South Africa’s telecoms operators are lobbying hard for the likes of Netflix, YouTube and even MultiChoice Group to help pay for the further development of their network infrastructure, arguing that these “large traffic generators” (LTGs) are profiting from the hard work the telecoms companies have put into building national networks.
If that sounds bizarre, it’s because ... well, it is a little bizarre.
Borrowing from operators in Europe, which are lobbying policymakers there for the concept of “Fair Share” to be enforced through regulation, South Africa’s operators — through their industry lobby group, the Association of Comms & Technology (ACT) — are pushing for a similar dispensation here.
According to one of Europe’s biggest proponents of Fair Share, Spain’s Telefónica — which also happens to be one of the world’s largest telecoms operators — the intervention is needed to create the “right conditions” for “fair negotiations” between operators and LTGs.
These LTGs, also referred to as OTT (or “over the top”) providers, include Google, which owns YouTube, and streaming providers such as Netflix, The Walt Disney Co and Amazon. They also include Apple, Microsoft and other big tech companies that routinely send large files to end-user devices, including software updates for smartphones and computers.
“Telecoms operators are stuck in a one-sided market model, getting payments for the use of the networks only from end customers and not from content providers. This affects the sustainability of the networks and reduces telecoms companies’ investment capacity,” Telefónica says.
“Fair Share aims to create an obligation for LTGs to negotiate and reach an agreement for the [delivery of their] traffic through national networks to end users.”
But the company says “bargaining-power asymmetries between these companies and telecoms operators are preventing the establishment of fair negotiating conditions. This is why the telecoms sector is asking the EU to establish a regulatory mechanism that imposes an obligation on LTGs to sit down and reach an agreement.”
If this doesn’t happen, the operators, including Telefónica, warn that they face a “paradox”: while data traffic is growing rapidly — at a compound annual growth rate (CAGR) of 35% between 2011 and 2022, and above 50% for mobile data — operators’ revenues are declining at a -3% CAGR.
South African operators, through ACT, are making similar arguments and lobbying local policymakers and regulators for a change to the rules.
Do they have a case? The cynic in me says “no”. These companies enjoyed fat profit margins for decades, and competitive pressures are forcing them — reluctantly — to cut prices. Remember when mobile data routinely cost R2/MB? It now costs a fraction of that, and prices are still falling, as competition and newer technologies help drive them down.
Meta Platforms and Google have committed billions of rand to building submarine cable infrastructure around Africa
And it’s not as if the big tech companies aren’t investing in infrastructure. Meta Platforms and Google have committed billions of rand to building submarine cable infrastructure around Africa, bringing huge international bandwidth to South African shores. Meta is investing in technologies to bring fibre to unconnected parts of Africa cheaply, while Google is partnering with telecoms infrastructure providers to deploy national and cross-border terrestrial fibre networks across the continent.
There are strong arguments against Fair Share:
- Operators would, in effect, be “double-dipping” — they are already paid for infrastructure access by internet service providers and consumers, who pay for their connections. In a competitive market, operators can’t hike prices to counter their shrinking margins, so they’re looking for other ways to boost profits in an industry that is becoming a low-margin utility;
- Costs would ultimately be passed on to consumers — the same consumers already paying for internet connections;
- It would make it harder for new players, including media companies, to gain a foothold as the barriers to entry will have risen; and
- Content and tech companies already contribute significantly to infrastructure, including subsea broadband cables, terrestrial networks, data centres and content delivery networks.
European policymakers and regulators haven’t yet made any firm decisions about Fair Share. There is significant opposition to the idea in the EU, and efforts by South African operators to lobby for its introduction here are also likely to be strongly resisted.
That is a good thing. Though the operators’ margins have been squeezed, any effort to claw back lost profit through policy or regulatory interventions that drive up prices for consumers requires serious scrutiny.
McLeod is editor of TechCentral
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