data, and that data prices were still high in South Africa. The potential problem came from the fact that there might be an asymmetry of regulation of different companies offering the same or competing services. She gave an overview of the nature of OTT services, and summarised the debates around zero-rating (the practice of not charging users for data used by certain applications or sites) and whether it violated the principle of net neutrality (the principle that no internet traffic should be treated preferentially on the basis of its content). This debate often took an idealistic form, with net neutrality being held up as an inviolable principle, but it was important to understand that zero-rating was simply a marketing technique to attract and retain subscribers. In closing, she said that government would need to look at all the positive and negative effects of OTT services on the market before deciding on what if any regulation to put in place. She also cautioned that regulatory bottlenecks in other parts of the sector, such as electromagnetic spectrum allocation, could be forcing MNOs to regressively protect their voice and messaging business, and stifling the whole industry.

Department of Telecommunications and Postal Services: OTT Policy and Regulatory Options
Ms Tsholofelo Mooketsi, ‎ DTPS Director, said that OTT service regulation was one of the key issues the Department was looking at as it finalised the national integrated ICT White Paper. She outlined the history and objectives of the White Paper, and gave a summary of the relevant sections. She discussed policy developments with respect to net neutrality and zero-rating in Chile, the Netherlands, the United States of America and India.

Mr Alf Wiltz, DTPS Chief Director: Telecommunications and IT Policy, continued, discussing some potential problems if net neutrality was allowed to be compromised and how the White Paper addressed these problems. It was important to consider balance of rights between MNOs, OTT service providers and consumers when developing regulations in the sector.

Independent Communications Authority of South Africa (ICASA) presentation on OTT Regulation
Mr Pakamile Pongwana, ICASA CEO, said that the current MNO landscape in South Africa had come about due to regulatory forbearance. Sometimes innovation had to be allowed to grow. The major bottleneck at present was the holding back of electromagnetic spectrum. He then handed over to ICASA’s Chief Operations Officer.

Mr Willington Ngwepe, ICASA COO, discussed the dynamics of the OTT market. The key drivers were the increased availability of broadband networks, the adoption of smart phones and tablets, increased consumer confidence in new technologies, and their affordability. He noted that OTT services typically did not require operating licenses, unlike MNOs. They stimulated demand for the data sold by the MNOs, on the other hand, but they made no contribution to the network infrastructure on which they depended. Any regulation that was applied to OTT services would be very difficult to enforce, he added. He said that the impact of regulation of OTT services on consumers, the national fiscus and the ICT sector as a whole would need to be carefully considered before any regulation was finalised. The recommendation of the Independent Communications Authority of South Africa (Icasa) at this stage was to wait and see how the market evolved.

South African Communications Forum on Over-the-Top services in South Africa
Ms Loren Braithwaite-Kabosha, SACF CEO, said that it was increasingly recognised around the world that the internet was transforming human life, and OTT services were a natural evolution of the internet, even if there was no globally accepted standard definition of OTT services. They still depended on physical network infrastructure, she noted, although they carried none of the regulatory, licensing, tax or capital investment burdens of the MNOs. She noted that there were some issues of privacy and legal interception of OTT signals. She looked at some specific types of OTT service, such as voice over internet protocol (VoIP) and video-on-demand (VOD), and the responses of MNOs to these services. She looked at the predicted future of the mobile internet access market in South Africa, and factors that have hindered its growth. There was a concern that policy and regulation have not kept pace with technological development, giving new and disruptive technologies an unfair advantage over legacy networks and services. She looked at the approach to regulation of OTT services taken in the European Union (EU) and India. She said that key regulatory issues must focus on outcomes, rather than specific technological platforms, and must be able to adapt quickly in the highly dynamic ICT industry. The aim of regulation should be to encourage innovation and constructive competition.

Vodacom submission on Over-the-Top services in South Africa
Dr Andrew Barendse, Vodacom Managing Executive: Regulatory Affairs, said that Vodacom did not want to block OTT service providers, it just wanted consistent regulatory treatment of competing services. He conceded that the industry was being transformed by consumers, with wide-ranging consequences. There were good reasons for considering regulation. Other jurisdictions had cited security concerns, taxation and consumer protection when considering how to regulate OTT service providers.

