Over-the-Top

Over-the-Top (OTT) services in Latin America by Martin Sas

Introduction : OTT services providers unequally competing with traditional telecom providers ?

Over-the-Top (OTT) services in broad terms cover “any internet applications and services, which are accessible over the Internet and ride on operators’ networks offering Internet access services”1. OTT services providers are thus enabled to monetise their content and reach end-users over networks that owners and operators are excluded from these transaction2. This broad definition includes numerous kind of services, from voice calls and text messaging to video and broadcast services3. In those words, nearly all services provided on internet could be considered as OTT, if they are offered over the top layer of the network4.

With the rise of the digital economy this last decade, the growth of the OTT services has been outstanding5. Those news services however compete with the traditional telecom operators. For instance, Skype as a Voice-over-Internet-Protocol service (VoIP) or What’s app as an instant messaging service compete with the traditional operators services such as phone calls or SMS. The same is true for video-on-demand services (VODs) such as Netflix or YouTube which compete with the traditional TV broadcast6. Therefore, traditional operators are pushing for a regulation of OTT services. Indeed, telecom services providers are required to comply with many regulation on telecom services (taxation or revenue share, contributions to universal service obligation funds, telecom network investment targets/mandates, pricing regulations, and must-carry obligations) while OTT services providers are not7. The debate around the regulation of OTT services is thus opened.

The Latin American OTT regulations : Comparison among countries

        Despite the fact that they are less developed in Latin America8 than in other regions, OTT services grow fast in this market and traditional telecom operators are putted under pressure9. Therefore, LATAM government opened the discussion on the possibilities for OTT regulation. The main focus has been on OTT video content (e.g. Netflix) primarily through10. However, the strength of regulation varies from countries.

Regulation via Taxation

        Colombia was the first country, in January 2017, to regulate OTT audio-visual services through a tax reform that increased the VAT on the media and ICT sectors from 16% to 19%11.

        In Brazil, the OTT providers are subject to CONDECINE taxes which are fees imposed over commercial transactions of videos and films by the National Agency of Cinema (Ancine) 12. Netflix and others are however contesting the application of the CONDECINE taxes for OTT services. The Superior Council of Cinema (SCS) is thus discussing that application since early 201713. In addition to federal taxes, states can collect ICMS tax that applies to the supply of goods and services. The ICMS tax thus varies from state to state14.

Regulation via Taxation and Registration

        Argentina followed the LATAM trend for taxation. Nonetheless, this country pushed the regulation a step further. In December 2017, a tax reform which imposed a VAT of 21% on digital services were adopted. The VAT would apply to a wide list of digital services (download of images, text, information, video, music, and games), even though they are provided from a foreign countries15. Moreover, under the Resolution n°2814/2011 of the National Institute of Cinema and Audio-visual Arts (INCAA), OTT providers are required to register as a film distributors to the INCAA16.

Absence of Regulation

        Mexico, by contrast, did not adopted any regulation on OTT services. Furthermore, the Mexican Federal Telecommunication Institute (IFT) has considered that OTT services are excluded from the scope of the pay TV relevant market on the ground that Televisa, in this case, did not have a significant market power in the pay TV market in Mexico17.

Concerning other LATAM countries, such as Chili18, Uruguay, Paraguay and Costa Rica, the discussion on the OTT regulation is still ongoing19.

Comparison with the European Union regulation

        In the European Union, Electronic Communication Services (ECS) are regulated by the ECN Regulatory Framework directive20. This directive gives power to the national regulatory authorities (NRAs)21 that regulate ECS providers in order to promote competition and achieve the internal market22.

        In its report on OTT services23, BEREC24 addressed the question whether OTTs should be considered as ECS and fall under the Regulatory Framework directive. It concluded that the directive does not provide a clear-cut guidance of whether specific types of services fall within the ECS definition25. The application of the directive therefore relies on the appreciation of the NRAs which can varies from member states. BEREC thus called for a redefinition of ECS in order to eliminate ambiguities and blurriness around OTTs qualification and ensure harmonisation throughout the Union. Consequently, a proposal for a directive establishing the European Electronic Communication Code is currently discussed at the European Parliament and the Council of the European Union26.

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