THE IMPACT OF OTTS ON MNO REVENUES

THE IMPACT OF OTTS ON MNO REVENUES

Research ICT Solutions Dr. Christoph Stork and Steve Esselaar

October 2020

2RIS

Mobile Operator

Public Internet

3

OTT Definitions

■ITU (2019): An application accessed and delivered over the public Internet that may be a direct technical/functional substitute for traditional international telecommunication services

■ Ofcom (2015) A range of services, including messaging services, voice services (VoIP), and TV content services

■BEREC (2016) Content, a service or an application that is provided to the end-user over the public Internet

■OTT-0 = Electronic communication services (ECS), Call and SMS termination eg Skype-out

■OTT-1 = Not ECS but potentially competing with them

■OTT-2 = all other OTT services (e-commerce, video and music streaming , etc.)

■BEREC definition is useful to understand current regulatory regimes but does not cover broadcasting and streaming.

■Ideally, an OTT definition is based on a taxonomy that separates out issues that need be addressed by different regulators.

■African Union released a slightly modified Definition to the BEREC one

RIS

4RIS

Mobile Operator

Public Internet

ECS Potentially competing with ECS

Broadcasting regulations Other

OTT applications can fall into more than one subset

eg Skype out vs PC to PC Skype

5RIS African Union OTT Definition■OTTs can be content, a service or an application that is provided to the end-

user over the public Internet.

AU Definition OTT-ECS OTT-Com OTT-Content OTT-OtherCompeting with ECS? Yes Potentially No NoCompeting with national broadcasting services?

No No Potentially No

Description

OTT voice and text with the ability to

make calls to fixed or mobile telephone

networks (eg Skype Out)

Applications that allow voice calls and instant messaging

provided to the end user over the public

Internet

Content provided to the end user

over the public

Internet

E-commerce and online services

provided to the end user over

the public Internet

Potentially Responsible Ex Ante regulatory bodies

Telecom Regulator Telecom Regulator Broadcasting Regulators None

Potential regulatory impact

Termination and roaming regulation

Lighter voice and SMS wholesale

regulation

VAT collection

from foreign streaming services

None

Source African Union: http://www.aftld.org/wp-content/uploads/2020/02/Mozilla-Taxing-OTT.pdf

http://www.aftld.org/wp-content/uploads/2020/02/Mozilla-Taxing-OTT.pdf

6RISSocial media and OTT use benefits all segments

of the Internet Value Chain

■ Each segment is subject to own laws, rules, regulations and regulatory bodies

■ Each segments also comes with its own risks, investment requirements and profit opportunities

■ OTTs invest heavily into sub marine cable, fibre, data centers and CDN, to improve the quality of service of access to the Internet, for example.

■ For Mobile operators to invest into other than the connectivity segment is a business decision Deutsche Telekom, JIO India MTN are all investing into online platforms

© Research ICT Solutions 2020

ONLINE SERVICES e-Retail Streaming

Gaming Social media

Search services Cloud services

ENABLING TECHNOLOGIES &

SERVICES Web design & hosting Payment platforms

Advertising Managed bandwidth &

content delivery

CONTENT RIGHTS Premium rights

Professional content User-generated content

USERS OF DIGITAL SERVICES

Skills Content

Functionality

USER INTERFACE

Access devises (smartphones, PCs) Operating systems

& software apps

CONNECTIVITY First Mile

Middle Mile Last Mile

Invisible Mile

7RIS

4TH INDUSTRIAL REVOLUTION

CONTENT Premium rights

Professional content User-generated

content

ONLINE SERVICES e-Retail

Streaming Gaming

Social media Search services Cloud services

CONNECTIVITY First Mile, Middle Mile

Last Mile, Invisible Mile

USER INTERFACE Access devises

(smartphones, PCs) Operating systems

& software apps

ENABLING SERVICES Web design & hosting

Payment platforms Advertising

USER OF DIGITAL SERVICES

Skills Content

Functionality

Self reinforcing mechanism of user generated content make the Internet value chain a circle


■ Data prices and data quality are essential to wider broadband adoption and the potential for efficiency gains through digitalisation.

