Mon | Dec 5, 2016

LIME, Digicel can't block forever

Published:Sunday | August 17, 2014 | 12:00 AM
Gordon Swaby, innovator of web-based teaching tool, EduFocal, has railed against Digicel and LIME for their pushback against VoIP platforms such as Viber. -Norman Grindley/Chief Photographer
LIME boss Garfield Sinclair
lding, GUEST COLUMNIST
Digicel CEO Barry O'Brien -File
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VoIP, WhatsApp will trigger new business model

Paul Golding, GUEST COLUMNIST

At the 30th annual conference of the Caribbean Association of National Telecommunications Organization (CANTO) held in Nassau, one of the main agenda items being discussed by regional telecommunications ministers is how to deal with the threat of Over the Top (OTT) applications.

OTT is any service received over the Internet that is not provided directly by your Internet service provider (ISP) or, in the case of mobile phones, carrier service provider (CSP). Consumers can access OTT services via any Internet-connected device, including computers, tablets, smartphones, smart TVs, among others. These services include BB messenger and phone service, WhatsApp, iMessenger, Skype, Lync, MessageMe and Viber, among others.

These OTT services have mushroomed with the speed and availability of broadband networks; the capability and affordability of wireless devices such as smartphones and tablets, and the continued dominance of social media. The rise in OTT services has triggered a decline in revenue for CSPs' core business of voice and messaging services. The OTT services ride on top of the Internet connection provided by ISP/CSP data services and uses voice-over Internet protocol (VoIP) for free to deliver their services. The CSPs are, therefore, allowing OTT to erode their market share without receiving any revenue. CSPs, therefore, provide the infrastructure to transport these services, essentially becoming what the industry call dumb pipes. This is the crux of the problem that is being discussed by the ministers at CANTO.

MILLIONS AT STAKE

According to the Wednesday, August 13 edition of The Gleaner, official estimates of losses because of unlicensed OTT services are in the, vicinity of US$500m, and Caribbean governments stand to lose as much as US$150m. Ovum, the London-based research and analytics firm, provides a global perspective on the estimated loss the telecommunications industry will absorb as a result of OTT services. The firm predicts that the industry will lose a combined US$386 billion between 2012 and 2018 and that OTT use will grow at a compounded annual rate of 20 per cent to reach 1.7 trillion minutes. This translates to US$63 billion in lost revenue in the final year of its forecast.

PROTECTING THE FUTURE

Ovum paints a picture of a precipitous decline in revenue for CSPs, and hence the telecommunications industry, not just regionally, but globally, needs to respond to this challenge. Caribbean telecommunications ministers and CSPs are divided on how to respond. Some have advocated a protectionist approach, involving blocking of services, and others have wishfully suggested that there should be a regional solution to OTT. On the other hand, one minister, apparently fearful of his political future, said, "To tell Caribbean nationals that they cannot use Skype, they cannot use MagicJack, and not provide them with an alternative is really asking a government, which is made up of politicians, to commit suicide."

OTT has essentially made the current business model used by CSPs redundant and, therefore, LIME, Digicel and other CSPs must explore more innovative approaches to survive.

Traditionally, the industry has had high barriers to entry, including the need for service provider license, spectrum provider license, and heavy investment in network infrastructure. In the case of Digicel, they also leveraged the size of their subscriber base to effectively dominate the local market.

These competitive advantages held by the incumbents are not relevant to OTT who have no desire to own a network or have need for licences. This is the nature of competition in the digital era; you get disintermediated. Hence, the protectionist approach by LIME and Digicel is not a long-term solution. Market dynamics have changed, and the industry has been disrupted; the new reality is that VoIP and social networking services have replaced voice and SMS.

The main threat to CSPs is not VoIP, but chat apps like WeChat, Kik, Line, WhatsApp, which are cross-platform social-media networks offering services such as voice chat, group chat, free calls and video calls. You can use a smartphone without a SIM card as long as you have WiFi connection to access these services.

This paradigm shift necessitates a change in the approach by both CSPs and regulators. For example, in Jamaica, the proposed introduction of number portability by the Ministry of Science, Technology, Energy and Mining should be scrapped. Number portability is based on the legacy paradigm; the new paradigm is based on social groups, multiple platforms, and OTT. Who cares what number you have and who the CSP is? The main product that CSPs will offer is the infrastructure and they, therefore, will have to examine how this can be leveraged.

Both LIME and Digicel, at the core, offer an undifferentiated service; hence, there should be no need to erect separate infrastructure. If the competing CSPs can't see the need for co-location, the Office of Utilities Regulation should require it. This new paradigm will have negative effects on the Universal Service Fund and on industry investments; however, it will have positive effects on network coverage and the industry's ability to remain current and to migrate to new and successive wireless technology.

A clear shift in the industry was signalled when Microsoft purchased Skype for US$8.5b and the subsequent purchase of WhatsApp by Facebook for US$19b. Another recent significant industry shift was the vote by the European Parliament to protect net neutrality by limiting the powers of ISP/CSP to charge third parties for faster network access.

Quoting Michael Fertik of Forbes Magazine: "Net neutrality is the idea that all data on the Internet has to be treated the same way, equally, without regard for other factors such as the platform, application or user." Based on net neutrality definition and the new European Union law, ISPs/CSPs can no longer slow down or block OTT services, except to enforce a court order, preserve security or prevent network congestion.

One of the clichés, or more accurately, truths, in business, is that necessity is the mother of invention. Therefore, regional telecommunications providers must innovate or else.

Dr Paul Golding is associate professor and dean - College of Business and Management, UTech. Email feedback to columns@gleanerjm.com and pgolding@utech.edu.jm.