MTN submission on Over-the-Top services in South Africa
Mr Graham De Vries, General Manager: Regulatory Affairs, MTN, agreed with Dr Barendse that OTT services were a reality that they could not ignore. MTN shared Vodacom's view that competing services should be regulated in the same way. He said that some OTT services made their money by selling the personal information of subscribers. OTT services were often not subject to the same legal interception requirements. There were also quality-of-service requirements that MNOs, unlike OTT services, had to adhere to as part of their license. Revenue from the sale of South African personal information in another country, or advertising on OTT services, were not taxed in South Africa, he said. He said that the debate on electromagnetic frequency allocation was closely related to the rise of OTT services, because these services put a burden on data networks, and called for the regulatory bottlenecks to be cleared up urgently, so that MNOs could expand their network capacity.

Cell C submission on Over-the-Top services in South Africa
Mr Graham McKinnon, Chief Legal Officer, Cell C),said that two types of regulation needed to be distinguished. The first type, which he called telco regulation, included licensing, quality-of-service requirements, facilities leasing and interconnection. The second type comprised security, privacy and tax. Cell C's position was that there were regulations in place already to govern the second type, and that any additional regulation of this type needed to follow a light-touch approach. Cell C was firmly opposed to any additional telco regulation, which would simply stifle innovation and growth. MTN and Vodacom were attempting to use concerns around the second type of regulation in order to get telco regulation passed.

Discussion
Mr Paul Hjul (Director, Crystal Web) explained that almost all internet service providers (ISPs) in South Africa were dependent on delivering an OTT service over Telkom's network. The internet itself was essentially an OTT service, and OTT services had existed on mobile networks almost since their inception. What had changed recently was that new OTT service providers like WhatsApp were globalised, competitive and unforgiving appliers of internet technology that did not lend themselves to the sort of commercial relationships that earlier OTT services, which were essentially value add-ons and a significant source of revenue for the MNOs, did. He agreed with the distinction between types of regulation made by Cell C. It was also important to remember that many OTT service providers were international companies whose South African revenues were relatively insignificant. We did not want a situation where they withdrew from the market because of excessive regulatory burdens. Perhaps a company like WhatsApp should be obliged to have a South African representative to whom court orders could be served, he said, but this was very different from what supporters of regulation seemed to be suggesting. He asked what was behind Cell C's partnerships that delivered zero-rated services. Were they a principled move, or simply a commercial one?

Mr McKinnon explained that Cell C's partnership with internet.org was essentially a discount on certain services.

Mr Alan Levin (Chairperson, Internet Society of South Africa) said he was unsure of how WhatsApp, basically a free service for the vast majority of its users, had become the de facto focus of the discussion. All it had done was enable people to send text messages at about a thousandth of the cost of an SMS. He asked MTN how much less money they were making as a result of WhatsApp. They did not appear to be struggling financially. He asked what MTN was doing to expand its network to allow more people, especially the poor, to use OTT voice and messaging services.

Mr De Vries said that it was difficult to disaggregate figures that would indicate how much revenue they had lost to WhatsApp. MTN invested R5-7bn every year into network infrastructure, which included expansion into under-serviced areas. It was being held back by delays in spectrum allocation, however. He pointed out that a national broadband network would effectively be a monopoly, and this would be reflected in the prices.

Mr Siyabonga Mahlangu (Group Executive, Telkom) said that a delicate balance needed to be established between innovation and macro-economic realities. Finding this balance was the major regulatory challenge.

Mr David Johnson (Principal Researcher: Meraka Institute, CSIR) said that the elephant in the room was that it would be impossible to regulate OTT services if it was impossible to define them. He also stressed the social impact of OTT services, citing an example of a service on Mxit that allowed high school students to get help with maths from experts around the country at a very low cost.

Mr Barendse observed that the problem of definition was part of the policy discussion.

Mr C Mackenzie (DA) said it was ironic that MTN and Vodacom were calling for the government's protection, since they had argued so strongly against any protection of Telkom's monopoly in the 1990s. He asked why they did not invest in their own, locally-based competitors to OTT services like WhatsApp. Lastly, he observed that the term “OTT” seemed to have been coined by the MNOs, and if this was the case, maybe a different term would be more appropriate.