■ In the past, the data flow was from content owners to the end-user via radio, TV and the public Internet. Today, users create content through social media applications and other ways of uploading data, contributing to the content segment of the value chain.

EBITDA margin along the value chain (AFS)Segment Company 2016 2017 2018

Content Rights

Netflix 60% 61% 59%

Warner Media 18%

Disney 30% 30% 29%

Fox Corporation 22%

Online Services

Amazon 9% 9% 12%

Alphabet 33% 30% 26%

Facebook 53% 57% 52%

Enabling Technologies

Cisco 30% 30% 31%

Akamai 41% 37% 40%

Connectivity

Airtel Group 35% 38% 37%

Etisalat 50% 50% 49%

Maroc Telecom Group 48% 49% 50%

MTN Group 35% 33% 35%

Ooredoo 41% 42% 41%

Sonatel 49% 47% 45%

Safaricom 42% 48% 48%

Vodacom Group 38% 38% 38%

Average Connectivity 42% 43% 43%

User InterfaceApple 33% 31% 31%

Samsung 24% 31% 35%source Compiled by Research ICT Solutions 2019

Profitability is more important than the market size of segments

■ Some MNOs claim that OTTs should share their revenues.

■ The argument is that OTTs make their money off the infrastructure of MNOs.

■ The argument could be reversed and OTTs could ask MNOs to share their revenues since MNOs make money off content provided by OTTs (via data revenues).

■ Both arguments do not make sense. The Internet is a connected ecosystem.

8RIS


9RIS MNO revenues depend on many factors

■ The view that OTTs are causing a decline in operator revenues is based on a simplistic understanding of the source of telecom revenues.

■ Generally, revenues depend on many factors, which can be grouped into three categories.

1. Economic factors: Demand for mobile services as a function of population, GDP, exchange rates;

2. Regulatory environment: Market structure shaped by the number of Mobile Network Operators (MNO), fairness of competition and transparency and predictability of regulations;

3. Operator strategies: Product design, response to other operators and own business model.

10RIS

Analogue Digital

Business model Service Connectivity

Metric Minutes and SMS Bandwidth or throughput

Cost sensitivity Distance, duration and location matter Not Time, distance and location insensitive

BillingAccess and usage billing (voice and

SMS off-net / on-net, peak / off-peak) Simple access billing

Traffic MonitoringDetailed traffic monitoring as part of

the billing systemUsage monitoring limited to data use

Postpaid subscribers

Detailed vetting to reduce risk or revenue loss and expenses that arise from call termination and subsidised handsets

■ Postpaid risk limited to revenue of one billing cycle

■ No external expense risks ■ Prepaid and postpaid do not need to be

distinguished by pricing ■ Postpaid may be extended without

significant vetting

Network infrastructure

GSM 1G and 2G 2.5G, 3G, 4G, 5G

Business models of the future are data-centric


11RIS The transition towards a data-centric business model will differ from country to country

Illustrative revenue trend

2000 2005 2010 2015 2020 2025

100%70%40%30%20%

30%

60%

70%

80%

100%

Voice + SMS Data

■The transition from a voice and SMS to mobile Internet access-business model is inevitable

■MNOs will

■become mobile Internet access providers

■no longer charge for Voice and SMS

■have simplified billing and branding

■Not only because of revenue trends but also because this is where the last decade of mobile network investment has gone into: 2.5G, 3G, 4G, 5G is all about data not voice and SMS

■The impact of OTTs on the financial performance of MNOs depends on their ability to sell data


