Of OTT services and their impact on the Nigerian economy

by | Feb 23, 2017

I recently tried to make an international call through the conventional means, but the poor service forced me to adopt an Over-the-Top (OTT) voice application; which turned out to be crisp and clear.

The scenario is indicative of the challenges we face whenever we attempt to make international calls using costly local networks. 

Based on this premise, one would easily opt for OTT services against their conventional counterparts. The reasons are many but chief among them is that OTT applications enable one to reach a recipient (either on the computer or mobile phone) by text, voice or video. Also, the services are free-of-charge, because they deploy subscribers’ current data subscription, which in the context is still cheaper compared to the conventional means.

However, in light of recent happenings, it appears the collective gains of these instant messaging applications — like WhatsApp, Facebook, Skype among other OTT services — amount to little when it comes to their economic impact, thereby leading local telcos to consider blocking their usage due to massive revenue loss from international calls.

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Apparently, it is estimated that a total of $386 billion loss would accrue over a period of six years — between 2012 and 2018 — from Nigerian customers using OTT voice applications.

International calls constitute a large part of the revenue local telecom operators generate due to Nigeria’s large expatriate and diaspora population. There is no doubt the massive loss of revenue to OTT channels would impede the need to provide quality service.

Despite the economic downturn and series of unfavourable macroeconomic policies, investments in the fast growing telecommunications sector in Nigeria was put at $68b as at July 2016. Of this figure, $35b comes from Foreign Direct Investments (FDIs), according to the Nigerian Communications Commission (NCC). So the apprehension among local telcos seems fitting considering that the OTT channels spend considerably less.

Besides, the licenses granted to telecom operators by the regulatory body, NCC, allow them to operate and provide services like voice calls, text messaging, multimedia messaging among others independently of another. Each of these services are deployed at a unique cost, so it would seem untenable asking local telcos to subsidize one service with revenue from another; as that could impact negatively on the other services provided by these local telcos.

Overseas, apprehension continues to heighten among telecoms operators over the actions of OTT services such as Skype. Reacting to this, many telecoms operators worldwide, indeed prohibit their mobile phone customers from downloading Skype’s software or outlaw the use of Voice Over the Internet Phone services in their standard sales contracts.

Last year, three telecommunication companies (Maroc Telecom, Meditel and Inwi) in Morocco banned a number of OTT services operator from operating on its network, having considered their actions as anti-competitive. France for its part had to demand that Skype register as a full operating telco in order to operate within its shores.

The inherent problem is that these OTT services are largely deployed using the infrastructure provided by the local operator, but without commensurate compensation to these operators.

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Similarly, Facebook and WhatsApp, both widely used as a substitute for text messaging and voice calls, and owned by Mark Zuckerberg, are worth a combined sum of over $200 billion. And even without a physical presence in Nigeria, Facebook still garners huge sums as revenue, and yet continues to look for more avenues to broaden these revenues.

For a company that generates that much in revenue from a country it keeps no physical contact, their actions wouldn’t prove to be overbearing had they ever contributed significantly to the country’s tax pool or even the GDP.

As internet use in Nigeria has shot up in the last five years, so also has the popularity and dependency of Nigerians on these platforms. So, while operating as a business and serving the needs of about 16 million Nigerians presently, it is expected that the social network giant (Facebook) would contribute immensely to the Nigerian economy in the form of tax geared towards value added services like employment creation. Sadly, that isn’t the case.

Of course, while the negative impact of these OTT services on revenue of  local telecom companies has been glaringly established, this is still not an excuse to remain redundant about improving services. They need to start taking charge of this unfair competition by closing gaps spurring these revenue leakages in the country. However, such measures would require a strong support from the regulatory body, NCC.

As the regulatory body, the NCC needs to start that providing frameworks that would guarantee smooth operations for these telcos on the home front. Failure to take decisive action will see major telcos in the country continue to struggle to counter a trend which has seen revenue from diaspora decline considerably.

Hopefully, as these separate institutions look to form a unifying bond in their bid to mitigate the negative effect of OTT on the operations of local telecom operators, this action may result in better voice and data services for Nigerians.

Ifeanyi Ndiomewese
Ifeanyi Ndiomewese

Ifeanyi is a desk reporter-turned administrator. Outside of work, I love to read and travel.

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