Presentation given at the Commonwealth Forum on Trade and Technology in a COVID-19 World 25 June 2020

1. OVER THE TOP (OTT)
APPLICATIONS AND THE
INTERNET VALUE CHAIN
Dr. Christoph Stork, Dr. H. Sama Nwana, Steve Esselaar and Dr, Martin Koyabe
25 June 2020
Research
ICT
Solutions

2. 2RIS
OTTs cause falling tax
receipts
OTTs cause lower
revenues for MNOs
OTTs aren’t subject
to the same
regulations as MNOs
OTTs don’t pay taxes
Myths
Voice traffic is still growing and OTTs drive data revenues
Network investment in the last 15 years has been in faster data networks
FACTS
3
4
5 MNOs and OTTs are in different parts of the global Internet value chain
7 OTTs pay taxes wherever the company is incorporated
8 ICT sector is often taxed excessively
1 MNO revenues are increasing and so is VAT from airtime
9
Each segment of the Internet Value chain comes with its own risks,
opportunities, regulatory obligations and investment requirements
OTTs don’t pay for the
infrastructure they use
DATA
VOICE
2 OTT applications stimulate broadband adoption and thus economic growth and tax receipts
6 ICT regulators’ jurisdiction is limited to national boundaries
© RIS 2019
Myths vs Evidence-based facts

3. 3RIS
OTT DEFINITION

4. 4RIS
African Union
OTTs can be content, a service or an application that is provided to the
end-user over the public Internet.
OTT-ECS OTT-Com OTT-Content OTT-Other
Competing with ECS? Yes Potentially No No
Competing 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

5. 5RIS
OTT APPLICATIONS IN THE
INTERNET VALUE CHAIN

6. 6RIS
Internet Value chain
■Social media and OTT use benefits all segments of the Internet Value Chain
■Each segment is subject to own laws, rules and regulations and regulatory
bodies
■Each segment also comes with its own risks, investment requirements and profit
opportunities

7. 7RIS
EBITDA margin along the value chain (from audited financial statements)
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 Interface
Apple 33% 31% 31%
Samsung 24% 31% 35%
Source Esselaar & Stork, 2019b

8. 8RIS
MNO PERSPECTIVE

9. 9RIS MNO Revenues depend on many factors
■Economic factors: Demand
for mobile services as a
function of population, GDP,
exchange rates;
■Regulatory environment:
Market structure shaped by
the number of Mobile
Network Operators (MNO),
fairness of competition and
transparency and
predictability of regulations;
■Operator strategies:
Product design, response to
other operators and own
business model.
Factors impacting operator revenues

10. 10
Evolving Business Models:
Towards data-centric business models
■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
RIS
Illustrative revenue trend
2000 2005 2010 2015 2020 2025
100%70%40%30%20%
30%
60%
70%
80%
100%
Voice + SMS Data

11. 11RIS
Analogue Digital
Business model Service Connectivity
Metric Minutes and SMS Bandwidth or throughput
Cost sensitivity Distance, duration and location matter Time, distance and location insensitive
Billing
Access and usage billing: Detailed billing
systems for voice and SMS that can
distinguish between off-net / on-net,
peak / off-peak
Simple access billing
Traffic Monitoring
Detailed traffic monitoring as part of the
billing system
Usage 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
Source Esselaar & Stork, 2019b
The business models of the future are
data centric

12. 12RIS
Minutes and MB on Airtel’s Africa network
30,000
60,000
90,000
120,000
Sep-12
Mar-13
Sep-13
Mar-14
Sep-14
Mar-15
Sep-15
Mar-16
Jun-16
Dec-16
Jun-17
Dec-17
Jun-18
Dec-18
Minutes on the network
Total MBs on the network
We are still in a transitionary phase
voice traffic is still growing

13. 13RIS
MTN Revenue 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
Benin Guinea Bissau Guinea Ghana Ivory Coast Liberia
Nigeria South Africa Uganda 100 Percent Zambia Swaziland
Rwanda Botswana
The general revenue trends are positive despite
growing numbers of OTT users and OTT traffic

14. 14RIS
Revenue developments of MTN and Orange Guinea in percent of Q1 2014 revenues
0%
50%
100%
150%
200%
250%
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
Orange Guinea MTN Guinea
MNO revenues reflect a companies ability to
seize opportunities and mitigate risk

15. 15RIS
MTN 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 2H18
Benin 43% 40% 41% 31% 29% 23% 28% 10% 25% 23%
Botswana 55% 63% 55% 59% 43% 51% 54% 48% 62% 55%
Cameroon 42% 43% 38% 35% 38% 28% 31% 18% 19% 0%
Congo Brazzaville 42% 45% 44% 43% 46% 38% 40% 26% 34% 47%
Ghana 39% 36% 40% 41% 39% 43% 37% 43% 39% 36%
Guinea 26% 2% 10% -1% -15% -18% -1% 9% 5% 10%
Guinea-Bissau 24% 32% 37% 29% 28% 30% 35% 31% 34% 26%
Ivory Coast 38% 40% 37% 32% 36% 29% 35% 28% 27% 18%
Liberia 34% 14% 29% 17% 23% 8% -16% -2% 4% -25%
Nigeria 60% 57% 57% 49% 50% 41% 38% 40% 43% 44%
Rwanda 29% 28% 33% 29% 27% 30% 8% 10% 26% 32%
South Africa 33% 31% 36% 31% 31% 36% 35% 34% 35% 35%
Sudan 34% 34% 33% 36% 35% 29% 33% 37% 31% 39%
Swaziland 50% 58% 54% 52% 54% 54% 52% 46% 45% 41%
Uganda 38% 39% 37% 35% 35% 29% 32% 36% 32% 38%
Zambia 38% 42% 39% 36% 32% 32% 28% 36% 31% 31%
Regulatory impact
Stable
Up
Competition
Stable
Stable
Up
Stable
Regulatory impact
Initial gold rush is over:
EBITDA margins will be similar to other sectors