12RIS

Minutes and MB on Airtel’s Africa network

56,250

112,500

168,750

225,000

Sep

-12

Dec-12

Mar-13

Jun

-13

Sep

-13

Dec-13

Mar-14

Jun

-14

Sep

-14

Dec-14

Mar-15

Jun

-15

Sep

-15

Dec-15

Mar-16

Mar-16

Jun

-16

Sep

-16

Dec-16

Mar-17

Jun

-17

Sep

-17

Dec-17

Mar-18

Jun

-18

Sep

-18

Dec-18

Mar-19

Jun

-19

Sep

-19

Dec-19

Mar-20

Minutes on the networkTotal MBs on the network

We are still in a transitionary phase: Voice traffic is still growing


13RIS

THE GENERAL REVENUE TRENDS ARE POSITIVE DESPITE GROWING NUMBERS OF OTT USERS AND OTT TRAFFIC

14RISVodacom Revenue (ARPU local * subscribers)

expressed in percent of Q1 2017 revenues

0%

50%

100%

150%

200%Q

1 20

17

Q2

2017

Q3

20

17

Q4

20

17

Q1

2018

Q2

2018

Q3

20

18

Q4

20

18

Q1

2019

Q2

2019

Q3

20

19

Q4

20

19

Q1

2020

TanzaniaDRCMozambiqueLesothoSouth Africa


15RISOrange revenues in Euro million

expressed in percent of Q1 2017 revenues

0%

50%

100%

150%

200%1Q

17

2Q17

3Q

17

4Q

17

1Q18

2Q18

3Q

18

4Q

18

1Q19

2Q19

3Q

19

4Q

19

1Q20

2Q20

SenegalMaliGuineaIvory CoastBurkina FasoEgyptMoroccoCameroon Democratic Republic of Congo (DRC)


16RISMTN Revenue (ARPU local * subscribers) expressed in percent of Q1 2013 revenues

0%

60%

120%

180%

240%

300%

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

3Q19

4Q19

1Q20

2Q20

Benin Guinea-Bissau GuineaGhana Ivory Coast LiberiaNigeria South Africa Uganda100 Percent Zambia eSwatiniRwanda Botswana Congo-BrazzavilleSudan


17RIS

MNO REVENUES REFLECT A COMPANY’S ABILITY TO SEIZE OPPORTUNITIES AND MITIGATE RISK

18RIS

Revenue developments of MTN and Orange Guinea in percent of Q1 2014 revenues

0%

50%

100%

150%

200%

250%

1Q14

3Q

14

1Q15

3Q

15

1Q16

3Q

16

1Q17

3Q

17

1Q18

3Q

18

1Q19

3Q

19

1Q20

Orange Guinea MTN Guinea

Sources: Investor Relations of MTN and Orange (Orange based on reported Euro revenues, MTN ARPU local * Subscribers) Sources: Facebook users from https://napoleoncat.com/stats/social-media-users-in-guinea

Facebook market share from: https://gs.statcounter.com/social-media-stats/all/guinea/#monthly-200903-202010

Facebook users in million in Guinea

3Q

14

1Q16

2Q17

4Q

17

4Q

18

1Q19

2Q19

3Q

19

4Q

19

1Q20

2Q20

2.22.12.01.91.81.71.9

1.41.1

0.70.5

Facebook’s social media market share in Guinea

0%

20%

40%

60%

80%

100%

2014

-01

2014

-05

2014

-09

2015

-01

2015

-05

2015

-09

2016

-01

2016

-05

2016

-09

2017

-01

2017

-05

2017

-09

2018

-01

2018

-05

2018

-09

2019

-01

2019

-05

2019

-09

2020

-01

2020

-05

2020

-09


https://napoleoncat.com/stats/social-media-users-in-guinea

https://gs.statcounter.com/social-media-stats/all/guinea/#monthly-200903-202010

19RIS

MTN Nigeria 2017 2018 2019Change

compared to 2017

Outgoing voice R million 22,805 24,930 28,938 27%

Incoming voice R million 4,012 3,699 4,906 22%

Data R million 4,376 5,498 8,796 101%

Digital R million 2,601 908 177 -93%

Fintech R million 876 1,034 1,407 61%

SMS R million 514 523 1,583 208%

Devices R million 108 78 88 -19%

Revenue R million 36,067 37,971 46,696 29%

Data as % of Voice and SMS % 16% 19% 25%

MTN Nigeria is riding out the analogue business model

■30% increase in revenues of MTN Nigeria over past 3 years.

