EU’s Data Restriction Laws are a Big Win for Telcos

The EU have announced a proposal to enforce new data restriction laws on online chat services, such as Skype and WhatsApp, that will match those already enforced on the telecoms industry. The proposal signifies an important win for telcos.

This move finally acknowledges the irritation with internet based OTT services that European telcos have frequently registered. European telco giants, including Spain’s Telefonica and Germany’s Deutsche Telekom, have long made it clear they consider internet companies such as Google, Facebook and Microsoft to have an unfair advantage in not having the same data restriction laws that are enforced on their industry. Finally it appears that the EU are listening, but what is good news for telcos, is bad news for internet based OTT services.

Over the last few years, the growth of messaging apps has been exponential as the communications world becomes increasingly swayed from fixed line and traditional communications. Almost 2.5 billion people worldwide now have at least one messaging app installed, and Facebook dominates the market through Facebook Messenger and WhatsApp.

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Data from Contently

This exponential growth of messaging apps is demonstrated in the above graph from Contently, and the growth has only continued since then. In February of this year, WhatsApp hit 1 billion users. Due to their huge popularity, messaging apps have been steering traffic away from telcos in recent years, and as a consequence, threatening telco user bases. This is forecasted by The Wall Street Journal to get worse.

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Data from The Wall Street Journal

Telcos have understandably become unhappy with their decreased share in traffic, but they have been more vocal about their irritation with the lack of data restriction laws placed on OTT apps. Telecoms have long faced industry-specific taxes and restrictions that large technology firms have not had to abide by. Deutsche Telekom and Telefonica have had to make costly investments to update networks, which OTT messaging apps then benefit from whilst offering free services to users. These European telcos have repeatedly asked for data restriction laws to be extended to internet based communication apps, and within the next few years they look set to get their way.

The new privacy requirements are still in flux, and will face months or even years of debate before coming to fruition. However, a draft proposal has made it apparent that the EU is proposing new data restrictions on OTT messaging apps and may even force them to share a portion of their revenues from messaging services with telcos.  Some of the new privacy restrictions could include providing emergency call services and implementation of data security systems. The overall aim, according to EU executives, is to “level the playing field.” A consultation run by the European Commission discovered that actually more than three quarters of the public support the extension of restrictions onto OTT service providers.

Whilst these restrictions have been met with glee by telcos, internet companies are pushing against the proposal. In a consultation run by the European Commision, 42% of industry respondents were against new legislation. Some of the tech industry have stated that the reason for their caution is what they see as a real potential for negative knock-on effects on all new technology and innovation. Charlotte Holloway, a director from TechUK, stated to The Guardian that “it’s not just OTT messaging apps that could be affected in such a movie, but new and emerging areas such as the ‘Internet of Things’ and smart city technologies.” Another major concern is the proposed share of revenue with telcos, as even though internet companies have the lion’s share of traffic, they actually only have a fraction of communications revenue.

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Data from eMarketer

The new legislation will present quite the conundrum;  a big loss for tech companies who deploy OTT messaging apps, and a big win for telcos. However, to transform this new legislation to a win that actually assists their business, telcos must take the opportunity to deploy new native voice services, such as Dubber’s Playback, on top of their current offerings to generate new profits. These restrictions are enthusiastically supported by European telcos, but if internet giants such as Facebook, Skype and Microsoft have anything to say about it, then the rules may not become a reality. Perhaps the change to data restriction laws is just the latest event in the battle  between telcos and tech companies for the lion’s share of the communications industry…

The success of telcos in the future may be assisted by these new EU rules, however they will also need to take their own steps to survive competition with tech companies for mobile traffic and revenue. Whether they remain afloat in the ever-changing industry will largely depend upon their ability to adapt to the shift away from traditional communications. They must first accept the increased use of internet communications, and then begin to offer their own innovative services that answer increased demand for unified communications and mobile services. This would be a big step towards winning back a significant market share. These measures are especially important for UK companies following the Brexit vote: when we officially separate from the EU, UK companies will not benefit from the  protection of these new EU laws, and so will have no help in the battle against tech companies for communications based revenue.