No place in SA for dumb pipes: Vodacom - TechCentral

No place in SA for dumb pipes: Vodacom

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A senior executive at Vodacom believes so-called over-the-top (OTT) service providers such as WhatsApp and Skype should be allowed to “run free” on mobile operators’ networks, but emphasises that there is also “no place” in South Africa for so-called “dumb pipes” — operators that provide low-margin infrastructure only over which others provide all the services.

Operators should provide relevant technical and commercial services to OTT providers while also developing OTTs of their own in areas where they can make a big difference, says Ashraff Paruk, Vodacom’s recently appointed managing executive for digital services.

Paruk says that the company’s success lies in “enabling OTT players to run free” on its network.

He says Wasps, or wireless application service providers, “ran ahead” when Vodacom opened key elements of its network so that they could provide meaningful services to end users. “The question is, how do we enable OTTs from a technical level that adds value? [How do we] give them a deal that makes sense at a commercial level that doesn’t squeeze them? There has to be enough value from a network perspective,” Paruk says.

South Africa’s big operators, including Vodacom, MTN and Telkom, have expressed concern in recent weeks at the impact of OTTs on their businesses.

Ashraff Paruk

Ashraff Paruk

MTN South Africa CEO Ahmad Farroukh became the first to raise his concerns when he said in an interview with TechCentral in September that his company is not prepared to spend billions of dollars building advanced telecoms networks just so that OTT providers can get a “free ride” by competing with the company using that same costly infrastructure.

There has to be some sort of quid pro quo, he said.

Farroukh took aim at smaller rival Cell C for agreeing not to charge some of its subscribers for data when they access WhatsApp. “I laughed when I saw one of the operators zero-rating one of these very famous apps. This same app will launch voice [calls]soon.”

Taking the opposite view, Cell C CEO Jose Dos Santos said the move was driven in part by a need by mobile operators to embrace rather than fight OTT players.

Now Paruk, who has been tasked with building OTT services for Vodacom, says it’s important to embrace rather than alienate third-party service providers.

“Vodacom’s best path is enabling our own OTT services and enabling third parties by offering a network that is relevant to them in a way that makes sense,” he says. “And if you add value, you should be charging for it.”

But there are some OTT services that operators themselves should be providing, Paruk says. “That’s where Vodacom should be taking a stronger position. This is where the big change will come. And to be a truly successful OTT player, you have to go after all customers, not just Vodacom customers. M-Pesa is the first … where we have taken a strong position. There will be others.”

Vodacom has “no choice” but to launch OTT services of its own. “There are some services where we are significantly better positioned to take that strong position. They have to be of sufficient scale, they have to have a material impact on 30m, 40m or 50m customers.”

Paruk declines to say which OTT products it might launch, saying the plan is still being finalised.

But what of WhatsApp, which could threaten mobile operators’ voice call revenues?

“For conservative operators, the approach could be to make it harder for them, but that’s being negative,” Paruk says. “I can’t stop WhatsApp. I could launch my own service that provides similar value. And I could make the assumption that at some point my lunch is going to get eaten anyway, so if I don’t adapt I’m going to die.”

MTN South Africa CEO Ahmad Farroukh

MTN South Africa CEO Ahmad Farroukh

The solution, he believes, could be to go to WhatsApp and other providers of voice-over-IP and other solutions and offer to provide them with a guaranteed quality of service — for a fee, of course — that will allow them to better monetise their users.

Paruk says the South African market is too small to support the “dumb pipe” model, where operators provide only the basic infrastructure over which third parties provide services and profit. Operators have to play in value-added services, too, he says.

Vodacom, he says, wants to be a “smart pipe”. Paruk uses the example of video-on-demand (VOD) services to expand on his point. “Will VOD be the way people consume content in five years? Absolutely. Can one player fulfil those needs? No. Does our network need to provide capabilities for these companies to get to their customers? Absolutely — that is the smart pipe.”

Any operator that wants to build its business as a dumb pipe is “on a race to the bottom”, Paruk says.

In future, Vodacom could charge customers for a quality-of-service guarantee. What might such a guarantee offer? “You might pick up a [network]tunnel end to end. If you sign up for video, for an extra R50/month it will go through a separate pipe and you’ll not share it with anyone else on the network. Those that want the premium service will fund that premium,” Paruk says.  — (c) 2014 NewsCentral Media

22 Comments

  1. Like it or not, THAT is the future. Fight it and become the Kodak of the SA network world.
    It really is as simple as that. If you are not innovative enough to think of services to make money from a multi-billion rand network, well, then you are not innovative enough

  2. What these guys also need to realise is that they are already billing us astronomical rates for our data, the network that they are complaining about having to build is already being paid for by us. We are not an asset to be monetized and if they feel that way then we’ll simply move elsewhere.

  3. I have quite a few thoughts on how to help these operators, but it’s all just a little too late for them. They should have invested in WhatsApp and the likes when they had the chance. The should have drastically reduce their costs years ago and become more efficient businesses. But they failed to see what was happening in the market and they failed to innovate and pivot when needed.

    They have had a good ride, but it’s coming to an end. The days of telecommunication giants having the highest CEO salaries will end soon.

  4. Géraud Droster Kirjool on

    Unfortunately the only way I see any VOD service in South Africa ever becoming profitable is signing deals with these network providers. For example if any network zero rates a specific VOD platform, that it either owns or that pays them, it pretty much guarantees the success of that VOD platform.

  5. Nobody is getting anything for free. I’m still paying for my data. Is the Internet a “OTT service”? Are websites OTT? Are e-mail OTT? Why didn’t Vodacom start charging years ago for those services?