■Voice and SMS revenues still increasing at fast pace.

■Data revenues only made up a quarter of the voice and SMS revenues.


20RIS

Airtel Nigeria Q2 2018

Q3 2018

Q4 2018

Q1 2019

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Q2 2020

Change

Customer Base 000's 32,613 34,181 36,608 37,121 37,468 39,512 39,855 41,757 42,513 30.4%

Data Customer Base 000's 12,087 12,810 13,580 14,667 14,628 15,471 15,234 16,715 17,334 43.4%

Voice Revenue $ Mn 176 177 190 201 198 200 219 237 198 12.5%

Data Revenue $ Mn 54 59 67 80 94 106 116 122 122 125.9%

Data revenue as share of voice % 31% 33% 35% 40% 47% 53% 53% 51% 62%

Minutes on the network Mn 14,396 14,592 15,368 15,878 15,809 15,687 18,812 20,447 19,275 33.9%

Total MBs on the network Mn MBs 35,928 43,067 54,005 62,968 71,108 80,247 96,313 108,561 139,285 287.7%

Implied price per GB US$ 1.54 1.40 1.27 1.30 1.35 1.35 1.23 1.15 0.90 -41.7%

Mobile Broadband towers # 5,705 5,997 6,311 6,810 7,115 7,695 8,093 8,796 9,326 63.5%

Revenue Per Site Per Month US$ 11,475 11,693 12,279 12,260 12,315 12,559 13,340 13,948 11,904 3.7%

Airtel Nigeria is expanding its network aggressively, filing the void that MTN Nigeria left after several heavy handed

interventions by NCC

■Voice and Data revenues increased, data revenues more than doubled.

■Data revenues made up 62% of voice revenues compared to only 25% for MTN Nigeria

■ .Airtel increased broadband towers by 3,621 in 2 years (63.5% increase)

■Revenues per site increased through broadband upgrades

■Effective price per GB consistently declined, 42% over two years.


21RIS

MTN South Africa 2017 2018 2019change

compared to 2017

Outgoing voice R million 14,843 13,715 13,949 -6.0%

Incoming voice R million 1,693 1,877 1,777 5.0%

Data R million 11,449 12,902 12,631 10.3%

Digital R million 1,773 1,517 1,045 -41.1%

Fintech R million 552 918 1,021 85.0%

SMS R million 1,387 1,129 1,158 -16.5%

Devices R million 7,691 8,389 9,017 17.2%

Revenue R million 42,497 44,658 45,447 6.9%


MTN South Africa is transitioning to a data-centric model

■Data revenues made up 75% of total SMS and voice revenues, up from 64% in 2017

■ While outgoing voice and SMS revenues declined, overall revenues increased by 6.9%


22RIS

MTN Ghana 2017 2018 2019Change

compared to 2017


Incoming voice R million 1,018 958 887 -13%

Data R million 2,569 3,102 3,899 52%

Digital R million 878 662 531 -40%

Fintech R million 1,461 2,283 2,795 91%

SMS R million 86 93 114 33%

Devices R million 83 70 90 8%



MTN Ghana is further down the path of transition to data compared to MTN Nigeria

■62% increase in revenues of MTN Ghana over past 3 years.


■Data revenues made up 62% of the voice and SMS revenues.


23RIS

MTN Uganda 2017 2018 2019Change

compared to 2017


Incoming voice R million 353 336 336 -5%

Data R million 496 610 1,035 109%

Digital R million 114 10 19 -83%

Fintech R million 1,200 1,323 1,662 39%

SMS R million 38 95 126 232%

Devices R million 58 52 61 5%



MTN Uganda makes more money from fintech than from data. OTT tax slowed the transition to a data-centric

model

■30% increase in revenues of MTN Uganda over past 3 years.


