OTT regulation: the global battle for control

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Telcos in Morocco started blocking VOIP services like Skype earlier this year.
Telcos in Morocco started blocking VOIP services like Skype earlier this year.

Internet regulation has been much in the news lately, under the guise of over-the-top (OTT) mobile services like WhatsApp. South Africa has joined the ranks of many other countries struggling to get to grips with whether these services should be regulated, and if so to what extent.

Cell C was quick to take the offensive, calling for regulations to be shelved and accusing the other networks of trying to protect profits at the expense of Internet users. There's a degree of truth in that - network operators (and not just mobile ones) ARE keen for regulation which will keep their legacy businesses going profitable a little longer, but there's a bigger picture.

This is happening all over the world, because this is very much on every telecom operator's mind (and profit projection). Telcos in Morocco started blocking voice over IP (VOIP) services like Skype and Viber earlier this year. TRAI, the telecom regulator in India, is actively developing a regulatory framework for OTT services, European regulators are embroiled in efforts to classify and manage OTT services (for which European operators are eagerly lobbying), Brazil is embracing OTT regulation - the list goes on.

Ultimately, this is a subset of net neutrality. At their heart, these OTT services are just Internet applications, and so the question of regulating or controlling them could be seen as a net neutrality discussion, not a mobile regulatory one. And it's not as cut and dried as you might think.

When you use the Internet on a fixed-line network, Internet services are not regulated the same way. You have a modem or router which manages the connection, and then you route traffic over it, and the carrier has very little say in which sites you visit, what content you consume, and which service you use. Or do they?

The net neutrality debate rages overseas, driven by carriers desperate to squeeze a little more revenue from a user base whose usage pattern has evolved faster than the carriers' business. This is why Netflix and Comcast wrangle over interconnect: Comcast, being both an ISP and a content distributor, wants Netflix to pay extra for its customers to access the service via Comcast Internet. That cost would, of course, be passed on to customers, and that would make Comcast more attractive as a competitor.

Similarly, many years ago, there were calls for VOIP services to be regulated. Skype was public enemy number one - it undermined telco voice revenues especially in high-margin environments like hotels. It became wildly successful despite efforts to block it, and now it's almost unthinkable that your ISP or carrier might try to prevent you from using Skype or Google Chat, or even charge you extra for the privilege. But that's exactly what these networks are arguing: you have bought bandwidth from them, but you are not entitled to choose how you use it: you should pay a premium for bytes going to one destination, versus bytes going elsewhere.

If that sounds like an absurd argument, you're in the ranks of those agitating for net neutrality, and at least one extremely important regulator - the American FCC - is trying to move that argument into reality.

For telcos, it's a very tough time, there's no denying it. It's too bad that, having spent all this money on a costly phone network, the ungrateful users are now cheekily VOIPing like mad at their expense. That's the Internet for you, and it's the same pain that fixed-line carriers experienced back in the day.

The case for regulation

There is, however, a valid case for OTT regulation, and that's simply the same as the case for Internet regulation. For example, lawful interception allows for wiretapping of communications, and it's normal for countries to pass legislation mandating that services must offer such capabilities.

Of course, nothing is stopping a user from downloading and using a non-compliant service to thwart law enforcement, but a licensed carrier can't promote the service. Since WhatsApp and Skype and the rest are trying hard to distance themselves from interception, that raises an obvious conflict and deserves attention. It may not merit specific regulation, but it does merit at least discussion, and that's the stage South Africa is at.

Similarly, telecom regulators are concerned about services which may not be compliant with local privacy requirements, or anti-fraud controls, or financial services restrictions, and so on. Again, this is worthy of discussion, without pre-judging how the discussions should conclude.

This is actively developing all over the world - social networks are in the news this week for complying with European governments' demands for censorship. The positive spin is that it's about controlling hate speech and inhibiting the growth of ISIS, but it's censorship and regulation of the Internet however you paint it.

And there is the question of competitiveness, which is the elephant in the room for "free" services like Facebook's Free Basics (previously On the upside, providing free services to previously disconnected citizens is hugely empowering, no question. And yes, local providers have failed to do so. On the downside, this does create a massive barrier to entry for a local competitor, and a walled garden which they will harvest aggressively.

Let's not kid ourselves, most of these initiatives are long-term audience development plays, not charities. Would Mxit ever have started if Facebook Messenger had been not only free, but actively endorsed by carriers? Unlikely. And, of course, Mxit itself got traction because it was a cheaper and more feature-rich messaging alternative to the incumbent carriers' SMS services.

Competition and disruption are the fuel of the modern Internet. Regulation is healthy where it provides safe boundaries for citizens and encourages competition, unhealthy where it is protectionism. As a result, it should be healthy that the regulatory authorities are evaluating how to manage OTT services, but this places us at a pivotal fork in the road - embracing a modern, open Internet, or starting the endless cycle of layering plasters on a sucking chest wound at the behest of an industry which may need to embrace the pain to survive.

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