    Oh wait, they have. They call it “mobile data”! And they had quite a fun time charging for those in the beginning (and still do).

  6. Ofentse Letsholo on

    Why don’t they just bring down data prices, that’s all we want… 1Gb for R3 or R5 max 😉 no free ride indeed that way

  7. lol. saying this ignores the fact that there is a multitude of businesses who are foaming around their mouths in their rush to provide “dumb pipe” internet infrastructure.

    Dark Fibre Africa and Vumatel to name just two. And they will grow their networks. And they will have almost no issue striking deals to interconnect with each other. And the services provided over their infrastructure will be extremely popular due to affordability.

    So… What now? Think you will have a monopoly on EM spectrum forever? Think again.

    Of course I along with many other people have cautioned operators against obvious future developments before and it fell on deaf ears. I do not expect the rigid to bend. It is not in their nature.

  8. Agree.
    Would be interesting to see DFA’s response to the comment about dumb pipes.
    It’s like saying if you build roads you should also provide the taxis and buses that run on it. What happens to competition and the small entrepreneur?

  9. These “dumb pipes” just think they can have their “bread buttered on both side” and the S.A. market belongs to them.” And of course this has all come about because they have been placed under pressure to reduce rates. It is quite apparent panic has set in and their pipe may just burst!

  10. “The solution, he believes, could be to go to WhatsApp and other
    providers of voice-over-IP and other solutions and offer to provide them
    with a guaranteed quality of service”

    Some serious backtracking from VC! The secret, old chap, is not to provide quality of service to Whatsapp, but to your customers.

  11. I’m with Joe on this one. DFA and Vumatel have found a niche that works so good luck to them. Ironically Vodacom are already making use of these “dumb pipes” as are most of the bigger players (Telkom to a lesser extent). A future example could be in the FTTH setup where I cannot see any point in multiple Operators each putting in their own fibres. This just screams for a dumb pipe setup (which one of the main players can also put in as long as it attracts revenues) and then the smaller players can offer VA services over these fibres. I guess what Ashraf Paruk is saying is that the Vodacom’s and MTN’s of this world need to play in the VA side of things and not just be in the pipe game but they will be using dumb pipes to achieve this.

  12. If I buy bandwidth, I’ll use it for whatever I damn well choose. The long term failure of the network operators bloated business models was inevitable. I refuse to lend weight to this nonsense by legitimising this conversion. If I want a dumb pipe, that’s all I need, and is all I will pay for. CellC seems to realize this. Kudos. And f they’re whining about having to build a network and being unable to exploit vertical markets in them, well then go buy a dung Farm and grow mushrooms.

  13. OK so here it is. Some wise words from Mr Paruk on some aspects. There seems to be a new level of maturity in some of what he says. Unfortunately, the MNOs have had such an immature management approach to anything outside their business for so long, that I believe that the third parties do not trust the MNOs, and this will takes a long time to build. MNOs have never been innovative, and mostly have relied on big third party vendors (Ericsson, Huawei, Nokia Siemens ….) to drive big innovation. As it was reported on one of the forums, Steve Jobs sums up MNOs by calling them “orifices”, and that is how difficult it is for outside parties to deal with them!! They are arrogant and act as innovation prevention units, which the OTT player have finally been able to bypass.

  14. Yes and I’m sure the operators are keen to protect the situation we have in SA where a vast number of people use mobile connections as their primary connection to the internet, but in a few years mean and lean fiber providers will cause many, many people migrate to fixed line solutions.

    They must catch a wake-up and adapt.

  15. the new dispensation is that the big fat dumb pipe will enable the transmission of e-content. The intelligence will be at the network edges. However the importance of Infrastructure competition is what will facilitate the provision of Value Added Services. This will mean LLU and free riders will be confined to the museum of antiquities. The debate should be the provision of universal All-IP converged network. Thus enabling the provision of multimedia service i.e.continuous and discrete media (Voice, video, audio, text, graphics, etc.) though this Fat Dumb Pipe. The essence of the regulators role in a converged environment, should be to encourage competition, promote innovation and protect consumer interest. This will create an environment where business and residential customers will be spoilt for choice, with high quality and affordable will create differentiation among service providers. this will help accelerate the onset of the digital information economy.

  16. One option only for telcos if they want to get serious in this space. Start Naspers style investments and make sure you own a fair chunk of whatever digital plays succeed in your broadband environment. Convergence of media and digital companies coming faster than it would seem. (Defining Whatsapp etc and telcos as digital companies)

  17. This should cause alarm bells. It only goes to show that ICASA is going to have to implement some form of “Net Neutrality” laws or before long we will only have access to the services that the network operators allow. Those services will, in turn, be the ones that pay for QoS. The rest will be available, but shaped almost out of existence, just so that the Networks are able to say they are allowing all OTT services, not just the Prefered Service.

    Taking the Road analogy that someone else made, the lack of Net Neutrality will effectively be e-Tolling for the internet. You payed for the road, but if you want to use the fast lane you have to pay again.

  18. Wait a @$%^&*^%@ minute the telecoms in SA have been extorting money hand over fist for years. Suddenly shoe on the other foot! Air time dead now I do business outside SA its far cheaper.

  19. So I should pay Eskom because I run a business successful using electricity they provide? What kind of Quid quo pro would be reasonable here honestly?
    They provide infrastructure. Their job is to provide it at a competitive price or risk going out of business.

    They’re welcome to play in other fields, but if they suck at this it’s not the consumer or competitors fault.

    They need to face the facts that their service is becoming (has become) a commodity and therefore the can no longer charge insane premiums.

    Stop crying an go build something consumers want to pay for.