■SMS in particular as result of the OTT tax

■Data revenues only made up a quarter of the voice and SMS revenues.© Research ICT Solutions 2020

24RIS

MTN Cameroon 2017 2018 2019Change

compared to 2017

Outgoing voice R million 3,026 2,778 2,830 -6%Incoming voice R million 663 515 407 -39%Data R million 798 880 1,308 64%Digital R million 182 60 47 -74%Fintech R million 112 316 524 368%SMS R million 153 137 125 -18%Devices R million 197 57 62 -69%Revenue R million 5,373 4,959 5,389 0%Data as % of Voice and SMS % 21% 26% 39%

MTN Cameroon is in transition

■Revenues recovered in 2019, after Internet shut down for 230 days between January 2017 and March 2018

■Voice and SMS revenues are declining

■Fintech and data revenues compensate for this decline


Orange Cameroon Revenues Euro million

1H17 2H17 1H18 2H18 1H19 2H19 1H20

159157154151146147134

25RIS

MTN Ivory Coast 2017 2018 2019Change

compared to 2017

Outgoing voice R million 4,498 3,546 3,376 -25%Incoming voice R million 903 1,149 876 -3%Data R million 716 891 1,080 51%Digital R million 378 353 191 -49%Fintech R million 500 710 850 70%SMS R million 91 113 81 -11%Devices R million 48 43 37 -23%Revenue R million 7,412 7,158 6,917 -7%Data as % of Voice and SMS % 13% 19% 25%

MTN Ivory Coast is losing revenues because data and fintech did not grow fast enough to compensate for the

reduction in voice and SMS revenues


Orange Ivory Coast Revenues Euro million

1H17 1H18 2H17 2H18 1H19 2H19 1H20

437425408420418399403

26RIS

INITIAL GOLD RUSH WILL EVENTUALLY BE OVER AND EBITDA MARGINS WILL BE SIMILAR TO OTHER SECTORS

27RIS

MTN 1H14 1H20 Comment

Benin 43% 22% decline

Botswana 55% 51% stable

Cameroon 42% 33% decline

Congo Brazzaville 42% 41% stable

eSwatini 50% 49% stable

Ghana 39% 54% Increase

Guinea 26% 23% stable

Guinea-Bissau 24% 32% Increase

Ivory Coast 38% 35% stable

Liberia 34% 17% decline

Nigeria 60% 51% stable

Rwanda 29% 51% Increase

South Africa 33% 40% Increase

Sudan 34% 38% stable

Uganda 38% 49% Increase

Zambia 38% 30% decline


28RIS

THE TRANSITION TO DATA CENTRIC BUSINESS MODELS IN INEVITABLE!

OTT APPLICATIONS ARE THE PRIMARY DRIVERS FOR BROADBAND ADOPTION AND DATA CONSUMPTION.

29

■ The transition to data centric business models in inevitable.

■Relying on a decades-old business model will not be a successful strategy for the future.

■Our analysis demonstrates four important points about the impact of OTTs:

1. The general revenue trend for mobile operators is positive despite growing numbers of OTT users and OTT traffic.

2. Policy-makers and regulators should be more concerned with stimulating network investment into 4G+ and fibre and less with attempting to protect out-dated business models of operators.

3. Revenues and profitability are mainly the results of an operator’s ability to seize revenue opportunities and mitigate risk.

■ Two strategies, which are business decisions and not the responsibility of the regulator.

1. Operators may benefit from increased use of OTTs and roll out faster broadband networks to grow data revenues

2. Operators may try and stick to the analogue business model for as long as they can.

■ The Covid-19 pandemic highlighted the need for a digital transformation and demonstrated the efficiency gains that can be obtained. Connectivity is a pre-requisite for the data transformation.

RIS MNOs have to rediscover their agility


30RIS

STEVE ESSELAAR PARTNER, RIS

MBA

DR. CHRISTOPH STORK PARTNER, RIS

PHD, ECONOMICS

www.researchictsolutions.com

+27 84 999 000 2

[email protected]

www.researchictsolutions.com

+1 778 865 5695

[email protected]

Research ICT Solutions

http://www.researchictsolutions.com

http://www.researchictsolutions.com

mailto:[email protected]

THE IMPACT OF OTTS ON MNO REVENUES

Documents

Transcript of THE IMPACT OF OTTS ON MNO REVENUES