16. 16RIS Unintended consequences of regulatory interventions:
MTN invested less in broadband infrastructure in
Nigeria
■ 2016: Fine of 330 billion Naira (USD 1.67 billion)
■ December 2016 - June 2017: MTN lost 8.8 million subscribers (SIM registration)
■ 2015-2017: Central Bank alleges improper repatriation by MTN Nigeria of USD 8.1 billion
Data as % of voice revenues
Dec-17 Jun-18 Dec-18
MTN Nigeria Airtel Nigeria MTN Ghana
57%55%
50%
36%
31%
27%
19%20%
16%

17. 17RIS
TELECOM REGULATORY
PERSPECTIVE

18. 18
Changing regulatory approaches
over time
RIS
Evolving business models and technological progress also mean that regulatory tools
and institutional arrangements have to change: While the line ministry was the adequate
supervisory body for land-line monopolies, sector-specific regulators were needed as soon as
Internet Service Providers (ISPs) and mobile operators (MNOs) entered the market. The
transition to an all-digital, all-IP world means that laws, policies and regulations need to evolve
to maintain fair competition.

19. 19RIS
TAX PERSPECTIVE

20. 20RIS
Digitally delivered services ICT Services Services Goods
USD million
Share of
global
exports
USD
million
Share of
global
exports
USD
million
Share of
global
exports
USD
million
Share of
global
exports
Africa 26,790 0.9% 6,050 1.1% 118,040 2.0% 483,940 2.5%
World 2,931,400 568,250 5,845,070 19,453,362
Source: UNCTAD
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
1.7%1.8%
2.7%2.7%
3.1%
2.8%2.9%
3.1%
3.3%3.3%3.3%3.4%3.2%3.1%
3.1%
0.5%0.5%0.5%0.5%0.6%0.6%0.6%0.7%0.6%0.7%0.7%0.8%0.7%0.6%
0.6%
1.3%1.5%1.4%1.4%1.5%1.3%1.2%1.5%1.8%2%2.3%2.4%2.6%2.7%
3.7%
Industrial design
Patent
Trademark
Africa’s share in IP applications
Africa is lagging behind in digital transformation.
A forward looking approach is to embrace new
technologies and to create a business environment that
stimulates innovation.

21. 21RIS
Principle Description
Broad-based
A broad base of taxation means that a lower tax rate is required to
raise the same revenue, while sector-specific taxes distort incentives
and require higher levels of taxation to get the same revenue.
Take into account
externalities
Excise duties should be imposed on activities with negative
externalities where the objective is to lower consumption, such as
alcohol or tobacco, and should not be imposed on sectors with
positive externalities, such as telecoms.
Simple and enforceable
Taxes should be clear, easy to understand, and predictable, thereby
reducing investor uncertainty and ensuring better compliance.
Incentives for competition
& investment should be
unaffected
Higher taxes for one sector in comparison to the rest of the
economy could reduce investment in that sector.
Progressive not regressive
The tax rate should increase as the taxable amount increases.
Specific value taxes on small amounts should be avoided because
they make the poor pay more.
Source Esselaar & Stork, 2018a, based on GSMA, 2016
Best-practice principles for taxation

22. 22
Summary evaluation of best
practices principles for taxation
RIS
Broad-
based
Take into
account
externalities
Simple and
enforceable
Incentives for
competition &
investment should
be unaffected
Progressive
not
regressive
Uganda
OTT tax per day No No No No No
Mobile Money No No No No No
Excise duty on airtime No No No No No
Benin OTT tax No No No No No
Zambia
Excise duty on airtime No No No No No
VoIP No No No No No
Columbia
VAT Yes No Yes Yes No
Excise Tax No No No No Yes
Fair competition and foreign entities not paying VAT is a
legitimate concern. Countries try to address this with a Digital
Service Tax (DST). It is important that a DST in not additional to
VAT and thus slowing digital transition down.

23. 23RIS
CONCLUSION

24. 24
Conclusion
■General revenue trends are positive despite growing OTT use.
■Revenues and profitability are mainly the results of an operator’s
ability to seize revenue opportunities and mitigate risk.
■OTTs stimulate broadband demand and network investment
■The world is moving towards data centric business models.
■Policy-makers and regulators should be more concerned with
stimulating network investment into 3G+ and less with attempting
to protect out-dated business models.
■The Covid-19 pandemic highlighted the need for digital
transformation and demonstrated the efficiency gains that can be
obtained. Connectivity is paramount for that.
RIS