Ms Shinn asked whether any progress was being made in the creation of a national broadband network. Would the MNOs be willing to contribute to its creation? She expressed some concern about the possibility of government trying to control the information available to South Africans through the internet.

Ms D Tsotetsi (ANC) said that the Committee should always keep the consumers of OTT services uppermost in their minds. If innovation was to the detriment of the public (for example, if their information was being sold), the government did need to intervene.

Ms N Ndongeni (ANC) asked what could be done to ensure regulation kept pace with technological change, and whether OTT services were legally restricted at all under current regulations.

Mr Wiltz said that the present meeting was an example of how this could be achieved. Policy development took time and needed to involve all stakeholders.

Ms J Kilian (ANC) asked the Department and Icasa what was holding up the rollout of broadband infrastructure. What was the status of the SA Connect plan? When would there be clear deadlines for delivery? It was urgent that spectrum allocation be dealt with, because it was having a serious effect on the economy.

Mr Wiltz explained said that significant progress had been made in the rapid deployment policy, which would be contained in the White Paper.

Mr Muzi Makhaye (Chief Executive Officer, Arion Bomema Technologies) said it was patently unfair for OTT service providers to ride on the back of network infrastructure built by the MNOs.

Wi-Fi Forum submission on Over-the-Top services in South Africa
Mr Andile Ngcaba, Chairperson, Wi-Fi Forum, said that South Africa should protect its image in the global internet community. He insisted that as a country, we should not be protecting incumbents, but should be allowing change and innovation. He gave several historical precedents of technologies becoming obsolete, and the type of arguments that were used by companies invested in such technology to try and block new, innovative replacements. For example, when it was discovered that certain chemicals could be used for refrigeration, companies who made ice-box refrigerators argued that the chemicals might be dangerous. Today, ice-box refrigerators are no longer used. Similarly, telegraph companies had worried that telecommunications would destroy their market. They had argued that their investment in telegraph technology was being undermined. Today, we should not apply traditional telecommunications legislation to internet-based entities. The 1996 Telecommunications Act should not be amended, he said, but simply repealed. Technological change was constant, and a new regulatory framework was needed for internet-based entities that allowed them to flourish.

Internet Service Providers Association (ISPA) submission on Over-the-Top services
Mr Dominic Cull, IPSA Treasurer, agreed with Mr Mackenzie that the term “OTT” was not entirely satisfactory. He said that the only reason regulation of OTT services was being discussed at all was that MNOs were not being allowed the electromagnetic spectrum rights they needed to expand their businesses and were being prevented from engaging in mergers and acquisitions. Rather than stifle the competition provided by OTT services, we should be trying to release the fundamental growth constraints on the ICT sector as a whole. He said that consumer protection legislation applied equally to international OTT service providers – the regulatory asymmetry was not as pronounced as Vodacom and MTN had suggested. He pointed out that the MNOs did not have any problem with data-intensive OTT services like YouTube, because they consume a large amount of data, unlike voice and messaging. With regard to the taxation of OTT services, Treasury had announced last year that it was reviewing its online taxation regime. He recognised that the incumbent MNOs were important corporate citizens, and we should not be shy to state plainly that their revenue was the real issue. However, the principle of net neutrality should be upheld: a network operator should not be allowed to determine which services and content can be accessed, or differentiate between the cost of services, over its network. The power to choose which services to use should be in the hands of the consumer. There needed to be clarity on what precisely is being regulated, and for what reasons. He reiterated that the priority should be to release the growth constraints holding the industry back.

Mr Mike Silber, IPSA Regulatory Adviser, endorsed the views of Mr Ngcaba. He said the current situation was reminiscent of the situation in 1996, when Telkom had argued that internet protocol fell under its monopoly.

Microsoft submission on Over-the-Top services in South Africa
Mr Siyabonga Madyibi, Director: Legal and Corporate Affairs, Microsoft South Africa, agreed that OTT services were not well defined. Microsoft preferred to think of Skype as an internet-based service, not an OTT service. He also cautioned against applying an outdated style of regulation to a very new type of service. He pointed out that large corporations such as Microsoft would not be unduly inconvenienced by OTT service regulation. It would be small businesses and start-ups that would be the most adversely affected.

