MTN and Vodacom–Value Added Service Providers.

As some of you may know, MTN are proposing to ask the Government to regulate the ability of service providers, particularly WhatsApp, to provide services over their network without a payment to the network service provider  for the use of their infrastructure. 

Vodacom have indicated their support for the move, but Cell-C are opposing the proposal.

As might be expected, this has raised a storm of protest, saying that the proposal is in effect double-dipping.  You pay a fee for post-paid or pre-paid access to the cellular network, and you should be able to use the infrastructure as you see fit without any further reference to the service provider.  Asking for a separate fee for use of a third-party service is like the electricity company charging you every time you use a toaster not supplied or approved for use by them.  

There is a lot of froth on social media about porting away from Vodacom and MTN should they persist with attempts at regulation, Cell-C the presumed beneficiary.

It’s common cause that cellular service providers are losing revenue with the shift to digital services like WhatsApp away from SMS and voice.  I think that the call for regulation is a knee-jerk reaction to the shift, and shows a lack of appreciation of a seismic change in the role cellular service providers play in the market. 

Essentially they have two faces – owning and operating an enabling digital data transmission infrastructure, completely agnostic to the type of data being transmitted, and a second face as a supplier of value-added services operating over that infrastructure, voice, structured data, video, messaging, whatever.

In the past, revenue from the second face subsidised the first face, in essence customers paid for the establishment, extension and maintenance of the physical network through their contract or prepaid subscriptions.  Other service providers were allowed to use the network free-of-charge and free-of-regulation in the expectation that they would drive more network usage, and hence more revenue.  The ball-game changed entirely when service providers began to provide services that replaced the basic voice and data services provided by the network operators, leading to losses in revenue.  Both Vodacom and MTN have disclosed substantial reductions in SMS volumes and revenue, they claim as a result of operators like WhatsApp providing messaging and voice services.

A further indicator of the future is the ability to connect to these services without being a service provider customer.  Residential homes, cafe’s, hotels, malls and a host of other operators provide WiFi access to the Internet from tablets and smartphones, and thereby access to these value-added services, bypassing the service provider entirely.   In theory it is entirely possible to make and receive calls and use data services without being a cellular service provider customer. Microsoft buying Skype and the projected Microsoft SIM card should be a clear indication of where the market is moving.  VoIP will be king.

When customers fully understand that they don’t need Vodacom or MTN or indeed Cell-C to be able to call home, I believe that companies like Vodacom and MTN will cease to exist, at least in their present form.  If they don’t they will become irrelevant. 

Rather than trying to club the customer with additional charges to replace those lost, the sensible thing for network operators to do would be to look at their business model.

Perhaps they should split their business into two separate entities, an infrastructure provider and a services provider.  Perhaps they should leave the value-added space and  concentrate on being an infrastructure provider only.  Perhaps they should merge with an ISP or morph into an ISP-like organisation partnering with other service providers to provide a basket of services.  There are a whole new army of competitors in either case, and they would be better served seeing how they meet that competition.

In ten years time it might well be the Internet Solutions Super Rugby competition.

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