An ongoing consultation by the Telecom Regulatory Authority of India invites stakeholder views on the need for a single regulator for telecom, broadcasting, and digital services. India’s telecom regulator specifically proposes an extension of its authority to OTT services. This includes everyday social media, messaging, gaming, and media apps that ride atop telecommunication and internet infrastructure to reach users.
TRAI also proposes a follow-up consultation to decide on a revenue-sharing mechanism between OTTs and telcos. The regulator proposes a mechanism where applications such as WhatsApp and Skype may need to pay telcos for the traffic they generate on their networks. This will require such OTT services to upend their business models and potentially even charge consumers for services that are currently free. Mandatory revenue-sharing may also force subscription-based OTT services like Zoom and Spotify to hike their fee.
OTT regulation—an argument that fails to convince
TRAI’s agenda to regulate OTTs is perplexing. It has backtracked on its previous stance on OTT regulation. In 2020, TRAI recommended regulatory forbearance, allowing market forces to operate. It’s unclear if anything has changed since, aside from telcos spending Rs 17,875 crore at the 5G auctions in August 2022. Conversely, TRAI does not share any evidence to suggest market failure in the provision of OTT services in India. In fact, the only cited research is from 2012, before citizens’ access to broadband was democratised, and the proliferation of the digital economy as we know it.
Additionally, TRAI is a carriage regulator. In other words, it governs the network and not the content. It does not have the expertise to regulate OTT services. The regulator’s previous attempts to control business practices in TV markets, like advertisement durations, channel prices and bundling, led to prolonged litigation. The Delhi High Court is still hearing a 2013 TRAI regulation case that capped TV advertisements to 12 minutes per hour of programming. TRAI’s regulatory experience with broadcasting is a cautionary tale against intervention in business-to-business relationships. Its interconnection regulations determine commercial relationships between broadcasters and distribution networks. Between 2004 and 2020, industry stakeholders challenged 13 of 21 such regulations in courts.
The bottom line is that telcos need capital to upgrade their infrastructure and provide 5G services. And part of the reason why each telco must invest in nationwide networks is that the telecom industry has only three private players, down from 11 in 2012.
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Detrimental to Digital India
In November 2022, the Cellular Operators Association of India (COAI), a telecom industry body, proposed regulated revenue sharing between telcos and OTTs. However, telcos are also raising tariffs. They want to have their cake and eat it too – by forcing both digital services and consumers to pay them. Of course, COAI sugarcoats this and contends that regulation/revenue-sharing could fetch more money for the exchequer.
It is hypocritical that telcos seek regulatory intervention while enjoying the benefits of forbearance. TRAI took a policy decision to exercise forbearance on telecom tariffs in 2002. A 2021 study by the Competition Commission of India (CCI) found that forbearance allowed telcos to move beyond price-based competition and contest on other parameters such as data speeds, quality of service, and bundled offerings. OTT video streaming and gaming services compete on quality and diversity of content today, but a mandatory revenue-sharing mechanism could force them to compete on better telco deals.
Bargaining power in digital-telecom business interactions is already skewed in favour of telcos. OTTs cannot enter the telco market because of entry barriers like licensing and high upfront investments in infrastructure, but a telco can easily expand to competitive OTT markets. Jio, for instance, acquired rights to the Indian Premier League (IPL) and entered the highly competitive sports streaming market. Airtel and Jio are even present in the audio streaming sector as Wynk and JioSaavn. Easy entry for telcos and entry barriers for OTTs give the former a better position at the negotiation table. A mandatory revenue-sharing mechanism further tips the scale in their favour.
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Revenue-sharing is not a tested mechanism
Evidence suggests that a revenue-sharing mechanism is not in consumer interest. The South Korean government introduced the Sending Party Pays Model in 2016 and mandated the sending party – an OTT streaming or communication service – to pay for internet traffic. Data prices have increased significantly since. South Korean consumers pay almost Rs 986 for 1 GB of mobile data today, as opposed to Rs 13 in India.
Similarly, Thailand’s telecom regulator also attempted to establish a revenue-sharing framework. The regulator initially sided with telcos but backtracked after consumers and industry experts said it would increase costs and hinder economic growth. Industry experts warned that OTT services would have to pass on costs to consumers, and several players would exit the market if the regulator implemented the mechanism.
In sum, TRAI should uphold the interest of internet consumers. A revenue-sharing mechanism could increase consumer expenditure, reduce the number of digital services available to them, and negatively impact service quality. The regulator should instead adopt a holistic approach; in this case, it means market forces should be allowed to continue operating freely.
Varun Ramdas and Achyutam Bhatnagar work at Koan Advisory Group, a technology policy consulting firm. Views are personal.
This article is part of ThePrint-Koan Advisory series that analyses emerging policies, laws and regulations in India’s technology sector. Read all the articles here.
(Edited by Zoya Bhatti)