Facebook submission on Over-the-Top services in South Africa
Ms Ebele Okobi, Head of Public Policy in Africa, Facebook, assured the committee that Facebook did not sell user data. She said that there was a symbiotic relationship between OTT service providers and network operators, since OTT services drove demand for the data sold by network operators. She supported the network operators in their attempts to remove the barriers to growth, such as spectrum allocation, and said that there were fundamental organisational differences between network operators and OTT service providers which meant that they could not be regulated in the same way.

Google submission on Over-the-Top services in South Africa
Mr Fortune Mgwili-Sibanda, Public Policy Manager, Google South Africa, said that most of the important issues had already been addressed. He said that innovation and change in the ICT was inevitable and it should not be stifled. He agreed with Mr Madyibi that small start-up companies would be the most seriously affected by regulatory barriers to entry into the market, and with Ms Okobi that OTT service providers should not be regulated as it they were network operators. He denied the claim that OTT service providers made no investment into infrastructure, as well as the claim that they did not pay tax. He confirmed that Google did pay tax in South Africa. He also observed that the consumer voice seemed to be missing from the present discussion. Finally, he said that if the desired aim was to level the regulatory playing field, why not remove cumbersome and outdated regulation holding back the network operators, rather than adding cumbersome regulation for OTT service providers?

AlertingSA submission on Over-the-Top services
Mr Linda Khumalo, AlertingSA CEO, said that almost $500bn was lost annually to cyber crime, and South Africa had the third-highest number of hacked devices in the world, after China and Russia. His company provided home cyber security solutions. He suggested that regulating OTT services could allow for better cyber security, but he was unsure whether regulation would protect local industry. He drew attention to the danger of using public wireless network connections for sensitive communications.

Discussion
Ms Shinn said that it was clear from the presentations that it was not regulation of OTT services but rather spectrum allocation and infrastructure rollout which were the crucial issues. She asked whether the MNOs had any plans in place to protect their businesses, given that they were unlikely to get regulatory protection within the next few years, if at all.

Ms L Maseko (ANC) said that abuse of networks was a problem. People were constantly bombarded with unsolicited communications.

Mr Silber pointed out that unsolicited communication could just as easily use traditional channels as they could OTT services, and that there was already legislation that protected consumers from it. The MNOs were doing their best to eliminate it, but what was required was an education campaign and partnerships with law enforcement. He stressed that cyber security measures should not single out one type of service.

Mr Khumalo agreed on the need for education.

Ms Braithwaite-Kabosha said that just last week the ICT industry associations had agreed to roll out a nationwide consumer digital literacy programme.

Ms Kilian asked what international precedents existed for dealing with hackers. She asked for clarity around the law with regard to lawful and unlawful internet traffic.

Mr Silber said that there was a very disparate set of laws in the country, and very low cyber law enforcement capacity.

Mr Ngcaba agreed about the seriousness of cyber crime.

Ms Gillwald cautioned against the conflation of cyber crime, cyber security, cyber terrorism and other concepts. While we obviously wanted to provide a safe network environment for South African citizens, we also did not want to circumscribe people's rights to privacy and freedom of expression, for example.

Mr Ngcaba mentioned the London Action Plan, an attempt to co-operate and share best practices in the fight against unsolicited communication. He suggested that South Africa become a subscriber.

Mr Hjul strongly denied the implication of Mr Makhaye's statement that OTT service providers were effectively leeches on the bodies of the MNOs. He said that the committee should embrace the internet and pursue universal broadband access, and not discriminate against internet services on the basis of short-sighted protectionism. The spectrum allocation hold-up was a serious problem. He welcomed the kind of multi-stakeholder engagement they were presently involved in. It constituted a reminder that parliament was much more than the legislative branch of government; it was a place for people to speak.

The Chairperson summarised the issues discussed and thanked all the contributors to the discussion. She hoped that the views of consumers themselves would not be forgotten. The meeting was adjourned.